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Shabbat Parashat Tzav 5776

Pninat Mishpat: Returning a Loan That Might Have Had Heter Iska – Part I

(excerpts from Hemdat Mishpat, rulings of the Eretz Hemdah-Gazit Rabbinical Courts)

[We will divide different elements of the ruling over two weeks and skip over other parts of the long ruling.]

Case: The plaintiff (=pl) lent $200,000 to the defendants (=def) at 12% interest annually so that they could invest it in a commercial project in the US. From 2007-9, def paid $2,000 a month (=1% a month =12% a year) to pl and then lowered payment to $1,000 a month. The project is stalled, and def have financial difficulties. Pl wants to receive the full remaining interest until 2013 ($56,000) and then wants to cancel the loan and receive the principal. Def #1 claims that the loan is payable only when they sell the business they invested in but admits that they will then have to pay in full. Def #2 argues that no heter iska was signed (although it had been planned), and it is therefore forbidden to pay interest. In any case, he is willing to swear that the investment produced losses, in which case, according to the laws of iska, they do not have to pay interest. Therefore, they should count that which was already paid as principal, which should be subtracted from the $200,000. Pl says that there was a heter iska, even though he does not find it, and says that it was discussed that this loan (as opposed to another loan/investment) is to be paid even if the main enterprise sustained losses.

Ruling: Regarding the time of the payment of the interest, def #2 did not claim that it was to be pushed off until the sale of the business. The fact that they started paying the exact amount of interest monthly strengthens the anyway preferred reading of the contract that it is to be made monthly. The money paid is thus not to be seen as payment of principal unless it was forbidden to receive interest. Regarding return of the principal, while the loan agreement states that it is when there is a sale, since they have stopped paying the interest according to schedule, pl can call for a cancelation of the loan.

At first, def #2 agreed that there was a heter iska, and only after the hearing did he submit the claim that there was not. Therefore, we should not consider his claim a definite one but one that raises questions as to whether there was a heter iska. Even if we would view def #2 as making a definite claim, we would not treat this as a forbidden loan with interest and without a heter iska. First, the Rosh (Shut 108:9) says that if one side says that the loan was done in a permitted manner and one said it was done in a forbidden manner, we accept the former claim (of course, he needs a strong claim that the money was promised). The Rama (Yoreh Deah 169:25) rules that the lender is believed that he lent the money in a permitted manner only if the payment was already made or he is in possession of collateral but not to extract payment. However, the Shach (169:79) and the Shulchan Aruch (177:12) say that the lender can even extract money based on the claim that it is permitted. Therefore, on these points, pl’s claims are accepted.

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Tzav 5776

Tzav 5776