Question
I lent twenty thousand dollars with a heter isska for three years to someone who recently passed away. Even though there is another year remaining before the loan is due, the heirs wish to pay back the loan now since under the terms of the isska the borrower must add eight percent for every year the loan is outstanding. Since the borrower held on to the loan for two years the heirs owe me three thousand two hundred dollars in addition to the principal of twenty thousand dollars. Is there any problem collecting this addition?
Answer
Before we can address your question, we have to give two introductions, one concerning the concept of heter isska and one concerning the responsibility of heirs to repay their father’s loans.
It is important to understand that a heter isska has a legal structure. While it is true that the reason for creating this structure was to enable lenders to feel secure that they will earn money from their loans in a manner that avoids the prohibition of charging interest, it is not a magic formula but a legal structure that enables the lender to achieve his goal. In order to answer your question, it is necessary to study this structure, since the answer to your question depends on the very essence of how a heter isska works. It is also important for everyone to understand how a heter isska works because all poskim maintain that one may not use a heter isska if he thinks that it is an ordinary loan and there are many poskim, including Rav Moshe Feinstein zatsal (Iggros Moshe YD 2, 62), who maintain that the heter isska is invalid if one of the parties thinks that it is an ordinary loan.
The Gemara (BM 104B) states that the structure of an isska (not a heter isska) that was created by the Rabbis is that the money that is given by the investor to the recipient is half a loan and half a deposit. This structure affects two facets: profits and responsibility. On the half that is a loan the recipient is fully liable, and no matter what happens to the money the recipient must return the exact amount he received. This, of course, is very desirable to the investor. However, the investor cannot earn any profit on this half because a lender may not charge interest. The half that is a deposit was given so that the recipient will use it to earn money for the investor. The recipient will invest the investor’s money on behalf of the investor. The investor profits from the gains but he must bear the loss if there is any, since it is the investor’s investment. Thus, the advantage to the investor on this half is that he can earn money, but the drawback is that the investor has no assurance that he will earn a profit and he is not even sure that his principal will be returned.
At the end of the sixteenth century, Rav Mendel of Cracow (known as the Maharam), based on the structure of an isska, created a structure that enables an investor to earn money on his investment in a manner that minimizes his risk and maximizes his assurance of a profit, known as a heter isska.
The structure that he created, which is still commonly used, is that the investor gives money to the recipient with the condition that they will basically share equally in the profits. By right, the profits on the half which is a loan belong to the recipient and the profits on the half that is a deposit belong to the investor, so each is entitled to half of the profits of the overall amount.
In order to minimize the risk that the investor will lose any of his principal and/or not earn the profits he desires, two conditions are attached to the isska. The first is that if the recipient wishes to claim a loss of the investor’s principal, he must bring two witnesses to verify his claim. The second condition is that the recipient agrees to pay a fixed amount called the sechum hapeshara (which is the amount the investor desires to earn on his investment) which he must pay unless he swears that half of the profits on the investment did not reach this amount. We should note that the logic of this condition is that we assume that people would rather pay than swear. This is generally the case.
Heirs must repay their father’s outstanding debts up to the amount that they inherited from him. However, if the lender does not have a proper legal (in the sense of Jewish law) loan document, beis din will not make the borrower repay if there is a reasonable suspicion that the loan was repaid. The reason beis din takes this position is because beis din always argues on behalf of orphans any claim that it is reasonable to think that their father would have made, since beis din acts as the surrogate parent of orphans (even adult orphans). In your case, since we assume that borrowers do not pay a debt before its due date, beis din will force the heirs to repay the principal, since beis din does not have a reasonable suspicion that the principal was repaid. Your question comes down to whether the heirs also must pay the eight percent yearly that their father agreed to pay.
Based on the introduction, we know that the eight percent is the sechum hapeshara and the father would have to pay this amount unless he actually swore in the prescribed manner that the investment did not earn at least sixteen percent for the two years that passed. Your question is that since the claim is no longer against your recipient but against his heirs, perhaps beis din will argue on their behalf that their father did not earn sixteen percent.
The Chasam Sofer (CM 136) was asked a similar question and he answered that indeed beis din will claim this on behalf of the heirs and therefore, the heirs need only return the principal. However, the Chasam Sofer does not address your question exactly since the question he addressed concerned a regular isska, as described by the Gemara and above, and not a loan based on the heter isska of the Maharam.
Your question was addressed by several poskim and their responses shed light on the very nature of the oath that the recipient must make in case he does not want to pay the sechum hapeshara. We should also be aware that this is a critical issue because the entire basis for the heter isska is this oath since it is this condition that enables the investor to be certain that he will earn a profit from his investment.
About two hundred years ago the Tur Ha’even (res. 45) responded that the heirs must pay the sechum hapeshara. His rationale was that when one receives money that is governed by a heter isska, he obligates himself to pay the sechum hapeshara. and only leaves himself the option to avoid paying the sechum hapeshara if he swears that the investments that he made on behalf of the investor did not earn the required amount. The heirs cannot make this oath and thus cannot take advantage of this option. Even though the reason the heirs do not swear is because they do not know the amount of profit that the investments made, the heirs are still obligated to pay the sechum hapeshara because that is the nature of the liability that their father accepted.
The Erech Shai (CM 108, 4) strongly disagrees with the Tur Haeven. He argues that this approach cannot be correct because if this is the proper understanding of the heter isska then it is forbidden to utilize a heter isska since the obligation that the recipient accepts upon himself itself constitutes forbidden ribbis. He recalls that at first the Maharam required the testimony of two witnesses that profits did not justify payment of the sechum hapeshara but the Levush (in YD 167) convinced him that inserting such a clause invalidates the entire heter isska because it is virtually impossible to produce two witnesses who can testify that profits were less than a certain amount.
The Maharam acquiesced to the Levush’s arguments and revised his heter isska to only require that the recipient take an oath that profits were less than originally projected. (The Levush does not discuss the revised heter isska.) Therefore, the Erech Shai argues that certainly one cannot understand that the condition of the heter isska is that the recipient owes the sechum hapeshara unless he takes an oath, since, based on the Levush’s arguments, the entire heter isska would then be invalid.
It is important to note that the Levush maintains that the recipient is only allowed to give the investor more than he received from him if he is not aware that he didn’t earn enough profit. If he does know, the recipient is not allowed to give more than half of the actual profits because doing so is giving forbidden interest. Also, if the investor knows that the recipient did not achieve profits that are at least double the sechum hapeshara he is not allowed to accept the full sechum hapeshara.
The Erech Shai understands that the oath that the recipient accepts under the terms of a heter isska is not a new obligation. Rather it is merely the oath that the Chachomim instituted for all partners, where one partner handles money that at least partially belongs to the other partner. The Mishna (Shevuos 45A) records that the Rabbonon instituted that a partner has the right to ask for an oath from his partner that the latter is not withholding any money that does not rightfully belong to him. The reason, according to the Erech Shai, that the obligation to swear is spelled out in the isska document is that there are two opinions in the Ramo (CM 93, 4) about whether an investor in an isska can impose such an oath on his recipient or if this oath was instituted only for partners.
According to the Erech Shai when the recipient agrees to swear if he claims that he did not achieve the profits that require him to pay the sechum hapeshara, he is just agreeing to follow the opinion that he is required by the Rabbonon to make such an oath. Since the recipient does not accept upon himself a new obligation, the agreement does not violate the prohibition of taking interest. If one follows this approach, since the heirs are not the recipients of the investor’s funds, they are not required to take an oath that profits did not reach the level that would require them to pay the sechum hapeshara. Beis din would argue in the interest of the orphans that profits may not have reached that level.
We have seen in this article that your question is a major controversy that depends on the very essence of the structure of a heter isska. There are other opinions and other important practical applications, which we will leave for the ensuing article.
