463. A Promissory Note for Civil Court

66:9 Let’s say that the investor wants the businessman to give him a promissory note that is binding according to the law of the land so that he can collect in civil court if the businessman defaults or dies. If they agreed verbally that the money falls under the laws of a halachic business agreement (iska) as detailed above, then he may not do so. Even if the promissory note is only on the principal, since the investor can collect all the money based on the note in his possession, even if the investment has obviously lost money, this is nevertheless prohibited. Even if the investor is pious individual, who is trusted by the businessman, it is not valid. Similarly, even if the businessman gives the investor a business contract stating that the money mentioned in the promissory note is likewise subject to the conditions of that contract, it is equally invalid. This is because there is a concern that the investor or his heirs may later hide the business agreement in an attempt to collect from the promissory note. The only ways to permit such a thing are as follows: (a) to entrust the business contract to a third party; (b) the investor can sign on the business contract, which will remain in the possession of the businessman; (c) they can write in the promissory note that it is according to the process described in the business agreement; or (d), at the very least, the witnesses are told that the promissory note is subject to the business contract. By utilizing one of these methods, one may use a promissory note, even for both the principal and the profit.

An iska document cannot be used as a dodge to permit interest on a loan; it must be legitimate that the money was put towards some business venture. If the borrower did not use the money for an actual business venture, using it instead to repay a debt or some such, then a business contract does not apply because it would be a lie. However, a case such as the following may be done: Let’s say that Reuven needs money and he has some merchandise, even in a different location. He may sell this merchandise to Shimon, even at a very low price, on the condition that Reuven may elect, if he has not yet delivered the merchandise by a certain day, that he will give Shimon a certain amount, which includes an appropriate profit for Shimon. Shimon gives Reuven the money and they perform a “kinyan sudor” (exchanging a scarf) to formally seal the deal. The kinyan sudor entails Shimon, the buyer of the merchandise, giving a part of his garment, such as a handkerchief, to Reuven. Reuven takes hold of the garment, by which act Shimon acquires Reuven’s merchandise. This is effective even in the absence of witnesses. After this, the merchandise becomes the responsibility of Shimon, the buyer.