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based on ruling 80033 of the Eretz Hemdah-Gazit Rabbinical Courts

Limits of Interest Rate for Loan with Heter Iska – part III


Beit Din Eretz Hemda - Gazit

Sivan 23 5782
Case: The plaintiff (=pl) lent 500,000 NIS to a contractor (=def) to carry out a Tama 38 project (a special plan to strengthen and improve a building in return for the right to add floors to it). They used the heter iska used by Bank Mizrachi, and the rate of interest was 18% annually plus punitive interest of $200 a day for late payment. Def paid 527,000 NIS but late, so that some interest was outstanding. Pl made a claim for 390,360 NIS with Hotza’ah Lapo’al, which def opposed, and the courts transferred the case to beit din. Pl claims that since def owed 135,000 NIS and three years have passed, def owes 61% interest plus around a quarter million dollars for the punitive interest. Def claims that since he already paid more than the principal he took, he cannot be subject to punitive interest, and that it is enough to pay 18,000 NIS for outstanding interest.

Ruling: [We have seen which parts of the interest were permitted to be paid based on the heter iska and which not.]

Is the interest payable when it is clear that the expected profits that justified the taking of "interest" based on the heter iska did not materialize? Normally, according to a heter iska, one can either swear that he did not make as much as was expected or pay the expected amount (Shach, Yoreh Deah 167:1). There are two ways to explain the payment (Brit Yehuda 38:(54)): 1. The d’mei hitpashrut (money paid in lieu of interest, based on "expected profits") are intended to allow the "borrower" to pay the full profits, and therefore even in the case of lower profits, it can be paid. 2. The d’mei hitpashrut are to exempt one from having to swear, irrespective of profits. The Pitchei Teshuva (Choshen Mishpat 108:4) cites a machloket whether the basic obligation is to pay the d’mei hitpashrut, with a possibility to get out of it with an oath or whether the oath is the basic obligation. A difference between the approaches is in the case where the borrower is replaced by inheritors, to whom the oath does not apply.

All agree that if the "lender" knows that there have been no profits, he is not permitted to take the d’mei hitpashrut (Igrot Moshe, YD II:62; Brit Yehuda 38:4). This can happen only when the loan was for a specific purpose, whose outcome can be checked. In this case, since there was a stipulation that the money would be used only for the Tama 38 project, and the project did not come to fruition, it should not be permitted to receive interest payment.

The Shulchan Aruch and Rama (YD 177:5) rule that a borrower can change the usage of the money even if there had been a stipulation, because the intent is to earn more money, not to steal (Taz ad loc. 10). Since in the heter iska used here, all of the borrower’s property and business ventures are used as liens for the loan, it is difficult to ascertain what the money should be attributed to, and therefore the d’mei hitpashrut should be paid. This applies even in cases like this in which def declared bankruptcy (Brit Yehuda 40:(22)).

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