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