Shabbat Parashat Lech Lecha| 5767

P’ninat Mishpat

The Status of a Corporation’s Shareholders as Defendants

(based on Halacha Psuka, vol. 17 - A Condensation of Piskei Din Rabbaniim, vol. X, pp. 273-294)

Case: The plaintiff is a real estate agent who sold property to a certain man. The buyer, after acquiring the property, formed a corporation, whose assets included the said property, and subsequently died. The plaintiff claims that the buyer did not get to pay him for his services prior to his death and demands payment from the corporation, whose primary shareholders are the buyer’s inheritors, his wife and children. The defendants say that they think it is possible the buyer paid the fee and do not want to pay again out of doubt.

Ruling: In a case where there was a known obligation to pay which the plaintiff says still exists and the defendant is only unclear whether he paid, the defendant usually has to pay. However, the Shulchan Aruch (Choshen Mishpat 108:1) rules that if payment is to be taken from the inheritors of the one who was obligated, one cannot collect unless it is clear that there was no prior payment. The Rama (ibid. 69:5) adds that in recent generations the practice has become to make the inheritors swear if there are indications that the father was still obligated. Thus, if we view the orphans as litigants, they will not have to pay, but they will have to swear. In lieu of swearing, these days we redeem the oath with a payment of a third of the claim. However, if the corporation, as an entity, is the defendant, then money should be taken from its assets to pay for the assumed outstanding debt.

Rav Daichovsky, one of the dayanim, views the corporation as the legal litigant in these matters and discounts the primary shareholders’ direct involvement. The basis is the accepted business norms of society. He cites the Maharashdam’s (CM 380), broadening of the concept of kinyan situmta to a general rule that the widely accepted business practices of society become accepted as the basis for halacha as well. Those who enter into business enterprises in this climate are assumed to adopt the accepted rules of engagement. Similarly the Divrei Chayim (II, CM 26) says that a kinyan can work when widely accepted, even in regard to a davar shelo ba la'olam (an object which is not in a position to be transferred at the time of the transaction). Therefore, as society views a corporation as a separate entity, one should not view the inheritors, even as the primary shareholders, as litigants, and, therefore, the corporation should have to pay.

Rav Zimbalist, another dayan, says that the corporation does not exist as a halachic, legal entity which can stand as a litigant. Therefore, the inheritors are considered, in regard to their percentage of ownership, the defendants, and they should be required to pay only a third of the claim. Only in regard to the concept of limited liability, that the shareholders are not responsible to pay from personal funds but only from the joint assets, does a corporation have special status.

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