Returning Money of an Iska Loan – part I

(based on ruling 76003 of the Eretz Hemdah-Gazit Rabbinical Courts)


Case: The plaintiff (=pl), his uncle the defendant (=def), and other family members decided to jointly, with different roles and shares, purchase and develop a plot of land that cost 2.9 million shekels. Pl and another uncle founded a company to develop the property and made the first payment of 1.9 million shekels. At a later stage, def gave them 1 million shekels, with the following conditions. The money was to accrue a 7% annual return (while no heter iska was written, the parties apparently agreed to follow the Chochmat Adam’s heter iska). Def would receive one of the apartments to be built, which would ensure the money due him. Subsequently, a municipal planning issue arose, which caused a serious delay in the project and made the money def gave unneeded at that time. Pl wants to return the money and exempt himself from the 7% return. Def refuses to receive the payment, demanding that their deal continue.

Ruling: Much of this case depends on how to categorize a deal based on (the Chochmat Adam’s) heter iska. Half of the money involved is given as a loan and half is given as an investment which the recipient is to invest on behalf of the investor. The return is the "compromise money," which represents the investor’s assumed share of the profits in lieu of proof.

P'ninat Mishpat (704)

Various Rabbis

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In general, a borrower may return a loan to the lender even against his will before the agreed time (Shulchan Aruch, Choshen Mishpat 74:2). The reason is that a loan’s due date is assumed to be for the borrower’s benefit, whereas the lender does not lose by early repayment. This ostensibly applies to a heter iska’s part that is a loan.
Regarding the investment part, the recipient is considered a worker for the investor. In that regard, a worker may back out of his work commitment without penalty (Bava Metzia 10a). This also applies to those who are working with money entrusted to them (Shulchan Aruch, CM 176:23), who can return the money before the due date. Arguably, the above is true regarding an investment with a specific timelimit, when he is a poel (a worker based on time), who can back out. However, if the limit is the end of a job, he is a kablan (contractor), who is penalized if he does not complete the project he accepted (S’ma 176:57). However, even a kablan is allowed to back out if extenuating circumstances make it necessary (Bava Metzia 77a). This is the case here, as pl was forced into a situation in which he is negatively affected by def’s investment.
On the other hand, the Shiltei Giborim claims that since the reason a borrower can return the loan early is that the loan is for his own benefit, perhaps this does not apply to an iska, where the loan includes a nice return for the lender. However, the Tumim (74:6) treats the iska as two separate parts: a loan with no return, and an investment, which can be returned for the above reason. So, first, we cannot extract money when there is an unresolved machloket on the matter. Second, the Shiltei Giborim apparently agrees that when the return is linked to a specific project that does not come to fruition, one can back out.