LEGAL PERSON

LEGAL PERSON , a body of men or of property which the law, in imitation of the personality of human beings, treats artificially as subject of rights and duties independent of its component parts. The classic example of a legal person is the corporation. Although the most familiar type of corporation is that engaged in business activities, history has witnessed corporations formed as the vehicle for charitable enterprises, cooperative nonprofit-making enterprises, municipal and governmental operations, and religious and social activities. For example, in the classical Roman legal system, the universitates – corporate groups which possessed common treasuries and were endowed with a legal personality separate and distinct from that of their individual members – included various municipal and religious, as well as industrial and trading, associations. The corporation has usually featured the following characteristics: a name common to the aggregate of its component individuals or properties; a life independent of the lives of its components; the possession of privileges or rights, liabilities or duties, which do not inhere in its membership as individuals; and the divorce of ownership and management, with the authority of the managers to act as the agents and representatives of the corporation being conferred, limited, and determined not by the consent of the owners but by the law itself.

Talmudic and Post-Talmudic Law

Traditional Jewish law apparently did not recognize the type of ownership implied in the idea of the corporation. Common ownership is ordinarily expressed in terms of *partnership (shuttafut; Maim. Yad, Sheluhin ve-Shuttafin 4–10; Tur. and Sh. Ar., Ḥm 157–82). The salient differences whereby the partnership may be distinguished from the corporation are: the continued existence of a partnership is dependent upon the lives of the partners or their respective heirs; the privileges, rights, liabilities, and duties associated with a partnership inhere almost directly in the individual members of the association; the manager of a partnership enterprise is construed as the agent of the component members. Although the corporation is not a juristic category in the classical sources of Jewish law, scholars have attempted, with various degrees of success, to find types of associations and proprietal arrangements in Jewish history which parallel or approximate the corporation and which may be regarded as embodiments of the concept of the legal or artificial person. The fruits of these attempts may be summarized as follows:

Hekdesh

*Hekdesh, the term for objects, animals, and money consecrated for the upkeep of the Temple precincts and for the sacrificial service therein. The administrator of this corporate body was the Temple treasurer (gizbar). All Temple properties were placed under the jurisdiction of the gizbar, at whose discretion acquisitions and sales of these properties were controlled and who was empowered to represent the interests of the Temple in litigation (Ḥag. 11a; bm 58a). Thus the typical feature of the modern corporation, the divorce of ownership and management, was the salient characteristic of hekdesh – for God was viewed as the "owner" and the gizbar the manager thereof.

On the other hand, the Temple corporation was unique in the world of commerce. Its acquisition of property was by consecration and its sales were by redemption; thus its transactions were governed by special rules. Moreover, there were numerous regulations that were inapplicable to hekdesh pos-sessions, e.g., the rules of overreaching (*ona'ah) did not apply to Temple property, so that valuable properties could be redeemed at the cost of a perutah, the smallest coin; theft of hekdesh property was not punishable by the normal legal sanctions; construction of hekdesh appurtenances was accomplished while the materials were still unsanctified, and their consecration to the Temple took place only after the construction was completed (bm 57b; bk 62b; Me'il. 14b). Hence the corporate body of Temple properties may not be regarded as a typical legal person, subject to the normal rights and duties attributed to human beings.

Benei ha-Ir

Benei ha-Ir, the name given to the municipal community in talmudic parlance. In the Talmud, the community is regarded as an aggregate of the individuals who comprise its membership. The legal definition of this aggregate is that of a partnership. Thus, no member of the community could act as a witness in matters which affected communal property; he was disqualified as an interested party. The governing body of the community, known as the "seven notables of the city" (shivah tovei ha-ir), was regarded as an agent of the citizenry, and its acts had to be ratified by the citizenry meeting as a body (bema'amad benei ha-ir; Meg. 26a).

In post-talmudic jurisprudence, the community was converted from a juridical partnership to a corporate body with numerous features characteristic of a legal person. Communal transactions were no longer regarded as those of its constituent members. Municipal ordinances (takkanot *ha-kahal) could no longer be vetoed by individual citizens; the ruling of the majority members of the governing body was binding on all members of the community. Members of the community, no longer regarded as interested parties, were accepted as witnesses in matters affecting the municipality (see Bet Yosef, Ḥm 37, notes 12 and 14; Sma, hM 156, note 6). Thus the body politic came to be clothed with an existence juridically independent of the citizens who comprised it.

Havurat Ẓedakah

Havurat Ẓedakah, the communal charity fund, which eventually evolved into a legal person. In the Talmud, the poor were construed as owners of the monies deposited in the charity fund, and the communal collectors were viewed as their agents (bk 36b). This created disadvantages for the poor, for the rule of procedure in the Talmud was that interests of indeterminate plaintiffs were not actionable (mamon she-ein lo tovin, Rashi, BK 93a). As in the case of benei ha-ir, here, too, post-talmudic jurisprudence endowed charity funds with the character of an artificial person. An association (ḥavurah) founded for charitable purposes was regarded as somewhat akin to the modern corporation, i.e., an aggregate of property earmarked for specific purpose, with the ḥavurah construed as the means created for the advancement of this purpose. The collectors and administrators of the charitable ḥavurah were henceforth classed as its managerial staff fully authorized to conduct its affairs. This authorization included the power to bring suit in court to protect the interests of the funds under its supervision (see Beit Yosef, Ḥm 149, note 37; Netivot ha-Mishpat, Ḥm 149, Mishpat ha-Kohanim, note 46). It is quite possible that an additional example of a legal person in Jewish history may be found among the *Qumran and *Essene sects, which were based upon the renunciation of private property on the part of their members (cf. E. Koffmahn, in Biblica, 42 (1961), 433–42, and 44 (1963), 46–61).

In Modern Rabbinic Law

The problem of the corporation and its application to Jewish law has arisen in the following areas:

Interest on Loans

Inasmuch as Jewish law forbids lending and borrowing money on interest to or from Jews (see *Usury), the question has arisen whether (or how) Jewish people may conduct the normal transactions involved in banking, *insurance, and the like, and whether (or how) they may invest in such companies without violating the religious restrictions created by the participation of other Jewish people therein.

Sabbath Law

The religious restriction on labor on the Sabbath includes the prohibition of aiding and abetting, as well as deriving benefit from, the labor of others, non-Jews and, more so, Jews. How may a Jew be a stockholder in a company whose operations include Sabbath labor?

Passover Restrictions

A Jew may not eat, derive benefit from, or possess Ḥameẓ during the Passover season. How do these restrictions affect the permissibility to invest in companies which do business with ḤameḤ?

The response of the rabbinic authorities of the past one hundred years has been divided. The controversy may be summarized in the following manner. One school of rabbis is of the opinion that, inasmuch as the traditional sources do not recognize the concept of legal personality in normal commerce and trade, the corporation is, halakhically, nothing more than the conventional partnership. Hence, the rules of partnership are to be applied to the questions of loans on interest, Sabbath labor, and Ḥameẓ, and only the dispensations traditionally allowed within the framework of partnerships may be allowed with regard to corporations. These, it must be added, are highly circumscribed (e.g., Solomon Ganzfried, Kiẓẓur Shulhan Arukh 65:28 and Isaac Wasserman, in: No'am, 3 (1960), 195–203, regarding loans; Moses Feinstein, Iggerot Moshe, vol. 1, oḤ 90, regarding the Sabbath; Israel Be'eri, in: Ha-Torah ve-ha-Medinah, 11–13 (1960–62), 454–62, regarding all three questions). Another group of authorities, although in agreement with the first group in refusing to recognize the corporation as a unique and novel halakhic category, has nevertheless, through involved reasoning, found ways of avoiding the traditional restrictions and has been able to permit Orthodox Jews to invest in and conduct transactions with corporations (e.g., Ẓevi Hirsch Shapiro, Darkhei Teshuvah, yd 160:15, note 121, and M.N. Lemberger, in: No'am, 2 (1959), 33–37; 4 (1961), 251–7. Both these authorities address themselves to the problem of loans. Moses Feinstein, Iggerot Moshe, eh 7, places great stress on the extent to which management is divorced from ownership).

There is, however, a third group of modern talmudists who have taken full cognizance of the divorce of ownership from management in the corporation and of the artificiality of the corporate personality. This school of rabbis has come to the resultant conclusion that the traditional restrictions placed upon individual businessmen or partnerships with regard to the laws of usury, Sabbath rest, and Ḥameẓ, are inapplicable to the corporation (e.g., Aryeh Leib Horowitz, Harei Besamim, 115; Moses Sternbuch, Mo'adim u-Zemannim, vol. 1, p. 203f.; Joseph Rosin, Ẓafenat Pa'ne'aḥ, 184, regarding loans; David Ẓvi Hoffmann, Melammed le-Ho'il, oḤ 91, regarding ḥameẒ). Permission has also been granted to buy and sell shares in companies that do business in non-kosher foods, although an individual is forbidden by the halakhah to engage in regular transactions involving such foods (Gedaliah Felder, in: Kol Torah, 6 (1959), nos. 7–11).

In connection with the ritual requirement that one who "takes" the lulav and etrog on the holiday of Sukkot must havetitle in it in order to fulfill the commandment properly, an interesting discussion arose in the circles of the religious kibbutzim in Israel whether, and to what extent, the kibbutzim constituted a legal person and what their status was in the eyes of Jewish traditional law (cf. A. Nachlon, in: Ammudim (Ha-Kibbutz ha-Dati, 1956), nos. 123, 124; (1957), nos. 126, 128).

[Aaron Kirschenbaum]

A trend toward acknowledging the status of an association of people as a legal person was already discernible during the period of the rishonim, regarding the relationship between the members of the Jewish community and the kahal – the community council. A responsum of the Rashba evidences this trend, in a case concerning payment of taxes by community members for the community's needs. According to the responsum, when the community council took a loan to finance the needs of the community, it was entitled to make an enactment that each member of the community would pay his portion of the loan according to his financial position at the time of repayment, notwithstanding that, according to the rules of partnership, the partners' obligation to repay a loan is determined in relation to their share in the partnership at the time the loan was taken. Following this line of reasoning, the community's debt should be repaid according to the financial position of each member of the community at the time the loan was taken. In the responsum, the new enactment is explained as reflecting the difference between the private law governing a loan received by individual partners, as opposed to the public law governing a loan received by the community:

A community that borrows for public needs differs from those who borrow for themselves, for it borrows on behalf of the communal treasury on the assumption that it will pay the debt out of what is found in the treasury at the time of payment. This is the custom everywhere. Those who were poor and became wealthy or were wealthy and became poor… pay only according to the assessment made against each at the time of payment. This is our practice and it would be impossible to function otherwise … (Resp. Rashba, iii, no. 412).

This was, however, a special provision regarding the amount of the tax payable (see Bibliography, Elon (1988), 626–629; idem, (1994) 773–78), and should be viewed as only the first step towards developing a special status for a public organization as distinguished from the status of the individual.

In the Rulings of the Rabbinical Courts in Israel – Incorporation by Means of Custom

In the Israeli rabbinical courts, the question of the existence and identity of a corporation as an independent legal person was dealt with from a number of perspectives not dealt with above. In the Shikun u-Fitu'ah case (3301/717/1965, 6 pdr 315; Regional Rabbinical Court, Tel Aviv), the rabbinical court considered the validity and applicability of a corporate obligation for which its managers and workers, or those working on its behalf, bore no personal liability, all the corporate transactions being secured exclusively by the corporate assets. In addressing this question, the rabbinical court cited two views: The first view regards an encumbrance on assets as applying to the assets as such, as entities existing independent of the corporation. Accordingly, there is nothing to prevent an analogy being drawn from assets to a corporation. In other words, even if the corporation itself is not a recognized legal person, the obligation would be valid by force of the encumbrance of its assets. The second view, however, regards the encumbrance of assets as being effected exclusively by force of the guarantee, i.e., the encumbrance of the property stems from the obligation of the one undertaking the obligation (Piskei ha-Rosh, Kiddushin, 1:10; Avnei Miluim, 29:10). According to this view, a corporate obligation would only be valid if the law were to recognize the corporation as a legal person. The rabbinical court ruled that the corporate obligation must be recognized in any event, notwithstanding the uncertainty of the definition of the legal entity giving the undertaking, given that the only issue involved is the encumbrance of assets, insofar as the custom, as well as the law of the state, recognize the validity of corporate obligations (see *Minhag;*Dina de-Malkhuta Dina).

In a later decision (11183/1972, 10 pdr 273, 285ff.), the rabbinical court took another step in the same direction, holding that a corporation should be viewed as an independent legal entity, and hence the legal validity of its actions be recognized. This decision dealt with a plaintiff who had hired the services of a company to do work for him. The defendants claimed that the company's original owners had died and that they, the defendants, were merely their heirs, who had inherited ownership of the company. The rabbinical court had to decide, inter alia, if the heirs should themselves be considered the defendants, in which case there would be difficulties in recovering the debt (see *Orphan), or whether the defendant is the company itself, in its capacity as an autonomous legal entity. The rabbinical court rejected the assumption, expressed by halakhic authorities of recent generations, that "it is impossible to invent new definitions of ownership that have no Talmudic basis," relying on the halakhic principle whereby "a person who contracts [i.e., makes a stipulation] contrary to what is written in the Torah in a civil matter – his contract (stipulation) is valid" – and the halakhah accords binding force to the custom of traders (sitomta; the rabbinical court refers to Resp. Maharashdam, Ḥm, no.380; Resp. Divrei Ḥayyim, vol. 2, Ḥm no. 26; Minḥat Ḥinukh, mitzvah 42). The rabbinical court ruled that this legal entity may be viewed as an "encumbrance of property without an encumbrance of the body," and may therefore be classified as belonging to the same rubric as "the public" – a concept already recognized as a legal entity in its own right, as distinct from the individual, in Talmudic literature.

The Wilozni decision (hcj 323/81, Wilozni v. The Rabbinical Court of Appeals, 36(2) PD 733) contains an extensive discussion (per Justice Menachem Elon) of the problem of the relationship between Jewish law and another legal system within which it operates (ibid., p. 740ff). At the beginning of its discussion, the Court notes that in the rabbinical court, by dint of the doctrine of "*dina de-malkhuta dina," the law of the general legal system is given binding effect but, as a result of this doctrine, does not become part of the Jewish legal system (ibid., p. 740). In its decision the Court further stated as follows:

Sometimes Jewish law not only recognizes the binding effect of the law of another legal system, but even incorporates that law as a part of the Jewish legal system itself. The legal source by means of which this is accomplished is custom. When the people conduct their activities according to a particular legal norm, this norm is recognized, under certain circumstances, as a part of Jewish law; and the norm is sometimes effective even if contrary to a specific rule of Jewish civil law. Just as two individuals may agree in a civil law matter to contract out of a law contained in the Torah, so, a fortiori, the public may stipulate by means of a custom to opt out of an existing halakhic rule in a matter of civil law (see, for example, the responsum of Samuel de Medina (Salonika, 16^th century), Resp. Maharashdam, Ḥm No. 380). This principle is expressed in the formulation "custom overrides the law" (tj bm 7.1). I have already dealt with this in detail in the context of the incorporation of the law concerning joint ownership of property (see ca 2/66, p. 15–17; M. Elon, Ha-Mishpat ha-Ivri (1988), pp. 713 ff., 739 ff.; regarding the law governing joint ownership of property; see also under *Matrimonial Property; *Dina de-Malkhuta Dina). Custom as a legal source in Jewish law is known by the technical term sitomta (meaning "seal"), from the case precedent discussed in the Talmud concerning the customary practice of purchasing wine by affixing a seal on the barrel; it was in conjunction with that practice that the principle of the creative power and binding force and the creation of custom was developed and elaborated (tb bm 74a). The doctrine of custom served as the means for extensive developments in various areas of Jewish law, particularly regarding the laws of acquisitions and obligations …" (see *Minhag for an extensive discussion).

To substantiate its position, the Court cites examples from halakhic sources and the decisions of the rabbinical courts, inter alia the example of "incorporation of the concept of a legal person" in the rabbinical court decisions dealt with above.

bibliography:

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