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Shabbat Parashat Chukat 5772

P'ninat Mishpat: The Picture of Competition part I

(condensed from Hemdat Mishpat, rulings of the Eretz Hemdah-Gazit Rabbinical Courts)

Case:   The defendant (=def) photographs weddings and events. A few years ago he sought to expand his business and offered the plaintiff (=pl), a beginner photographer, to be a manager and partner, on condition of pl’s commitment not to compete with him in the future. Pl refused but did start working for def as a hired photographer. Months later, def again asked pl to be his partner, and they started the arrangement on a trial basis. Over the next two years, pl played a dominant role in the business, especially in terms of dealings with clients and suppliers. The relationship soured when def bought, against pl’s advice, expensive equipment that complicated the work, and soon thereafter pl started working on his own. Def lost money and closed the business, blaming pl’s competition in a saturated market. Pl is suing def for pay that was due to him from the time he worked with def, and def is counter-suing, claiming that money pl received was based on false pretenses, as pl had committed not to compete with def. Pl said that the second time the matter of not competing did not come up, whereas def is sure it did and says that anyway it was clear from the past that this was a condition of his. Def also claims that as a partner in the business, pl should assume some of the business’ losses.

 

Ruling:  The first question is whether one can bind himself to not compete. While one can make a condition that if he does compete, he will have to pay a sum of money, ostensibly the commitment to not compete is a kinyan devarim, a promise to do or not do an action, which is not binding (see Bava Batra 3a). Nevertheless, the Chatam Sofer (II, 9) says that an apprentice’s agreement to not compete with his master after learning the trade is binding, and failure to keep the condition is a violation of withholding compensation to a worker (i.e., the master, in his role as a teacher). The Torat Chesed (228) explains that the teacher acquires rights in the “body” of the student, which find expression in his not being free to do as he wants during his time of commitment. There are, though, those who say that one cannot bind himself not to compete (see Divrei Geonim 41:7).

In any case, if there was condition, there would be strong grounds for enforcing it or at least demanding monetary compensation for pl’s competition, but def provided no proof. While on one hand, def stated his intention for the condition from the beginning, pl initially refused to accept that condition. Even if pl was aware of def’s desires, we must apply the Shulchan Aruch’s (Choshen Mishpat 207:4) rule that if one made a transaction with certain things in mind but did not state them formally at the time of the transaction, they are not binding. While the Rama adds that if an unspoken condition is clear, it is binding, in this case, it is only clear that def wanted the condition, not that pl retracted his original opposition. Furthermore, def’s idea to preclude competition indefinitely turns the condition into an unreasonable one, which there is no reason to believe pl accepted.

[Next week we will deal with other elements of the conflict.]

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