Shabbat Parashat Haazinu 5773

P'ninat Mishpat: Friendly Buy-Out? – part I

Case:  The plaintiff (=pl) worked successfully for an Israeli hi-tech company (=IHTC). The owners of ITHC (=def), along with pl, started a similar company in America (=SCA), managed by pl, which did not work out well, for reasons that are disputed. Def told pl to return to Israel, replaced him with a different manager, and offered $68,000 to buy pl out. The parties argued about whether pl must commit to not compete with IHTC, and therefore the agreement was not carried out. Pl demands that the deal be carried through, as he already agreed to not compete. Def claim that the agreement never reached a stage of finalization and that they were not aware of the bad state of SCA until they assumed control of it. As a result, they also countersue for $68,000 for the irresponsible way pl ran the company.

Ruling: From the communications presented before beit din, it is clear that pl’s need to commit to not compete was a stumbling block in the negotiations. Pl was not able to prove that he agreed to the condition during the time that the negotiations were active. There is also evidence that the sides agreed that the buy-out would not be complete until a contract was signed, which never took place. In the absence of a signed contract, there was no action of kinyan, and therefore there was at best an oral commitment to carry out the buyout.

The gemara (Bava Metzia 48a) says that while oral agreements are not binding, the Rabbis are displeased with those who break them. When no halachically-based kinyan was done but something was done which, based on law or local practice is seen as being binding (situmta), then halacha recognizes it as well (see Bava Metzia 74a; Shulchan Aruch, Choshen Mishpat 201:1-2). The Radvaz (I:380) says that this is so even if the agreement was purely oral, if this is the practice, as it is according to Israeli law. In contrast, the Rosh (Shut 12:3) says that situmta works only by means of some sort of action, not by words alone. The Rosh’s logic is that there is a need for some extra, concrete action so that people realize that their agreement is now complete and irrevocable. Otherwise there can always be a question as to the point at which an agreement is indeed final.

In this case, though, it seems that the agreement was not final. First, there does not seem to be a point where the two sides acknowledged that all conditions necessary for the agreement were fulfilled. Second, the sides communicated that the agreement would not be binding until a contract was signed. Therefore, def is not required to go through with the buyout or pay $68,000.

[Next week we will deal with the question whether def can compete with IHTC.]

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