[Avodah] T'uM

[Zev Sero]

Chana Luntz wrote:
> RZS then wrote:
>> RMB wrotes:

>>> Wouldn't they be angry about not getting as much forewarning as the 
>>> store could have risked?

>> But did Avi have the right to give such warning?  Presumably 
>> at that point he still thought he had a chance of turning his 
>> business around.

> Under English law, for example, there is a concept of wrongful trading -
> under which a company director can be sued for continuing to trade when
> he should not have done
> [...]    Directors may only be liable where at some
> time before the commencement of the winding up of the company, they knew
> or ought to have concluded that there was no reasonable prospect that
> the company would avoid going into insolvent liquidation."

Exactly.  Once they know that it's a lost cause they must stop trading.
But by the same token, *until* they know that, while they still think
there's a chance they can turn the business around, they must *not*
stop trading, because that would be unfair to their existing creditors.


> Whether under the law Avi was required to
> cease trading earlier than he did and hence not put M&B into difficulty,
> would be, inter alia, a judgement for the secular courts, as to whether
> his judgement not to do so was reasonable.

I think it must be presumed that, whether or not it was objectively
reasonable, he was acting in good faith; if he had already concluded
there was no hope, why would he have continued to put time and effort
into running it?   Why would he not have closed it a week earlier and
saved himself the work, not to mention the agmas nefesh?

It must be borne in mind, by the way, that entrepreneurs are by nature
optimistic -- pessimists never go into business in the first place --
so his judgment may have been impaired compared to that of an average
person.  I think (and I don't know how the courts, either in the USA
or the UK have dealt with this) that the standard used in any trial
must be, not the judgement of the proverbial Man on the Clapham Omnibus,
but that of the ordinary small businessman.  (See the first chapter of
A.P. Herbert's _Uncommon Law_.)   Thus, even if a court eventually
concludes that legally he owes the money, this should not be taken as
proof that he did a moral wrong; at worst he made an error of judgment,
and was more optimistic than an average person would have been.

 
>> Because dinei momonos depend on the intentions of the people 
>> involved; if they're doing business on the basis of secular 
>> law, or merchant law, then that becomes the din.  If they all 
>> agree that the corporation exists, then it does. 

> This is less clear, however.
> 
> Firstly, it is hard to think of case that more closely matches that of
> the gemora definition of asmachta than of people lending to or doing
> business with a limited corporation in circumstances where what they see
> is the owner of a business.  People (especially small time individuals)
> don't believe the person they are going to lend to or do business with
> is going to go under and they don't really think about the limited
> liability nature of the person with whom they are doing business in a
> transaction of the kind that RMB is describing.

The laws of asmachta are in general unclear to me, but it seems to me
that this can't be right.  You're saying that M&B have an asmachta,
that if they had thought there was a real chance of Avi's company
going under they would never have sold to it, and thus he should pay
them for the shirts they delivered to it.  But surely if he could say
the same thing -- had he known his efforts to turn it around would be
unsuccessful he would never have ordered the shirts in the first place;
he certainly had no need of them for his own use, and indeed he hasn't
got them -- they're in the hands of the liquidator.  So why should he
pay for them?  Surely he has an asmachta too!

What's more, is asmachta *ever* used to make someone pay money that
is now in his possession?  I have a vague notion that perhaps it's only
used to get someone out of an obligation to pay.


> In addition, the concept of a limited liability corporation depends on
> it having legal personality and existence.  If the halacha really does
> not recognise that person as a legal person, the fact that the secular
> law does would not necessarily seem to get the underlying "mind" off the
> hook. There is a concept in secular law of "piercing the corporate veil"
> where in certain circumstances (usually fraud), the courts will look
> beneath the corporate entity to the directors behind it.  It does not
> seem to me to be so straightforward that the halacha, while recognising
> the customs of business between parties, will necessarily take the leap
> and recognise the concept of independent legal personality that
> underpins a corporation, and therefore would not require a piercing of
> the corporate veil in all cases.

I don't think it matters whether the LLC has a "real" existence under
halacha.  Secular law must speak of a corporate veil and of piercing it
(which AFAIK is only ever done in the case of bad faith), because in
secular law a company really is a separate person.  What I'm proposing
is not that because the law recognises it therefore the halacha does,
but that because the parties to the transaction have all agreed to
*pretend* that the company exists, and to act *as if* it exists, then
the halacha joins in that pretense.  IOW having agreed to the rules of
the game, they can't stop playing when it becomes inconvenient to them;
the other parties have the right to expect that they will keep playing.
When M&B Shirts Pty Ltd delivered the shirts to Avi's shop rather than
his home, and addressed the invoice to Avi Enterprises Pty Ltd instead
of to Mr Avraham Ben-Terach, they agreed that they would pretend Avi
himself had nothing to do with the transaction; they can't now expect
him to pay.  And I contend that this is so *even if* the halacha
regards the entire thing as a sham, and continues to hold Avi
personally responsible for the chametz owned by his company, and for
the Shabbat work that is done by his company, etc.

Take another example: fiat money.  All of our money today, notes as
well as coins, gets its value only from the fact that the law says it
has value, and we all agree to pretend that it does.  There is a
discussion in halacha (I recall seeing a teshuva on this from the
Chasam Sofer) over whether such money can be used for kiddushin,
pidyon haben, chilul maaser sheni, etc., and various distinctions
that can be drawn between these different purposes.  But let's take
the most machmir opinion, and say that fiat money is completely
worthless al pi halacha, chaspa be'alma; even that opinion would
agree that it's valid for paying debts, that if Avi had paid M&B
with the local currency he would no longer owe them anything, even
if they demanded payment in silver, and even if the next day the
currency collapsed into worthlessness.  Because those are the terms
on which people do business, unless they explicitly specify otherwise.


-- 
Zev Sero               Something has gone seriously awry with this Court's
zev at sero.name          interpretation of the Constitution.
                       	                          - Clarence Thomas