Shabbat Parashat Lech Lecha 5775

P'ninat Mishpat: Return of the Profits of a Joint Investment to Recover Losses

[Reuven and Shimon joined together in an investment for a certain amount of time, with Reuven giving 100 rubles and Shimon giving 200 rubles. Within that time, there were profits that were distributed among the partners. The subsequent reinvestment of the original principal was a total loss. The question is whether Reuven now has to return the profits he received so that they will have money to reinvest once again, based on the concept that “the profits are slated to support the principal.”]

There are two concepts regarding gains and losses of partners to investments which the gemara (Bava Metzia 105a) discusses. One is that if one partner wants to divide the preliminary profits while the other wants to reinvest them in the continuing investment, we side with the latter because the profits are slated to support the principal. Another is that if the one who is handling an investment lost money and continued to invest and eventually made up the losses, he cannot demand to split the initial losses but has to use the gains to fill the losses, as we say that he did so to protect his reputation as an investment partner. The Maharsha (ad loc.) says that we cannot apply the rule of being required to use the profits for the basic investment in the latter case because the rule is designed to cover his own losses with his gains, not to increase further profits.

The Shulchan Aruch and Rama (Yoreh Deah 177) disagree as to whether the idea that the handler of the investment uses the profits toward covering the losses is true only if he is silent on the matter or whether he can be forced to do so. The querying rabbi reasoned that the Shulchan Aruch does not believe that there is a broad concept that one has to keep the profits active in the investment and that actually they can be taken out. However, this is not so, as the Ran (3^rd perek of Kiddushin) says that if  a partner uses profits that he wants to extract during the operation of the partnership to marry a woman, the marriage is not valid because the profits must be kept in.

Nevertheless, in this case, Reuven does not have to give up the profits. This is because the gemara and poskim apply the concept only to cases where the money has not yet been given out. However, in a case like ours, where the two agreed to split the profits, one of them cannot demand to have it returned even when the situation arises whereby it is now needed to continue the operation of the investment.

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