A Jew who gave his friend an animal to raise so that they can split the profit [over the current value of the young animal], the law is the same as if he gave him money for business.
Similarly, if Re’uvein owes Shim’on money, but when the payment date arrives Re’uvein has no money so they makes an agreement that Shim’on wait for him some time, this also is not fixed [i.e. made permissible] by a business agreement. Rather, Re’uvein should sell to Shim’on some merchandise that he has using the method described above, Shim’on should return to him the IOU which he already had, and Re’uvein gives him a note for the merchandise which he bought from him, using the method described above. [Thereby terminating the old, defaulted, loan, and starting a business agreement.
A business agreement does not successfully make [the collection of the profit by the investor] permissible unless it truly is that way — that he took the money to do with it some business. But if one did not put the money to a business need, rather to repay a loan or the like, then the business agreement does not apply, because it’s false.
However, it can be done in this way: Such as if Re’uvein needs money and he has some merchandise even if it’s in a different place, he can sell [the merchandise] to Shim’on even at a very low price, on the condition that Reuven can choose that if he does not give (the merchandise) to Shim’on, up to a certain day, he will give him instead a certain amount — so that Reuven will have a reasonable profit). Shim’on then gives Re’uvein the money, and they make a “qinyan sudor” [a formal acceptance of taking ownership, using a scarf or other small item] to seal the agreement. Shimeon, the recipient, gives a part of his garment [serving as the sudar] to Reuven that he should hold it, and by this he acquires Reuven’s merchandise, even if there are no witnesses. Then the merchandise is the responsibility of Shim’on, the buyer.
If the investor wants the recipient to give him a simple debt contract [IOU] that is binding by civil law so that if the recipient refuses to pay or dies, it will be easier for him to collect his money by means of the [secular] courts [- he may]. If, however, they agreed verbally that the money comes under the laws of a [halachically permissible] business agreement, it is not valid. Even if the contract is only on the principal, since the investor can collect all the money using the IOU that he holds even if the investment has clearly lost, it is forbidden. Even if the investor is trusted by the recipient and he is a pious man, in any event it is not valid. Even if the recipient also gives to the investor a [halachically valid] business agreement, in which is written that the money that is mentioned in the promissory note is under the laws of a business agreement, that also is not valid, because there is reason to suspect that the investor or his heirs might afterward hide the business agreement and collect on the IOU.
There is no way to do this permissibly unless [either]:
- they pass on the business agreement to a third party [who would produce it only if the investment loses money and the investor tries to collect the full amount]; or
- the investor will himself sign on the business agreement and it remains under the control of the recipient; or
- they will write in the IOU that it is according to the terms described in the business agreement; or,
- at the very least, the witnesses will be told that the promissory note is subject to a business agreement.
With all these (different) methods (described above), even if there is included in the IOU, the principal and the profit, this is allowed.
A civil promissory note would frame the deal as a loan unless there was some way to insure that the investor is forced to accept his share of any loss.
This again ties back to the notion that control is associated with who absorbs the risk, and therefore if the funder has no risk, the money is entirely in the control of the recipient, and it’s a loan which converts any profit into interest.
מוֹדֶה אֲנִי חָתוּם מַטָּה, שֶׁקִּבַּלְתִּי מֵאֵת ר’ רְאוּבֵן וַויְינְשְׁטָאק מֵאוּנְגְוַאר סַךְ מֵאָה זְהוּבִים – אעס”וו לְהִתְעַסֵּק בְּמָעוֹת אֵלּוּ, – בְּמַאשִׁין [בַּמְכוֹנָה] שֶׁאֲנִי מַחְזִיק בִּכְפַר זאהאן עַד רֹאשׁ חֹדֶשׁ נִיסָן, הַבָּא עָלֵינוּ לְטוֹבָה, וְהָרֶוַח שֶׁיַּעֲלֶה לְעֵרֶךְ מָעוֹת אֵלּוּ, לְאַחַר נִכְיוֹן כָּל הַהוֹצָאוֹת, יִהְיֶה מֶחֱצָה שֶׁלִּי וּמֶחֱצָה לְר’ רְאוּבֵן הַנִּזְכָּר לְעֵיל, וְכֵן חַס וְשָׁלוֹם הַהֶפְסֵד יִהְיֶה חֵלֶק כְּחֵלֶק. וּמִיָּד בְּרֹאשׁ חֹדֶשׁ נִיסָן, הַבָּא עָלֵינוּ לְטוֹבָה, אֲנִי מְחֻיָּב לְהַחֲזִיר לְר’ רְאוּבֵן הַנִּזְכָּרלְעֵיל אֶת הַקֶּרֶן עִם חֵלֶקה הָרֶוַח שֶׁלּוֹ. וְלֹא אֱהֵא נֶאֱמָן לוֹמַר הִפְסַדְתִּי אֶלָּא בְּבֵרוּר, עַל פִּי שְׁנֵי עֵדִים כְּשֵׁרִים, וְעַל הָרֶוַח לֹא אֱהֵא נֶאֱמָן כִּי אִם בִּשְׁבוּעָה. אַךְ זֹאת הֻתְנָה בֵינֵינוּ שֶׁאִם אֶרְצֶה בְּרֹאשׁ-חֹדֶשׁ נִיסָן הַבָּא עָלֵינוּ לְטוֹבָה לִתֵּן לְר’ רְאוּבֵן הַנִּזְכָּר לְעֵיל בְּעַד הַקּרֶן וְגַם בְּעַד חֵלֶק הָרֶוַח שֶׁלּוֹ סַךְ חָמֵשׁ מִדּוֹת ספִּירְט, אֲזַי אֵין לוֹ עָלַי עוֹד שׁוּם תְּבִיעָה יוֹתֵר. וְכָל דִּין תּוֹרַת נֶאֱמָנוּת לְבַעַל הַשְּׁטָר, אַף לְאַחַר זְמַן הַפֵּרָעוֹן. וְקִבַּלְתִּי שְׂכַר עֲמָלִי:שמעון בלומנטאהל, אונגואר י”א תשרי תרל”א לפ”קבפנינו עדים:. לוי בלוישטין, יהודה הלוי טויב
I, the undersigned, acknowledge that I received from R’ Reuven Weinstock of Ungvar, 100 gold coins to conduct business with this money, with the equipment I have in the village of Zahan, until Rosh Chodesh Nissan (may it come to us for good). The profit that comes from this principal after deducting all expenses, will belong half to me and half to R’ Reuven the aforementioned. Also if, Heaven forbid, there are any losses, will be divided by the same proportions.
Immediately on the arrival of Rosh Chodesh Nissan (may it come to us for good), I am obligated to return to R’ Reuven the aforementioned, the principal with his share of the profits.
I will not be believed to say I lost [some of the principal], except if confirmed by two trusted witnesses. On the profit I will not be believed, except under oath.
Yet this, we set a condition between us, that if I wish on Rosh Chodesh Nissan (may it come to us for good) to give to R’. Reuven the aforementioned, instead of the principal and also instead of his share of the profits, five measures of spirit [distilled, high purity alcohol], and in that case he would have no [other] claim on me.
All the Torah laws of trusting [the statements of] the owner of this agreement apply, even after its due date.
I received the wage for my f[future] efforts.
Shim’on Blumenthal, Ungvar, Tishrei 21, 5631
[Signed] in our presence, the witnesses: Levi Blaustein, Yehudah Taub, the Levite
מוֹדֶה אֲנִי חָתוּם מַטָּה שֶׁקִּבַּלְתִּי לְיָדַי מֵאֵת ר’ רְאוּבֵן הוֹרְוִיץ מֵאוּנְגְּוַאר סַךְ מֵאָה זְהוּבִים אעס”וו בְּתוֹרַת עִסְקָא לַחֲצִי שָׁנָה מִיּוֹם דִּלְמַטָּה, וְהִתְחַיַּבְתִּי אֶת עַצְמִי שֶׁכָּל סְחוֹרָה טוֹבָה שֶׁתְּהֵא נִרְאֵית בְּעֵינַי שֶׁהִיא הַיּוֹתֵר קְרוֹבָה לְהַרְוִיח בָּהּ, מְחֻיָּב אֲנִי לִקְנוֹת בְּעַד סַךְ הַנִּזְכָּר לְעֵיל, וְהֵם קוֹדְמִין לִמְעוֹתַי. וְכָל הָרֶוַח שֶׁיִּתֵּן ה’ לְיָדַי מֵאוֹתָהּ סְחוֹרָה, יִהְיֶה מֶּחֱצָההָרֶוַח לִי וְהַמֶּחֱצָה לְר’ רְאוּבֵן הַנִּזְכַּר לְעֵיל, וְכֵן חַס וְשָׁלוֹם לְהֶפְסֵד הוּא חֵלֶק כְּחֵלֶק. וּמִיָּד לְאַחַר כְּלוֹת חֲצִי שָׁנָה מִיּוֹם דִּלְמַטָּה אֲנִי מְחֻיָּב לְהַחֲזִיר לְר’ רְאוּבֵן הַנִּזְכַּר לְעֵיל אֶת הַקֶּרֶן וְגַם חֲצִי רֶוַח שֶׁלּוֹ, וְלֹא יְהֵא לִי נֶאֱמָנוּת לוֹמַר הִפְסַדְתִּי אֶלָּא עַל פִּי שְׁנֵי עֵדִים כְּשֵׁרִים, וְעַל הָרֶוַח לֹא אֱהֵא נֶאֱמָן, רַק בִּשְׁבוּעָה. וְאוּלָם תְּנַאי הָיָה בֵּינֵינוּ שֶׁאִם אֶרְצֶה לִתֵּן לוֹ בְּעַד חֵלֶק רֶוַח שֶׁלּוֹ י’ זְהוּבִים, אַזַי אֵין לוֹ עָלַי שׁוּם תְּבִיעָה, כִּי הַמּוֹתָר שַׁיָּךְ לִי לְבַד אֲפִלּוּ יְבֹרַר שֶׁהָיָה הַרְבֵּה רֶוַח, וְכָל דִּין תּוֹרַת נֶאֱמָנוּת לְבַעַל הַשְּׁטָר אַף לְאַחַר זְמַן הַפֵּרָעוֹן. וְכָל זְמַן שֶׁלֹּא אַחֲזִיר אֶת הַמָּעוֹת הַנִּזְכָּרוֹת לְעֵיל, הֵם בְּיָדִי בְעִסְקָא בָּאֹפֶן הַנִּזְכָּר לְעֵיל.שמעון אייזנשטין, אונגוואר כ”ח שבט תרל”א לפ”קבפנינו עדים:. לוי בלוישטין, יהודה הוכברגר
A [sample] text for a business contract:
I, the undersigned, acknowledge that I received from R’ Reuven Hormitz of Ungvar, 100 gold coins under a business agreement for half a year from the date below. I have obligated myself that in any kind of good merchandise that appeals to me, and that looks most likely to profit, I am obligated to buy for the sum mentioned below, and that this [capital] takes precedence over my own money. Any profit which G-d will give to my control from that merchandise, half will be for me, and half for R’ Reuven the aforementioned. And similarly, Heaven forbid, any losses, will be divided in the same parts.
Immediately after the end of the half year from the date given below, I commit to return to R’ Reuven the aforementioned, the principal and also his half of the profits. And I will not be believed to say I lost [the principle], except by the words of two kosher witnesses. On the profit I will not be believed, unless I take an oath.
Nevertheless, we agreed together a condition, that if I want to give him instead of his share of the profits, 10 gold coins, then he will have no [other] claim on me, for the remainder [of the profit] belongs to me only, even if it is determined that there was a lot of profit.
All the Torah laws of trust with regard to [the statements of] the owner of this agreement, even apply after its collection date, and all the time that I do not return the aforementioned money which is in my hand for the agreement in the way already mentioned. I (acknowledge) that I received a wage for my efforts.
Shim’on Eisenstein, Ungvar, Shevat 28, 5631
[Signed] in our presence, the witnesses: Levi Blaustein, Yehudah Hochberger
This text is a straight implementation of se’if 66:3.
If he gave him [capital for] a business for a given length of time, and the money was delayed with him also beyond the due date, the businessman needs to give him the profit also for the [extra] time afterward. Because presumably [the capital] remains with him under the original conditions. In any case, it is better to write at the time in the investment agreement, that if the money stays with the recipient after the (agreed) time, it will be also under these conditions.
However, if the recipient buys the profit share of the investor for a certain amount, which he will be required to give afterwards this certain amount in any case, this [the deal, regardless of whether it ends up making a profit] is forbidden. Rather the recipient must have the choice.
Commenting on both this and the previous se’if…
R’ Ganzfried told us that this is the basic mechanics of the heter iska.
The worker gets a choice, whether to pay the investor a fixed sum or a share of the profits. In which case, if he chooses to pay the fixed sum, it is not prohibited as interest. He adds that this outcome is more likely, since paying a share of the profits would require taking an oath about the amount of the profit. But since he has a choice, it’s not compelled by the effective loan (discussed at the beginning of the siman) and thus permissible. Unlike if the choice were the investor / “lender”‘s, and thus could be compelled onto the worker / “borrower”.
This se’if is another variant on the case where an investor gives money for someone else to produce profit that they then split. So far we saw that if the worker stands to lose if the deal takes a net loss, he is holding that percentage of the capital for himself, and therefore it qualifies as a loan. Then, his share of the profits would qualify as interest on that loan, and prohibited. However, if he is paid for his work, then he is working for pay, and the deal is permitted.
They can also make a condition that the choice is recipient’s — that if he wants to give to the investor a such-and-such in exchange for his share of the profits, he can do this, and the rest of the profits will remain his. This way is the right one, because presumably that the recipient will not want to take an oath [given the negative view halakhah has of unnecessary oaths even if true], and will give to the investor what was agreed between them. This is [the mechanics of] the “heser iska” that we normally use. And if the recipient knows himself afterward that he did not profit or even that he took a loss, he can give to the investor the principal with the [fraction of the] profit that they agreed on together. There is prohibition in this case, because he has an obligation to take an oath, he can release himself by giving his money as per the oath.
The next halakhah provides a contrasting case.