Terminating a partnership based only upon a verbal agreement

29-9-2004 | IslamWeb

Question:

Please, bear with my email since it is long. This question is regarding a Business partnership.
I and my friend decided to do a business based on partnership. I and he did Istikhaara regarding doing the business partnership. I invested 3,000 Dhs. and my friend invested 2,500 Dhs. We began our business on 1st March 2003. We did not sign any written agreement in the beginning and the partnership was based on Verbal Agreement. As the time passed we invested money in advertisement. Since I did not have a Credit Card, my friend used his Credit Card to make the payments for the advertisements. We decided that I would invest in cash and he would invest through his Credit Card.
In the initial 3 months we only got 3 orders. So out advertisement did not pay off. So the initial three months we were in loss. Moreover, at the end of the 3rd month, my friend said that his father has told that if a business does not run in the initial 3 months than that business should be closed down. I did not agree their rationality. So on one day without even informing me in advance, my friend told me that he wanted to leave the business. At that time we had bought a computer and a fax machine. My friend took those to his house and told me to take the rest of the things. We had registered the softwares, paid for the services and the advertisements. Now he told me to take the products to your house and the rest of the things such as the softwares, etc.
At that time of splitting up, my friend told me that he does not need any money which he had invested in our Business. But I insisted, as his friend and a Muslim brother, that
"I will give you the amount which you have invested on the condition that when my business runs smoothly and that I have enough money to easily give you your investment, so that it wont have a major effect on my business without burdening myself."
He (my friend) agreed on this condition. All this was done verbally. As the time passed, I alone was running my business now and during the next 3 months, I only got 8 orders in 3 months. So making a total of 11 orders in the first 6 months of my business. Allaah poured His Mercy in the month of Ramadaan. I had the highest number of orders in that month.
Finally, I earned enough to cover the loss of the previous 3 months not for 6 months. My business began to go on the profit scale, Alhamdulillaah.
I was receiving my funds into my account which was shared with my friend since it was a joint account.
I had to close my bank account which my friend also had access to because one day my friend without even consulting my went to the bank and took our 300 Dhs. for his car's tires. This was during the initial period of our business. His father has given him 800 Dhs. for new tires but he wanted to buy the ones which are stylish and in fashion, and he needed 300 more. So he took that money from our account without even consulting me. Our joint account is singly joint account meaning that the other joint account holder can deposit or withdraw money with the signature of the other account holder
I closed that account and opened a single account and Alhamdulillaah, I did it at time since after a few days of its closing my friend told me that I wont give you your Bank statements since I was still using the same Post Box which we opened for our business initially. And my friend had paid for it since his father owned a business, so he was able to open it, and I couldn't. My friend told me to return his second key for the Post Box but at that time, I had opened a new account at the Bank and my funds was being transferred their. But he did got hold of one of my Banks statements and he never gave that to me even after my insistence.
As the month passed, my friend started to contact me and began asking me for his investment. I told him that according to our verbal agreement, I will give it to you only when my business is going smooth and that I have enough money to easily give you your investment without burdening myself. Actually, I had made money only that much which I agreed to give him.
I told him that if I give you your investment now, I will loose all the money in my bank and I will left with nothing. And this was not what we agreed upon earlier. I told him that I can give the money to you in installments. As the time passes. I gave him 1,000 Dhs, and later he began to call me a lot and kept on asking for the whole money. I reminded him that this was not we agreed upon. He made some excuses that he needs the money, etc. I said that I cannot help you since I will follow our agreement. He then began to argue with me and started telling me about when the business is divided, the assets are also divided. I told him that is right, but that is not we agreed upon. I told him that you even went ahead and said to me that you don't need any money. This went on for a month or so.
One day, he again started talking on dividing the assets equally. I told him that if this is the case then I don't need the softwares, etc. You can take them and I will keep the products only and pay you for those only. This was I was dividing the assets. Since earlier he had taken the computer and the fax machine with himself because he needed those. So I told him as you had taken what you needed, I will also follow your footstep and take what I need. I decided to take the products and few other registrations for Security Server, etc.
One day he came again asking for money and I told him that I have 1,000 Dhs. which I have kept to buy products. I told him that I will give him this 1,000 Dhs now. I asked him to come with my to my house. He came and then left. I was in my house taking out the money to give him, he called him and said that his father has called so he had to leave. I said alright, I can give it to you now, otherwise I have to use it to buy more products.
He said that you have to pay for all the softwares since you were using it during your business.
I emailed him the same night, all the registrations of the softwares and told him that I don't need these exactly when you took the fax machine which I needed. So this is how we will divide out business assets. I said that I will keep the products and I will pay for those only and a few other registrations which I needed for my business. I received a reply from him, and he replied as follows:
He broke our friendship on the same night when I also talked on dividing the assets and before this, my friend was burdening me with this question since months. I used his tone and way for the first time and he broke off our relationship in a minute. He said that he wanted the whole amount and not in installments.
I called him after his reply but he did not answer my call to give him the 1,000 Dhs. So this payment would have made 2,000 Dhs paid to him.
Even after his email, I was scared that what if this is all wrong and what if Allaah punishes me. I decided to pay the whole amount only after I had generated enough. I began to gather 1,000 Dhs. per funds transfer. Till I got it to 3,000 and I owed him 5,714.
After 7 months he again contacted me through email and said quote "It has been long enough now, this is the last time ill ever ask!
If you want to send me the money post it to me on P.o. Box XXXXX and ill send you the signed receipt."
I got confused as what does he want. Once he says that he does not need anything and then after 7 months he comes and says that this is the last time I am asking.
Can you please tell me what to do? His total investment was 6737.13 total, I paid 1,000 Dhs so the final amount came up to 5437.13 balance.
Now he is asking for 5737.13 Dhs. I told him that I was paying you in installment 1,000 Dhs, but you rejected it and told me that you don't need anything and you broke our friendship. Now after 7 months you appear out of nowhere and ask for the amount. I told him that if he had accepted to take the money in installments which would have been easier for me to give as agreed initially, I would have completely given all the money.
But now he is still not agreeing on installments and wants the money in one go. I told him that coming back to your business assets division, I will not pay you for the advertisements and the software registrations. I will give it to you and since these are also assets. The advertisement did not convert and he knew that very well because the only time we advertised was when we were together in the business, during the initial 3 months.
I have told him that I will pay for the products, one registration for SSL Certificate, and one for account registration.
The amount is coming to 3,088 Dhs minus the 300 Dhs which he stole from our account for his tires. Leaving it to 2,788 Dhs total.
Now, my question is that should I even pay him after he said that he does not need any money. Or Should I pay him 5437.13 Dhs or 2,788 Dhs. I only want to know that should I pay him or not. If I should pay him, what amount? Because my friend has agreed to 2,788 Dhs.
What I want is not to receive the Wrath of Allaah. Am I obliged now to pay him since I have a written proof of his that he does not need anything.
I don't have a problem with paying him, I am just worried that I might not get into a sin which will invite the Wrath of Allaah.
Please, reply as soon as possible since this is troubling me a lot.

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Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.

Establishing a business partnership is a permissible contract according to the view of the majority of the scholars and it is not considered among the obligatory contracts.

The author of Tuhfatul Habeeb, who is a Shaafi'i scholar wrote: "Each of the contracting parties can nullify the contract of partnership whenever he wishes, even just after the start of business as it is a permissible contract. This means that it is permissible for each partner to end the partnership at any time."

So, if the partners want to end the partnership, this should be after carrying an inventory about the money and assets of the company, and paying the debts that are due on the company and obtain the debts that other people or businesses owe to this company. Thereupon, the remaining money and assets should be divided among the partners according to their shares in the company. Both parties should face any loss that might occur, each according to his share.

However, if one partner wants to assume the loss of his other partner as a voluntary act and an act of kindness, then this is permissible. According to the question, we find that the partner (second party) offered as a gift whatever he deserved from the money of the company to his partner (the first party). But this donation is not effective if the donor withdraws his word before the first party obtains it. Therefore, the first party is obliged to pay to the other partner whatever share remains.

The amount of this share cannot be determined except after an inventory and paying off any debts and expenses etc… The assets of the business need to be determined by the business partners. Usually this is done by an accountant or auditor.

Allaah Knows best.