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Shabbat Parashat Shelach 5777

P'ninat Mishpat: Time of Payment of an Iska Loan part I

(based on ruling 75109 of the Eretz Hemdah-Gazit Rabbinical Courts)

Case: [A highly condensed description follows] The plaintiff (=pl) lent/invested large sums of money to the defendant (=def), a real estate developer, over the course of a few years, and was to receive approximately a 25% annual return. He used various heter iska forms to permit this (in his view). The largest sum was used to buy rights to property in a multi-million shekel project. Before the project was built, pl sold his rights back to def for 1.66 mil. shekels, which was not given but became a new loan/investment. A central document summarizing the loan/investments stated that they should be paid in the near future, without mentioning dates, and required monthly interest payments of 20,000 shekels. The big project was stopped by a court order after only a percentage of the homes were built and sold. Def slowed down and then stopped making the monthly payments. Def claims that he is unable and not required to return the loan/investment until the project is resumed. Pl demands immediate payment and claims that def has fictitiously hid all his assets.     


Ruling: We will first deal with def’s claim that the return in the investment is linked to the viability of the big project, which has not yet come to full fruition.

Beit din recognizes that, in likelihood, the great majority of the money def received from pl was used on that project. However, that is irrelevant here for several reasons. First, in none of the iska documents was there any mention of the project. Since def admits that he had other building projects at the same time, it can just as easily be considered that pl’s money is invested in those other properties. In fact, a standard heter iska, including several of the ones the sides signed, requires def to invest the money in whatever business will produce profits for pl.

Furthermore, at one point, pl was indeed invested in the project and then sold his part for cash to be paid and to serve as an investment until the time of payment. It does not make sense to, at once, sell that investment and at the same time say that the proceeds are linked solely to that very project.

It is also not true that there are no profits from the project which make def deserving at this point of any return on his investment. Def admitted that the value of the land of the project went up dramatically over this period. Therefore, pl’s investment, even if we were to say that it was linked to the project, did see profit. Even if liquidity makes it difficult for def to make the (full) payment, it does not mean that the money is not owed to pl.

Finally the heter iska employed for the largest loan/investment used the Chochmat Adam’s iska mechanism. In that format, if the recipient of the fund wants to claim that there was no profit, he must make the claim within a month, for after this time it is considered an admission that there had already been a profit that was reinvested.

[Next time we will deal with the indications of when the payment has to be paid in practice.]

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