Chapter 66 : Laws of Iska

Preface

If Reuven gives money to Shimon for investment purposes and they agree to divide the profits or losses of this investment, then, it is considered as if each invested half the money with each receiving the profits or losses from his respective half. Thus, the half of the money that is Shimon's responsibility is actually a loan to him to do with as he sees fit. The half that is Reuven's is considered a pikadon, i.e., an object given for safekeeping from Reuven to Shimon. The result is that Shimon expends time and effort on Reuven's half, in return for the half that is on loan to him. This is ribis. The entire transaction is called iska.

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§1

If one gives money to another for a business, stipulating that the profits be divided equally and any loss incurred also be [shared] by both of them equally, this is called iska and is prohibited. [This is] because half of the money is considered a loan to the trader (recipient) for which he is responsible and out of which he receives the profits, and for which he also incurs the loss. The other half is considered as a deposit for safekeeping, for it remains the responsibility of the investor, and he receives the profit from this half, and also incurs the loss from this half. The trader preoccupies himself and bothers with the pikadon half which belongs to the investor, only because he gives him half [the money] as a loan; this is ribis and prohibited. This transaction can be made legal by the investor giving the trader some compensation for the effort and bother [that he expends] when dealing with his share. [The compensation] should be set [beforehand], or paid immediately upon the transfer of the monies. Even a nominal payment is sufficient.

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§2

They may stipulate that the trader is not to be believed should he claim that he incurred a loss from the principal, unless [there is testimony to that effect] from valid witnesses, nor is he to be trusted regarding the profit unless he takes an oath.

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§3

They may also stipulate that the trader shall have the option, that to give the investor a fixed sum for his share of the profit, and any remainder of the profit be left with him (the trader). This method is proper because, it is likely that the trader, reluctant to take an oath [as to the amount of profit] would rather give the investor the amount stipulated between them. This is the heteir iska that is prevalent among us. And even if the trader knows afterwards that he made no profit, or even that he suffered a loss, he may give the investor the principal plus the profit that they set between them, and there is no prohibition here, for since the trader is obligated to take an oath, he may absolve himself of the oath with his money.

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§4

However, it is prohibited for the trader to buy out the share of the investor's profit for a set amount under all circumstances. But, rather, the trader must have the option.

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§5

If he gave him an iska till a certain date and the trader withheld the money beyond the repayment date, the trader [must also give him a share of] the profit for the time elapsed, because it is assumed that the money remained with him beyond the allotted time on the original terms. It is, nevertheless, preferable to add to the iska contract [the stipulation] that if the money remains with the trader beyond the [allotted] time, it will remain so on the same terms.

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§6

This is a [sample] text of an iska contract:

I, the undersigned, acknowledge that I accepted from Reb Reuven Hurwitz of Ungvar (Czechoslovakia) the amount of 100 gulden as an iska [transaction], for one-half year from the date recorded and I have obligated myself that any quality merchandise as may seem to me most likely of showing profits, I am obligated to buy with the above-mentioned sum and this money shall take precedence over mine. All profits that Hashem will grant me from the merchandise will [be divided], half the profit [going] to me and half to the above-mentioned Reb Reuven. Likewise, if, Heaven forfend, there be a loss it will be equally shared. Immediately after the end of the half-year from the date recorded below, I am obligated to repay to the above-mentioned Reb Reuven the principal as well as his half of the profit. I shall not be believed to claim: "I have suffered a loss" unless [I produce] testimony of two valid witnesses, whereas, concerning the [amount of] profit I shall not be believed except under oath. However, there was a stipulation between us that if I choose to pay him for his share of the profits, a sum of ten gulden, then, he has no claim whatever against me, for the excess shall belong to me alone even if it is established that there was a sizeable profit. All credibility [remains] with the holder of the contract even after the date of repayment. As long as I have not repaid the above-mentioned monies, they remain with me as an iska in the manner mentioned above, and I have received compensation for my labor. Ungvar-28 Shvat 5631 (1871) Shimon Eisenstein Before us witnesses: Levi Blaustein — Yehudah Hochberger

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§7

If they are pressed for time and it is impossible for them to write an iska contract, they may make all the above-mentioned stipulations orally.

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§8

If one prepays money for merchandise l0 they shall draw up an iska conract in the following manner: I, the undersigned, hereby acknowledge that I received from Reb Reuven Weinstock, of Ungvar, the amount of 100 gulden to do business with these monies through [manufacturing] equipment that I control in the village, Zahan, until the first day of the month of Nissan, may it come to us for goodness. The profit that will be realized proportional to these monies, after deducting all the expenses, shall be half mine and half to the aforementioned Reb Reuven. Likewise, if, Heaven forfend, [there be a loss], the loss incurred shall be divided equally. Immediately, on the first day of the month of Nissan may it come to us for goodness, I obligate myself to repay to the aforementioned Reb Reuven the principal plus his share of the profit. I shall not be believed to say: "I suffered a loss," unless with verification through the testimony of two valid witnesses. I shall not be believed as regards the profit unless under oath. However, there was a stipulation between us that should I want on the first of Nissan may it come to us for goodness, to give to the aforementioned Reb Reuven for the principal as well as for his share of the profit, the amount of five measures of spirits, then he shall not have any further claim against me. All credibility [remains] with holder of the contract even after the date or repayment and I have received compensation for my labor. Ungvar —11 Tishrei 5631 (1871) Shimon Blumenthal Before witnesses: Levi Blaustein — Yehudah HaLevi Taube

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§9

The investor may want the trader to give him a simple promissory note, which is binding in a civil court so that in the event the trader refuses to pay or should he die, it would be easy for him to collect his money in the civil court. Even if they agree verbally that these monies [are being given] as an iska, this does not suffice, even if the note is only for the principal. Since the investor can collect the entire sum with the note in his possession, even in the event of an established loss, such a transaction is forbidden. Even if the trader trusts the investor, and he is a righteous person,l 1 nevertheless, this does not suffice. Even if the trader will also give the investor an iska contract in which it will be written that the money mentioned in the promissory note was [given] with iska conditions, this, too, is insufficient, because there is concern that the investor or his heirs might conceal the iska contract afterwards and then collect [their money] with the note. The only permissible way [to go about] this is to deposit the iska contract with a third (disinterested) party, or the investor must sign his name on the iska contract and it must remain in the trader's hands, or they must write into the promissory note that the transaction therein is based on the transaction implicit in an iska contract, or, at the very least, they must appoint witnesses [who will testify] that the promissory note is based on the iska agreement. In all these ways, even if the promissory note includes the principal and the profit, it is permissible.

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§10

An iska contract is of no avail unless it is the truth, that he is taking the money to use it to transact business. But, if he does not take the money to transact business, but to repay some loan or the like, then, an iska contract is of no avail since it is untrue. However, it is permitted to do the following: if Reuven, who is in need of money owns certain merchandise, even if it is located in another locality, he may sell it to Shimon, even at a great discount on the condition that Reuven has the option that if it is not delivered to Shimon by a certain date, he will give him in its stead so much and so much ([an amount] which will profit Shimon accordingly), then Shimon may give the money to Reuven and they make a kinyan sudar to establish the transaction. [It is done in the following manner:] Shimon, the buyer, gives part of his garment to Reuven for Reuven to take hold of; thereby, acquiring ownership of the merchandise belonging to Reuven. [The transaction is binding] even without witnesses, and the merchandise become the responsibility of Shimon, the buyer.

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§11

Similarly, if Reuven owed Shimon money, and when the due date arrived, Reuven had no money, and they agreed that Shimon would wait a certain amount of time; here, too, an iska contract is ineffective, unless Reuven sells Shimon some merchandise that he owns, in the manner mentioned above. Shimon may return the promissory note that he formerly held on him, whereby Reuven will give him a note on the merchandise that he purchased from him in the manner mentioned above.

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§12

When a Jew gives his fellow-Jew an animal to raise, on the condition of subsequently sharing the profit, the same law applies as in the case of one who gives money for iska.