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Case Studies in Jewish Business Ethics: The Encyclopedia Salesman
Rabbi Aaron Levine

Case Studies in Jewish Business Ethics: The Encyclopedia Salesman

Rabbi Aaron Levine

Henry Blackwell is the chief marketing strategist for Galaxy Educational Enterprises, Inc. (G.E.E.). The company publishes a twenty-volume encyclopedia work geared to young teenagers as well as other educational material. Blackwell believes that money spent to discover good prospects and acquire their good will is money well spent. Let's proceed to describe Blackwell's marketing plan and the experiences he had in implementing it.

The plan begins with an ad placed in publications that reach a substantial number of professional households. The ad invites the reader to send away for a free travel brochure which is designed to make "travel in Europe fun for young teenagers." In Blackwell's mind, families whose teenage children go on European vacations either alone or with their parents are good prospects to buy an encyclopedia for their home. The ad promises delivery of the brochure within two weeks.

When Blackwell receives the responses, he uses the information at hand to ascertain the telephone number of the persons who requested the free brochure. Let's recount Blackwell's experiences with the Fisher family:

Blackwell called Sam Fisher and told him that he was following up on his request for the free brochure. Blackwell went on to say that G.E.E. asked him to conduct a neighborhood survey on local attitudes towards the adequacy of educational resources in the home and in the community:

"If you would be so kind to allow yourself and your wife to be interviewed for the survey, I'll be very happy to personally deliver the brochure at the time of the interview. Please be assured that the interview will take no more than ten minutes of your time. And, oh! Yes, I insist that you and Mrs. Fisher should be compensated $10 each for your time."

Fisher was agreeable. When Blackwell arrived at the Fisher home, he was immediately ushered into the living room. Blackwell took out a questionnaire and proceeded to ask the couple a number of questions, including inquiring about their professional status, educational level and the number of children they have in school. Finally, Blackwell came around to ask the couple if they felt that the educational resources at home and at school were adequate. Because the Fishers' answer to this question was less than a very firm yes, Blackwell felt that his cue had arrived to launch a sales pitch for the encyclopedia. Blackwell always uses a couple's answers to the survey questions to determine his negotiating strategy. In the present instance, Blackwell's instinct told him that he was dealing with an almost zero probability of making a sale, even if he offered both a deep discount from the regular price along with an installment plan to boot. The telltale sign for this pessimism was Sam Fisher's continuous reference to the "endless educational opportunities surfing the net offered." But there was still hope. Neither Mrs. Fisher nor the children were computer literate. Most confidant that he could now prove his mettle as a super salesman, Blackwell excitedly proclaimed:

"Mr. and Mrs. Fisher, I have exciting news for you. On the basis of your responses to the educational survey, you qualify for a free encyclopedia set from G.E.E. It's a $1200 value and you're going to get it for nothing."

The Fishers appeared to be happy to hear the news and listened intently as Blackwell went on to explain that G.E.E. wanted to promote sales by placing the encyclopedia set in a model home. All the company would require of them is to produce a testimonial letter regarding the tremendous educational benefit the family derived from the set. To facilitate matters, the company would be glad to write this letter, subject, of course, to the couple's approval. In addition G.E.E. would like the set to serve as a showcase for other potential customers. Accordingly, should the Fisher's get a request to look over the set, they should graciously allow the potential customer to come into their home and browse through the set. All this sounded eminently reasonable to the Fishers until Blackwell got up to the part regarding the proper display and maintenance of the set. Blackwell explained that it would be reasonable for the company to expect the Fishers to display the set in elegant fashion and protect the volumes from physical abuse. The company would therefore require the Fishers to keep the set in an appropriate bookcase, which G.E.E. would provide at a cost of $100. Just as the couple digested the bookcase requirement, Blackwell brought up one final item:

"Knowledge, as you will appreciate, becomes rapidly obsolete. To insure that you maximally benefit from our educational product, please understand that my company requires you to purchase its annual supplements. Your commitment here need not extend beyond the publication date of our next edition of the encyclopedia, which is planned in six years from now. The annual cost for the supplement is $40. Why, if you like, you can apply your $20 interview fee towards the first payment. Marvelous! Look how painless the payment schedule will be!"

At this juncture, Blackwell felt that all his efforts might be for naught as he heard Mr. Fisher raise his voice and say:

"I'm sorry, we're just not interested. As I told you, again and again, the kids can surf the net."

Blackwell's instinct told him that the situation called for high-pressure tactics:

My dear folks! Long experience has taught me that when a family rejects a phenomenal offer to acquire our encyclopedia, it's for either of three reasons: (1) the family is poor; (2) the parents are ignorant and boorish and therefore don't appreciate the value of the encyclopedia as an educational tool; and (3) the parents are indifferent to the welfare of their children.

Now, are you going to look me in the eye and tell me that you fit into one of these categories? What's all the hesitation about? . . .I'll tell what I'll do. If you pay me up front for the six annual supplements, I'll shave off $60 from the price. One hand washes the other! You save us billing costs and we'll pass on the savings to you. So do we have a deal for $220?

The Fishers shook hands on the deal. A veritable triumph for Blackwell!!

Let's begin the halakhic analysis of Blackwell's conduct with a consideration of the ethics of the approach he uses to gain entry into the Fisher home. Blackwell's primary motive in seeking entry into the Fisher home is to make a sales pitch for G.E.E.'s encyclopedia. Instead of informing the Fishers forthrightly of his commercial intent, Blackwell chooses to gain entry into the Fisher home by making use of an elaborate pretext. Blackwell's conduct manifests a conviction that the open approach will fail. People are after all reluctant to admit strangers and especially sales people into their homes. Something much more inventive is called for. By following up on the couple's request for the free brochure, Blackwell establishes immediate legitimacy for himself. Blackwell cleverly builds on the initial rapport and maneuvers to have the couple agree to a ten-minute interview. Because Blackwell chooses to conceal from the Fishers his primary motive for wanting to visit them and instead reveals to them only his secondary motive, Blackwell is guilty of a form of falsehood (sheker). This prohibition is derived from an analysis of R. Natan's dictum at Yevamot 65b. Here, R. Natan expounds that it is not only permissible to alter the truth for the sake of peace but a positive duty (mizvah) to do so. R. Natan derives this from an episode in the life of Samuel the prophet: God charged Samuel to go to Bethlehem and anoint one of Jesse's sons as King of Israel. Whereupon Samuel inquired: "How shall I go? For, if Saul hears, he will kill me."... (I Samuel 16:2). In response to Samuel's concern God created a pretext for him: . . ."You shall take a heifer with you, and you shall say, "I have come to slaughter (a sacrifice) to the Lord." (I Samuel 16:2).

R. Natan's dictum requires further elaboration. In what manner did Samuel alter the truth? True to his word, Samuel offered the sacrifice and invited the elders of Bethlehem to join him in the sacrificial feast (I Samuel 16:15). Addressing himself to this issue, R. Yom Tov Ishbili (Spain, 1270-1342) points out that Samuel's primary mission was to anoint one of Jesse's sons King of Israel. Concealing this from the inquisitive elders of Bethlehem and revealing to them only his secondary purpose in coming constitutes a form of sheker. What allowed Samuel to conduct himself in this fashion was his motive to preserve peace. Since God Himself provided Samuel with the pretext, it can be derived that it is a mizvah to alter the truth for preserving peace.1

Given Blackwell's entirely commercial intent in using a pretext to gain entry into the Fisher home, his conduct constitutes a form of sheker, and is prohibited.

Blackwell's use of his pretext violates geneivat da'at (creating a false impression) as well. The particular nuance of this prohibition that is violated here is dealt with in the talmud in connection with the account of Absalom's plot to usurp the crown from his father, King David. Absalom's plot entailed the "deceiving of three hearts."2 His elaborate scheme began by "deceiving the heart of the men of Israel."3 With the aim of both undermining King David's system of justice and ingratiating himself with the masses, Absalom mingled with those who sought adjudication of their disputes in King David's court and proclaimed: " . . . see your words are good and right; but there is none of the King's [judges] to hear you. . . Oh, who will appoint me judge in the land, and every man who has a quarrel or suit, will come to me, then I will [surely] do him justice." (II Samuel 15:3-4). In the first phase of his plan, Absalom succeeds in generating for himself a massive amount of unwarranted good will. His objective was to draw upon this good will to support his quest for the crown.

In the next phase of his plot, Absalom deceives the heart of his father, King David, as well as the heart of the Sanhedrin (the Jewish high court). The particulars are as follows:

Absalom approached his father, King David, to grant him permission to go to Hebron to fulfill a sacrificial vow he made. King David consented. (II Samuel 15:7-9). Whereupon Absalom maneuvers the King into issuing a royal order for two people of Absalom's choice to accompany him to Hebron. Absalom shows the royal order to separate groups of two, again and again, and thereby amasses an entourage consisting of two hundred associates of the Sanhedrin.4

In the last phase of his plot, Absalom disperses spies throughout the tribes of Israel and instructs them: . . ."As soon as you hear the sound of the shofar, then you shall say: 'Absalom is King in Hebron'." (II Samuel 15:10).

Absalom's religious journey to Hebron was the event that launched his public quest to usurp his father's crown. Because Absalom hid his true motive in seeking permission to go to Hebron, he was guilty of sheker. Absalom's misconduct violated geneivat da'at law as well. This is so because his pretext was a duping mechanism to secure what he never would otherwise be given. Had King David only known Absalom's primary designs, King David would not grant Absalom permission to go to Hebron. Absalom's plot would have been stillborn.

In a similar vein, Absalom's misuse of the royal order for an entourage violated geneivat da'at. Had the individuals who were approached only known Absalom's primary motive, they presumably would not have joined him. By making repeated use of the royal order, Absalom created the false impression that the Sanhedrin as an institution supported his quest for the crown. Absalom was therefore guilty of deceiving the heart of the Jewish court.

Let's apply the above nuance of geneivat da'at law to the issue at hand. Consider that on the basis of Blackwell's explicit representations, the Fishers expect to expend no more than ten minutes of their time with him. But, Blackwell uses his entry into the Fisher home as a springboard to launch his sales pitch for G.E.E.'s encyclopedia. Instead of spending only ten minutes with Blackwell, the Fishers get tied up, say, forty minutes with him.

Blackwell's geneivat da'at violation is compounded. Consider that G.E.E. advertised a free brochure that was designed to "make travel in Europe fun for young teenagers." In reality, the brochure is no more than a "cut and paste" job that culls information regarding selected European capitals from the encyclopedia work itself. The brochure does not even pass muster as a general tourist information guide let alone as a travel booklet geared to the interests of young teenagers. Let's assume, for argument sake, that the ad dashes the expectations of the reasonable man. Does the ad violate geneivat da'at law? A saving factor here is that we are not dealing with a sale transaction but rather with a free offer. R. Jacob Tam's (France, ca. 1100-1171) view is here operative. In his view, an individual is prohibited from misrepresenting to the recipient the nature of his gift. Absent misrepresentation, a benefactor need not be concerned that the recipient might take his gift to be more than it actual is.5

Following R. Jacob Tam's line, G.E.E.'s ad violates geneivat da'at law. This is so because the company explicitly misrepresents its brochure to the public. Now, if G.E.E.'s ad violates geneivat da'at, then Blackwell's pretext becomes nothing but a mechanism to dupe the Fishers into allowing him to enter their home. Specifically, had the Fishers only known that the brochure would be of no value to them, they would not have sent away for it and consequently Blackwell would have no basis to enter the Fisher home. To be sure, Blackwell got the Fishers to agree to a paid interview. But this circumstance does not make Blackwell's entry into the Fishers' home legitimate. Why? Consider that without first softening the Fishers' resistance to strangers by following up on their request for the free brochure and offering to personally deliver it, the Fishers would never have agreed to the interview. Moreover, the arrangement for the interview is a sham and hence a false pretext. This is so because the educational survey Blackwell purports to conduct is not a survey in the conventional sense, but instead is a device to pry out private information from the Fishers which he later will use to his advantage when negotiating price terms with them. What proceeds from the above is that Blackwell's entry into the Fisher home should be characterized as entry by means of deception and hence in violation of geneivat da'at.

Testimonial Letter

G.E.E.'s use of the Fisher testimonial letter in their advertising campaign may entail violation of geneivat da'at law. Consider that the value of a benefit can only be properly evaluated in light of the opportunity cost involved in acquiring it. G.E.E. advertises the price of the encyclopedia at $1200, exclusive of the bookcase and annual supplements option. But, the Fishers acquired the set for $220, including the bookcase and the right to 6 annual supplements. Since the company conceals the special deal it made with the Fishers, the reasonable man may assume that the Fishers paid full price for the set. If the reasonable man does not apply the appropriate discount to the Fisher testimonial, the company generates more good will than is warranted with the letter and hence violates geneivat da'at law.

Installment Plans

Another issue at hand is Blackwell's use of the installment plan as a means of inducing purchase of the encyclopedia set. Several aspects of Blackwell's conduct will be put to question here.

(1) Blackwell typically suggests the possibility of an installment plan only in reaction to a client's protest that the encyclopedia purchase is unaffordable. Blackwell's answer is the installment plan. Since the purchase becomes obtainable only by the customer going into debt the purchase may find halakhic disfavor. Halakhic disfavor at financing living standards by going into debt can be derived from an analysis of the sliding-scale sacrifice:

In the times of the Temple, the offering of sacrifices often formed a part of the expiation process for the transgressor seeking atonement. Sacrificial requirements in connection with certain classes of offenses allowed the penitent to offer a sliding-scale sacrifice. To illustrate the nature of the sliding-scale sacrifice, we will describe its application in connection with a particular qualifying offense, the false oath of testimony. This offense consists of A falsely swearing to B that he is not privy to information relevant to his case. The sacrificial aspect of A's atonement process requires him to offer a female sheep or goat. Should A's means not suffice, he may substitute two turtledoves or two young pigeons for the animal sacrifice. If his means do not suffice for birds, he offers a tenth of an ephah of fine flour.6

The means criterion, according to Torat Kohanim, translates into allowing the penitent to move down the sliding scale if bringing the more expensive sacrifice would put him into debt.7

Noting the means criterion, R. Aaron ha-Levi (Barcelona, 1235-1300), advances the opinion that if the poor man offers the rich man's sacrifice he does not fulfill his obligation. This ruling is rationalized on the grounds that since the Almighty shows compassion to the poor man by allowing him to bring a sacrifice according to his means, it would not be proper for the poor man to reject the gesture by incurring an expense for his sacrifice beyond his means. Sound practical advice regarding living standards should be derived from the sliding-scale sacrifice: An individual should not live beyond his means. Such conduct could lead the individual to unethical aggrandizement as a means of sustaining his habit of high living.8

Before Torat Kohanim's criterion can be applied to contemporary society, several caveats are in order. First, we take it as a given that Halakhah has no objection for a household to borrow in order to achieve the common standard of living. Second, if the concern is that incurring indebtedness results in living beyond one's means, then, the stricture should apply only when meeting the installment payments would predictably force the borrower to cut back on his accustomed standard of living. Here, there is real concern that the deprivation effect the indebtedness brings on will lead to aggrandizement as a means of maintaining one's accustomed life style.

Proceeding from the above caveats is that Halakhah has no objection per se against financing living standards by means of installment debt. Given that householders differ in respect to wealth, income, and budget priorities, a wide variety of circumstances exist where the purchase of a particular item on an installment basis does not entail for the customer living beyond his means. Given these circumstances, a salesperson need not be concerned that the item at hand is actually not affordable to the customer and his offer for an installment plan amounts to proffering the customer ill-suited advice. Pushing an installment plan on a customer who has already declared that the purchase for him is unaffordable either for cash or on an installment basis amounts, however, to proffering ill-suited advice and violates for the salesperson the lifnei iver interdict.9 Recall that some decisors conceptualize the lifnei iver interdict to consist of the mere offering of ill-suited advice.10 Whether untoward consequences result or not is immaterial as far as violation of the prohibition is concerned. Following this line, pushing an installment plan on a customer after the customer has already declared the purchase to be unaffordable to him either for cash or on a credit basis, violates lifnei iver, even if the sales pitch proves, in the final analysis, to be unsuccessful.

(2) Another problem with Blackwell's installment plan is that it may violate ribbit law. Ribbit is Halakhah's prohibition of both receiving and making interest payments.11 The prohibition applies only to inter-Jewish transactions.12 Ribbit is violated on a biblical level, called ribbit kezuzah, when the interest stipulation is made within the context of a loan transaction.13 By rabbinical enactment, the ribbit interdict is considerably expanded and extended. These extensions are called avak ribbit (lit. the dust of ribbit). An important component of these extensions is ribbit charged within the context of a commercial transaction (derekh mekah u-memkar).14

G.E.E.'s use of the installment plan violates avak ribbit law. In all its advertisements and promotions, G.E.E. quotes its price at $1200. Blackwell's offer of an installment plan calling for total payments that exceed the $1200 cash price amounts therefore to a premium for tolerating delay in payment. The plan hence violates avak ribbit law.15

G.E.E. can, however, revamp its approach to installment debt and thereby avoid violation of avak ribbit. The following permissible scenario described by R. Mosheh Isserles (Poland, 1525 or 1530-1592) provides, in the opinion of this writer, the underpinning of a valid restructuring plan.

S makes B a two tier price offer for the merchandise at hand: If B buys on credit the price will be $12, but if he buys on a cash basis, the price will be only $10. This arrangement violates avak ribbit law. But, suppose the credit transaction became legally binding before S introduces his cash discount offer. Here, the arrangement is valid.16 The rationale for this distinction is provided by R. Yaakov Yeshayahu Bloi: In the former case, the introduction of two prices into the negotiating process compels us to view the differential the credit price entails as a premium S demand for tolerating delay in payment. In sharp contrast, if the transaction became legally binding before the cash discount offer is injected, then only one price was operative in the transaction. This is the credit price. S's stipulation, then, becomes no more than an offer to assume B's debt for a price of $10.17

By logical extension, G.E.E. should be allowed to advertise that it is selling the encyclopedia set on a monthly installment plan consisting of twelve $110 payments. The ad should go on to say that anyone who legally binds himself to purchase the encyclopedia on a credit basis will be offered a reduced price of $1200 for an immediate cash payment. What the above mechanism does is to make the cash discount into nothing more than an offer to assume the customer's debt to the company for a cash payment of $1200. Avak ribbit is hence avoided.

Prepayment Discount

Another avak ribbit problem with Blackwell's price negotiation stratagem is his offer of a discount if prepayment for the annual supplements is made. Let's proceed to discuss the prepayment discount case in general terms and then proceed to apply the principles to the case at hand:

Discount sales which call for payment for the merchandise before its delivery violate avak ribbit law.18 Since, by rabbinical enactment, kesef (money) does not effect transfer for movable property, payment does not confer the buyer (B) with legal title to the merchandise. B's payment is therefore essentially a loan extended to the seller (S), which is paid back on the delivery date with merchandise having a higher market value than B's transfer.19

The prepayment-discount scheme, is however, legitimate when the transferred article is not a standard product.20 An appearance of ribbit is not evident here as S may theoretically opt to deliver an article commensurate in value to B's payment on the agreed-upon date.21 To be sure, legitimacy is not given to the above business practice unless two additional conditions are met: (1) the discount must be small.22 (This condition has generally been understood by decisors to require the discount not to exceed twenty percent of the purchasing price.23) (2) In addition, S may not expressly tell B that the discount is accorded on account of the prepayment feature of their deal.24

With the appearance of ribbit remaining intact in the standardized-product case, legitimacy is not given to the discount-prepayment scheme until yet a third condition is met. In addition to the small discount and the non-express linkage conditions mentioned above, equivalent merchandise must be in S's possession at the time of the sale. Satisfaction of this condition is met even if the merchandise is not readily accessible to S at the time of the sale.25

Why satisfaction of the third condition helps remove the ribbit interdict in the standardized-product case is explained by R. Isaac b. Sheshet Perfet (Spain, 1325-1408) as stemming from the fact that kesef effects transfer of movables by dint of pentateuchal law. Since S has equivalent merchandise in his possession at the time of the sale, B's payment effects for him legal title to the extent that his transfer is not regarded as a loan to S.26

The above criteria equip us to assess whether Blackwell's prepayment discount scheme falls within the boundaries of permissibility. Since the copies of the annual supplement for any given year will be identical, the case at hand falls into the standardized product variant discussed above. Recall that three conditions must be satisfied here to free the offer of avak ribbit. To be sure, Blackwell successfully avoids expressly linking the discount for gaining early access to the customer's money. He does this by linking the discount to the saving the company will make on annual billings. Notwithstanding that a correspondence between the billing cost saving and the discount is not evident, the express linkage to early use of the money is avoided and hence this condition is satisfied. But, the two remaining conditions are certainly not satisfied here: (1) the discount offered does not fall within less than twenty percent of the future payments due. The discount offered hence is not small; (2) Because the annual supplements do not exist now, G.E.E. cannot be said to have equivalent merchandise to give the customer at the time the pre-payment discount offer is made.

A saving factor here is that the annual supplements the Fishers agree to buy are yet non-existent. The Fishers therefore face considerable uncertainty in regard to what exactly they will be getting for their money. Blackwell, for instance, makes no representations regarding the investment G.E.E. is committed to make in producing the annual supplement. The company's investment here may vary from year to year, with the result that the quality of the annual supplements will vary too. Moreover, suppose G.E.E. goes out of business over the next six years? What then? Given these uncertainties, it is not at all clear that the cash payment the Fishers are making now should be characterized as a discount from the fair market value of the yearly supplements.

An analogous case is recorded at Bava Mezia 64a: S stipulates to B an up front price of, say, $300, for the entire milk production of his goats for the year. Given that the milk yield of the goats is not known at the time the deal is struck, B's up front payment of $300 may turn out to be either an overpayment or underpayment for the quantity of milk he actually receives. B's $300 payment should therefore not be viewed as a discount he receives for paying for the milk before delivery and hence a violation of avak ribbit law. Instead, the $300 payment should be viewed as the price S must accept in order to induce B to assume the risk the transaction entails.27

Basing himself on the aforementioned, R. Yizhak Yaakov Weisz (Israel, contemporary) defends the widespread practice among publishers to offer a pre-publication discount price. The practice does not violate avak ribbit because the one who pays up front assumes the loss in the event one or more of the volumes in the multi-volume set is either produced in defective form or is not published at all. In sharp contrast, the publisher will not realize the post publication price he sets unless he actually delivers the volume(s) in question in perfect condition. The lower pre-publication price hence should not be viewed as a discount from the post publication price. Moreover, consider that in the case at hand the publisher sets the post publication price of his work before the work is actually issued. This price should therefore be regarded as the base or reference price (yaza ha-Sha'ar) of the work only in respect to transactions that call for the publisher to deliver the work free of any defective workmanship. Since, in the case at hand, the one who pays up front agrees to accept the work irrespective of defective workmanship on the part of the publisher, the lower up front price should not be regarded as a discount from the post publication price.28

The affinity of the above case to our scenario involving a pre-payment discount offer for an encyclopedia set with annual supplements is readily apparent.

The avak ribbit problem inherent in the installment plan and pre-payment discount cases can be remedied by use of Hetter Iska. In the next section, following this case study, Hetter Iska will be taken up.

High Pressure Tactics

One final matter. Blackwell's use of high pressure tactics violates the Torah's prohibition of "... And thou shalt not lust (lo tahmod)".29

Violation of lo tahmod entails the following elements: B desires to acquire an item S owns. S refuses B's offer. As a means of overcoming S's initial resistance B increases his bid or pesters S to accept his original offer. Alternatively, B petitions S's friend to induce him to change his mind. Acquiring S's item by means of these pressure tactics violates for B the prohibition against coveting.30

A declaration on the part of S of rozeh ani (I am willing) at the time he parts with the article removes for B, according to R. Abraham b. David of Posquieres (1125-1198) the lo tahmod interdict.31 In his formulation of the interdict, however, Maimonidies (Egypt, 1135-1204) offers no such caveat.32

B's high-pressure tactics also violate the biblical prohibition of "... and thou shall not covet (lo tit'aveh)..." (Deuteronomy 5:18). The essence of this prohibition consists of the "plotting of the heart" to overcome S's initial rejection of the offer.33 The prohibition is violated even if B's effort to overcome S's rejection do not succeed.34

The prohibition against coveting is formulated in the codes in terms of the behavior of the buyer. By logical extension, posits R. Yaakov Yeshayahu Bloi, the prohibition should apply to the conduct of the seller as well. Accordingly, the use of pressure tactics to induce someone to buy an item violates for the seller lo tahmod.35

R. Bloi's line of reasoning apparently leads to the proposition that a seller (S) is prohibited from offering his customer (B) more favorable price terms as a means of overcoming B's initial rejection of the offer. But, consider that in certain instances B signals in advance that he is interested in S's product or service provided it is available at the right price. This occurs when B initiates the sales encounter or when B gives S an appointment to make a sales presentation to him. Here, there should be no objection for S to offer B more favorable price terms as a means of overcoming B's initial rejection of the offer. Analogously, if S puts up his asset for sale, there should be no objection for B to make escalating bids as a means of inducing S to agree to the sale.

Suppose, however, S barges in on B and makes a sales pitch to him. Here lo tit'avveh and lo tahmod should prohibit S from offering a more favorable price as a means of overcoming B's initial rejection of the offer. If S wants to continue his sales pitch he must first secure B's explicit permission to do so.

Let's apply the above analysis to our case study. Consider a variant of the opening vignette: Blackwell gains entry into the Brown home by means of his pretext to personally deliver the travel brochure and to conduct an educational survey. After the conclusion of his educational survey, Blackwell springs an offer to sell G.E.E.'s encyclopedia set for $1200 cash price. The Brown's reject the offer. Without first securing permission from them to make an installment plan offer, Blackwell is prohibited from continuing his sales pitch. Since Blackwell effectively barged in on the Browns with the encyclopedia offer and never received a signal from them that they were interested in buying the set provided the price was right, overcoming their initial rejection by offering more favorable price terms violates lo tit'avveh and lo tahmod. Ethical conduct requires Blackwell to seek the Browns permission before continuing with his sales pitch.

Far more troubling is the high-pressure tactics Blackwell employed in his dealings with the Fishers. Recall that Blackwell shamed the couple into changing their mind about acquiring the encyclopedia set by telling them that only "parents who are either poor stupid or care nothing about their children" reject a fantastic offer to acquire the set. Because Blackwell gained entry into the Fisher home by means of a pretext, the offer of even a price reduction to overcome the couples' rejection of his offer should be prohibited. Blackwell's use of insult and shame to achieve his ends is particularly outrageous, as this form of pressure should be prohibited even if Blackwell makes his sales pitch by invitation. Being invited to make a sales presentation suggests no more than that couple might be interested in acquiring the set provided the price is right. The invitation does not, however, signal their willingness to change their mind by being shamed or insulted. Blackwell's high-pressure tactics violate both lo tit'avveh and lo tahmod. Footnotes

1. R. Yom Tov Ishbili (Spain, 1270-1342), Ritva, Yevamot 65b. For an identical comment, see R. Samuel Eliezer b. Judah ha-Levi (Poland, 1555-1631), Maharsha, Yevamot 65b.

2. ...and because he stole three hearts, the heart of his father, the heart of the court of justice, and the heart of Israel. As it is said, so Absalom stole the heats of the men of Israel (II Samuel 15:6). Therefore three darts were thrust through him...(Mishnah Sotah 1:8).

3. II Samuel 15:6.

4. Jerusalem Talmud, Sotah 1:8.

5. R. Jacob Tam quoted in Tosafot, Hullin 94b, s.v. amar, and by R. Asher b. Jehiel (Germany, 1270-1343), Rosh, Hullin 7:18. R. Shelomo b. Jehiel Luria (Poland, 1510-1573), Yam Shel Shelomo, Hullin, ad locum claims that R. Isaac b. Jacob Alfasi (Algeria, 1013-1103, Rif) and R. Mosheh of Coucey (France, early thirteenth cen., Smag) agree with R. Tam. See also R. Abraham Joseph Ehrman, Halikhut O'lam, p. 98.

6. Leviticus 5:1-13; Keritot 10b; Maimonides (Egypt, 1135-1204), Yad, Shegagot 10:1-4.

7. Torat Kohanim 5:7.

8. R. Aaron ha-Levi (Barcelona, 1235-1300), Sefer ha-Hinnukh 123. R. Aaron ha-Levi's position here, according to R. Joseph b. Moses Babad (Poland, 1800-1872, Minhat Hinnukh, ad locum), is contradicted by Mishnah Nega'im 14:12.

9. Leviticus 19:14; Torat Kohanim 19:14; Yad, Rozeah 12:14.


11. Exodus 22:24; Mishnah, Bava Mezia; Rif ad locum; Yad, Malveh 4:2; Rosh, Bava Mezia 5:80; R. Jacob b. Asher (Toledo, 1270-1340), Tur, Yoreh De'ah 160:2; R. Joseph Caro (Safed, 1488-1575), Shulhan Arukh, Yoreh De'ah 160:1; R. Abraham Danzig (Prague, 1748-1820), Hokhmat Adam 130:1.

12. Yad, op. cit. 5:1; Tur op. cit. 159; Sh. Ar., op. cit. 159:1.

13. C.F. Hokhmat Adam 131:1-3.

14. R. Mosheh Isserles (Poland, 1525 or 1530-1592), Rema, Sh. Ar., op. cit. 161:1.

15. Bava Mezia 65a; Rif, ad locum; Yad, op. cit. 8:1; Rosh, op cit. 5:21; Tur, op. cit. 173:1; Sh. Ar., op. cit. 173:1; Hokhmat Adam, 139:1.

16. Rema, Sh. Ar., op. cit. 173:3.

17. R. Yaakov Yeshayahu Bloi, B'rit Yehudah, 22:10 and notes 24-25.

18.R. Nahman, Bava Mezia 63b; Rif ad locum; Yad, op. cit. 9:6; Rosh, op. cit. 5:11; Tur, op. cit.173:7; Sh. Ar., op. cit. 173:7.

19.Brit Yehudah, op. cit. 22:1, note 2.

20. Rema, Sh. Ar., op. cit. 173:7; Hokhmat Adam 139:14. For a variant view see R. David b. Samuel ha-Levi (Poland, 1586-1667), Turei Zahav, Sh. Ar., loc. cit., note 12.

21. R. Moses b. Naphtali Hirsch Rivkes (d. ca. 1671-2), Be'er ha-Golah, Sh. Ar., op. cit. 173, note 18.

22. B'rit Yehudah, op.cit. 23:3, note 9.

23. R. Nahum Yavrov, Divrei Soferim, p. 215.

24. Rema, loc. cit.; Hokhmat Adam, loc. cit.

25. R. Nahman, Bava Mezia 63b; Rif ad locum; Yad, loc. cit.; Rosh, loc. cit.; Tur, loc. cit., Sh. Ar., loc. cit.

26. R. Isaac b. Sheshet Perfet (Spain, 1325-1408), Responsa Ribash, quoted by R. Joseph Caro, Beit Yosef, Tur, op. cit.

27. Baraita, Bava Mezia 64a; R. Solomon b. Isaac (Troyes, 1040-1105), Rashi, loc. cit., s.v. mutar; Yad, op. cit. 9:3; Tur, op. cit., 173:9; Sh. Ar., op. cit.173:9.

28. R. Yitzhak Yaakov Weisz, Minhat Yitzhak 4:99.

29. Exodus 20:14; Deuteronomy 5:18.

30. Yad, Gezeilah 1:9; Tur, Hoshen Mishpat 359:9; Sh. Ar., Hoshen Mishpat 359:10; R. Jehiel Michel Epstein (Belorussia, 1829-1908), Arukh ha-Shulhan, Hoshen Mishpat 359:8-9.

31. R. Abraham b. David of Posquieres (1125-1198), Rabad, at Yad, loc. cit.

32. Yad, loc. cit. The dispute between Maimonides and Rabad is explained by R. Vidal Yom Tov of Toloso (Fl. 14th cent., Maggid Mishneh, Yad, ad loc.) as follows: Maimonides regards the prohibition of lo tahmod to consist of the exertion of effort to overcome B's resistance to part with his article. B's declaration of rozeh ani at the end of the process hence does not remove lo tahmod. Rabad, however, regards the prohibition to consist of acquiring B's article when he is unwilling to sell it. B's declaration of rozeh ani at the moment of transfer thus removes lo tahmod.

33. Yad, op. cit. 1:10; Maimonidies, Sefer ha-Mizvot lo ta'aseh 66; Tur, op. cit.; Sh. Ar., op.cit.; Ar. haSh., op cit. 359:8

34. See, R. Joel Sirkes (Poland, 1561-1650), Bach at Tur Hoshen Mishpat 359 note 9 and R. Joshua b. Alexander ha-Kohen Folk (Poland, 1555-1614) Sma at Sh. Ar. Hoshen Mishpat 359 note 16.

35. R. Yaakov Yeshayau Bloi, Pithei Hoshen, Hilkhot Genevah ve-Ona'ah, p. 30, note 26.


Inter-Jewish loan transactions are regulated by the laws of ribbit.1 Ribbit law prohibits both the receiving and the making of interest payments.2

As a means of avoiding violation of ribbit law, the hetter iska mechanism developed. Having its origins in the sixteenth century, development of hetter iska is credited to R. Mendel Avigdors of Cracow. The standard hetter iska document used today is, however, a variant of R. Avigdors' form. At the end of this section, a standard hetter iska form is reproduced along with a second form, which incorporates R. Avigdors' original formulation.

The basic objective of hetter iska is to restructure an otherwise loan transaction as a business partnership. In the hetter iska arrangement F furnishes capital to MP for the purpose of investing the funds in merchandise or some other business venture for the benefit of both parties. The distinctive feature of iska is that F, the financier, is a silent partner and MP, the recipient, is the managing partner. Because F plays no operational or managerial role in the business enterprise, avak ribbit law regulates the iska partnership. What follows is a description of these regulations along with the features hetter iska attaches to the partnership arrangement to make it into an attractive investment for the financier.

(1)Profit-Loss Division Constraint

Heter Iska agreement calling for the financier to reap more than fifty percent of the profits but to absorb less than fifty percent of the losses is prohibited. From the standpoint of the financier such an arrangement, in Talmudic terms, is "near to profit and far from loss" and hence violates avak ribbit law.3

While any symmetrical profit-loss division frees the iska arrangement from the "near to profit and far from loss" prohibition, transferring capital for iska purposes without any stipulation in regard to the profit-loss division confers upon the transfer a half-loan, half-deposit (hazi milveh, hazi pikkadon) character. Profits and losses in the non-express case are therefore divided equally between the financier and the managing partner.4 Conventionally, the hetter iska document today calls for the profits and losses to be divided equally between the financier and the managing partner. This form is hence dubbed hazi milveh, hazi pikkadon.

Compensation for Labor and/or Managerial Services

Avak ribbit law requires the financier to stipulate compensation for the managing partner in return for his labor and/or managerial services rendered during the iska term. The compensation requirement referred to as the sekhar tirha condition, follows from an examination of the legal status of the iska transfer. Given that responsibility for accidental loss is what differentiates the legal status of the debtor from the bailee, Halakhah confers a loan-deposit status on the iska arrangement. The portion of the capital transfer that the active partner assumes responsibility for takes on the character of a debt, while the remaining portion takes on the character of a deposit. Now, since the agreement calls for MP to invest the funds for the benefit of both himself and F, performing the managerial function gratis amounts to a disguised interest premium as a precondition for receiving the loan.5

Providing the stipulation is agreed to before the capital transfer is made, the sekkar tirha requirement may be satisfied with a nominal fee. Pre-iska term arrangement of sekkar tirha allows the nominal fee to suffice even when the iska generates an opportunity cost to the managing partner in the form of calling for him to desist from selling his own wares while merchandizing the iska.6

Making Iska into an Attractive Investment Vehicle

The innovation of hetter iska was to transform the basic iska partnership into an attractive investment from the standpoint of the financier. What follows is a description of these features:

(1) To insure his principal, F may attach conditions to the iska and stipulate that if they are not met, responsibility for losses devolves entirely on MP. Specifications of the types of investment MP may enter into with the iska and the security measures he must adopt for the iska income are examples of conditions F might want to attach to the iska. Since fulfillment of the conditions is feasible and MP may avert full responsibility for losses by adhering to them, the arrangement is not regarded from F's standpoint as "near to profit and far from loss."7 What follows is the inadmissibility of setting conditions that are either impossible to fulfill or are not usually undertaken by business people. Such stipulations on the part of F constitute a subterfuge to exact ribbit and are therefore forbidden.8 On similar grounds, R. Abraham Y. Karelitz (Israel, 1878-1953) disallows F to stipulate conditions that do not in any way relate to the iska arrangement. Violating the avak ribbit interdict on this account, for example, would be a stipulation disallowing MP from eating grapes for the entire term of the iska agreement and calling for his assumption of full responsibility for losses should he violate this condition.9

Stipulations of the permissible variety, it should be noted, do not impede the managing partner's flexibility to depart from the conditions. Since his intention is to seize upon opportunities for greater profit, his departure from the stipulation is not morally objectionable as long as he faces the consequences of failure.10

Another clause that may be inserted in the iska agreement for the purpose of securing F's principal is the stipulation that MP's claim for loss will be accepted only if it is corroborated by the testimony of designated witnesses (C and D). 11 Disqualifying the testimony of all witnesses except C and D is permissible, according to R. David b. Samuel ha-Levi (Poland, 1586-1667), as long as these designated individuals are known to be at least slightly conversant with the iska affair.12

To increase the chances of earning a profit on the capital transfer, F may stipulate that MP's claim regarding the amount of profits the iska realizes will be accepted only by means of his solemn oath (shevuah hamurah). Insofar as MP can always maintain accurate records of the iska transactions and take the solemn oath in regard to the profits realized, the solemn oath element of the agreement does not characterize it, from the standpoint of F, as "near to profit and far from loss.13

Requiring corroboration of the profit claim by means of designated witnesses violates, however, avak ribbit law. Why the designated-witness condition is admissible in connection with the loss claim but not here is explained by an examination of the strength of the counterclaim in each case. While F can positively attest to the amount of the iska transfer, he cannot with certainty dispute MP's profit report. Given the weak nature of F's counter claim in the latter case, he may not disqualify all but a few designated witnesses from validating MP's statement. Moreover, assuming the veracity of the statement, the overpayment occasioned by agreement to the designated-witness clause could be given to F in the form of a gift. Since the payment in its entirety amounts to no more than the principal, ribbit law is not violated. In contrast, any overpayment of profits to F occasioned by the designated-witness clause would violate ribbit law even if the differential were given as a gift, since the total payment F receives exceeds his principal.14

To further increase his chances of earning a profit F may stipulate that payment of an agreed-to sum, referred to as sekhar hitpashrut, would relieve MP of both his solemn-oath obligation and any further monetary obligation should F's share in the profits exceed this sum. Similarly, the iska agreement may call for F to receive a fixed sum as his share in the profits, with the proviso that MP may reduce this payment by any amount by taking a solemn oath that F's share in the profits did not amount to this sum.15 To increase the probability that F will actually realize the sekhar hitpashrut, the iska agreement may call for the attachment of all MP's business profits to the iska venture.16 This clause effectively precludes MP from opting for the solemn oath unless F's pro-rated share in the profits that all MP's ventures earned during the iska term fell short of the sekhar hitpashrut sum.

Limitations of the Hetter Iska Arrangement

The aforementioned has demonstrated that hetter iska should in no way be viewed as a subterfuge to overcome ribbit law. Rather, it is a device to structure a capital transfer as a business partnership between the financier and the recipient. Indeed, secular courts have recognized hetter iska as a document that creates a partnership rather than as a loan instrument; and for this reason legitimized a return for the financier that exceeded the prevailing usury law limit.17

Because hetter iska is not, as R. Mosheh Feinstein, (New York, 1895-1986) put it, "an incantation or charm" to permit ribbit, both parties must fully understand the nature of the partnership they are entering into.18

Another aspect of taking hetter iska seriously is to understand both its limitations and risks as an investment vehicle. What follows is a discussion of these caveats together with the application of hetter iska to the encyclopedia salesman vignette of the previous section.

The Definition of Iska

In addressing the issue of the limitation of the use of hetter iska, the most fundamental concern is how expansively does Halakhah define investment as far as the use of hetter iska is concerned.

Advancing a very broad view of an investment transaction is R. Joseph Saul Nathanson (Lemberg, 1810-1875). Classified, as iska, in his view, is a capital transfer that makes it possible for the recipient to continue his normal income-generating activities. Accordingly, R. Nathanson ruled that a religious schoolteacher might acquire capital by means of hetter iska for the purpose of paying off his debts. Without the capital transfer, the teacher would be forced to leave his job and seek a higher-paying one elsewhere. Since the transaction allows him to continue on his job it is classified as iska, with the consequence that it may call for dividends for the financier.

Also qualifying as iska, in R. Nathanson's view, is the acquisition of capital by an individual for the purpose of debt reduction to avert the forced sale of his home. Receiving dividends here is legitimized because the profit for the recipient of the transfer consists of both the avoidance of a capital loss and the circumstance that it becomes unnecessary for him to rent an apartment.19

Disputing the above view, R. Meir Arak (Poland, ca. 1925) and others conceptualize iska profit as earnings realized either from the investment of the original capital or from a capital or merchandise the recipient substitutes for it. Profits in the form of avoidance of liquidation or loss would not, in his view, legitimize the receipt of dividends on the part of the financier.20

Despite the narrow application of hetter iska proceeding from the view of R. Arak and others, this arrangement can easily accommodate the businessman desiring to acquire capital for personal needs. Towards this end, the iska arrangement would be designed in the following manner: F transfers capital to B for general iska purposes, but gives him permission to make immediate use of the funds for personal finance. To legitimize the payment of dividends to F, B transfers to F part ownership of merchandise in his possessions, equivalent in value to the original capital transfer. This merchandise substitutes for the original sum and assumes its legal character. Should B not have in his possession substitutable merchandise at the time the iska was entered into, he obligates himself to acquire merchandise during the iska term and sell it at a profit for the benefit of himself and F.21

Misappropriation of Iska Funds for Personal Use

Having received capital for the purpose of iska (business), the recipient is obligated to invest it in a commercial venture and is prohibited from making personal use of it.

The prohibition to make personal use of the iska applies even to the loan portion of the iska: Now that we say that it is a semi-loan and a semi-trust, if he [the managing partner] wishes to drink beer therewith [i.e., for the loan part] he can do so. Rava said: [No] It is therefore called iska [business] because he can say to him "I gave it to you for trading, not for drinking beer."

Talmudic decisors regard Rava's position as normative.22 Insofar as no explicit restriction was agreed to regarding the disposition of the loan portion of the iska, Rava's position requires an explanation. Addressing himself to this issue, R. Solomon b. Isaac (Rashi, Troyes, 1040-1105) regards the restriction to proceed from the implicit mandate MP is operating under to manage the iska in a manner that maximizes F's return on his investment. Since putting the loan portion of the iska at risk in the venture effectively drives MP to be more diligent in his management of the enterprise, the requirement to do so is self-evident in the agreement.23

In a similar vein, Tosafot point out that the consequence of not investing the loan in the venture is to immediately expose F's entire capital to loss, with no additional capital to draw upon if needed. The implicit mandate to operate the iska to maximize F's gain requires MP, therefore, to invest the loan portion of the iska in the venture.24

Let's take note that in respect to the trust portion of the iska, a bailor-bailee relationship exists between F and MP. MP's use of the funds in a manner that departs from F's mandate constitutes misappropriation (shelihut yad). 25

MP's misappropriation of the trust portion of iska for personal use, according to R. Barukh b. Samuel of Mainz (ca. 1150-1221), transforms the trust portion of the iska into a debt. With the entire capital transfer taking on now the legal character of a debt, return of anything more than the principal violates ribbit law.26

Following the above line of reasoning, R. Shneur Zalman of Lyady (1745-1813) posits that even if the iska agreement expressly allows MP to make personal use of the capital transfer on a loan basis, appropriation for personal use by MP of any sum in excess of the portion of the capital transfer he took responsibility for disallows F from earning the agreed upon profit rate on that differential. F's right to receive his profit rate on this differential can, however, be restored by returning the temporary loan to a third party, T. Acting on behalf of F, T repossesses the appropriated sum and returns it to MP for iska purposes. This device does not suffice in the misappropriation case. Here, the original character of the iska is not restored unless the misappropriated sum is directly returned to F and recycled by him to MP for iska purposes.27

Limitations on the Sekhar Hitpashrut Sum

Since hetter iska does not permit interest payments, the sekhar hitpashrut sum it calls for, according to R. Mosheh Feinstein (New York, 1895-1986), must reflect no more than the financier's pro-rated anticipated return on the planned iska investment. To illustrate: Suppose the following: the capital transfer is $100,000; the agreement calls for the profits and losses to be divided equally between the financier and the managing partner; and, finally, the sekhar hitpashrut is set at $10,000. Setting the sekhar hitpashrut sum at $10,000 implies that the anticipated return on the venture is 20%. Now, if the parties involved do not even optimistically anticipate a return on the iska of at least 20%, there is no justification for setting the sekhar hitpashrut at $10,000.28

In his treatment of the above matter, R. Yisroel Reisman suggests that the above restriction can be overcome by making the iska investment open-ended. Given the possibility that a particular investment can reap extraordinary returns, setting the sekhar hitpashrut at a relatively high sum can be defended.29

Another way around the above restriction would be to structure the capital transfer entirely as a trust. R. Avigdors' original innovation of hetter iska incorporated this concept.30 Hetter iska of this variety is dubbed kullo pikkadon (lit. wholly a trust). Setting up the iska in this fashion frees the capital transfer of any loan character. What kullo pikkadon does is to make the active partner's management of the iska entirely for the benefit of the financier. In consequence, the financier is entitled to 100% of the profit but he also must sustain 100% of the losses. Because in kullo pikkadon the financier's share of the profit is identical with the entire profit rate the venture is expected to earn, this variety of iska naturally allows for a higher sekhar hitpashrut than would be allowed had the iska been structured as part loan and part trust.

Drawback of the Solemn Oath Provision

In his analysis of hetter iska, R. Shiloh Raphael feels that the document is a shaky financial vehicle from the standpoint of the financier. Recall that the financier's confidence in his ability to realize the sekhar hitpashrut sum is predicated on the aversion of a pious person to take an oath to even verify what he knows to be the truth. But, an aversion to oath taking cannot be presumed today. Now, if the managing partner takes an oath that the iska earned no profits at all, the financier will have no further recourse.31

One approach to R. Raphael's concern is to make the solemn oath requirement more unpalatable and onerous for the managing partner than the requirement set out in the standard hetter iksa document. In this regard, R. Mosheh Feinstein allows the hetter iska document to call for the managing partner to take the oath in the setting of a public prayer session at the juncture of the Torah reading. In addition, the document can call for the managing partner to accept upon himself a curse in the event his declarations are untruthful.32

R. Raphael's own solution to the problem he addresses is more radical. In his view, the solemn oath clause should be dispensed with entirely. Instead of requiring the managing partner to verify the profits by means of an oath, the document should give the financier the right to participate in all managerial decisions relating to the iska as well as give him the right to examine the managing partner's financial records. The document can then go on to stipulate that the financier agrees to give up these rights in exchange for a designated sum. This designated sum corresponds to the sekhar hitpashrut of the conventional hetter iska document.33

Another limitation of the solemn oath clause of hetter iska occurs when the financier has personal knowledge regarding how the iska performed. Here, the financier may not demand of the investor that he attest to the iska results by means of an oath. Demanding an oath under these conditions characterizes the investing partner's oath as an oath taken in vain or for no purpose and therefore constitutes a forbidden oath.34 If the financier has no right to demand an oath, then, he losses his bargaining chip to obtain the sekhar hitpashrut.

Given the pivotal role the solemn oath plays in triggering the sekhar hitpashrut requirement, the financier should design the hetter iska agreement in a manner that will insure him that he will not lose the right to demand of the investing party that he take the oath. In this regard, R. Mosheh Feinstein advises that the financier should make the iska open ended, leaving the investment vehicle to the discretion of the managing partner. Because the managing partner does not know what form the iska investment took, he will be within his rights to demand of the managing party that he take an oath regarding the performance of the iska. If the active partner does not want to take the oath, he will be free of the oath, according to the agreement, by paying the financier the agreed to sekhar hitpashrut sum.35

Hetter Iska and the Sale of an Encyclopedia Set

We now turn to the application of hetter iska to the previous case study. Recall that a number of Blackwell's sales pitches entailed an avak ribbit problem. These included the pre-delivery payment discount offer and the installment plan offer. Both of these scenarios lend themselves to the hetter iska mechanism. Let's begin with the pre-delivery payment discount case:

Pre-Delivery Payment Discount

Recall that Blackwell offered the Fishers a bookcase and rights to six future annual supplements for an immediate cash price of $220. Since the value of the goods G.E.E. promises to deliver in the future is more valuable than the $220 outlay the Fishers are asked to make, the transaction entails violation of avak ribbit.

To free the transaction of an avak ribbit problem, it can be structured in the following manner. Instead of handing over the $220 as payment for a good to be delivered in the future, the Fishers should furnish the sum to G.E.E. for the purpose of setting up an iska partnership with the company. G.E.E. will be the managing partner and the Fishers will assume the role of silent partner in the venture. The reporting periods for the performance of the iska should be set to coincide with the date the bookcase will be delivered as well as with the publication dates for the six annual supplements. With the publication of the sixth annual supplement, the iska arrangement ends. Finally, sekhar hitpashrut for each reporting period is set equal to the value of the bookcase and the six annual supplements, respectively.

Installment Plan

With the aim of avoiding violation of avak ribbit, an installment plan to purchase G.E.E.'s encyclopedia can easily be restructured into a hetter iska agreement. Recall that G.E.E.'s advertised cash asking price for the encyclopedia is $1,200. Suppose the Brown's agree to buy the set on an installment basis stretching out over twelve monthly payments for $1,560. Instead of billing the Browns $130 each month as partial payment for the encyclopedia, G.E.E. should set out to establish an iska partnership with the Browns. Toward this end, G.E.E. should furnish the Browns with its encyclopedia set and fix its value at $1,200. What should, however, be designated as the iska? Perhaps, the encyclopedia set itself can be regarded as an iska? Arguing in favor of viewing the encyclopedia in this fashion is the circumstance that the set imparts knowledge and hence builds up human capital for the Brown children. Using the set will enhance the quality of the education of the Brown children and will eventually translate into higher lifetime earnings for them. While there can be no doubt that the encyclopedia takes on the character of an investment good of sorts, there is no way of determining what rate of return the Brown family realizes on the encyclopedia over the iska term. Moreover, one could argue that the Brown family realizes no economic return on the encyclopedia investment until such time their children enter the job market. Designating the encyclopedia as the iska is hence unacceptable from several standpoints. Because the economic return the Browns realized on the encyclopedia is impossible to ascertain, demanding that the Browns verify the figure they claim by means of oath amounts to demanding that they take a false oath. Moreover, given the strong probability that the economic return for the relevant time interval was zero, the solemn oath clause serves as a powerful temptation for the Browns to actually take an oath that the return was zero and effectively escape thereby the responsibility to pay a premium for the encyclopedia above its cash price.

What the above analysis indicates is that G.E.E. should insist that the Browns substitute some other business asset for the encyclopedia to serve as the iska of their joint commercial venture. Given that personal knowledge of exactly what the iska is may compromise G.E.E.'s ability to demand an oath of the Browns regarding the performance of the iska, G.E.E. should leave to the Browns' discretion the selection of the iska.

We are not out of the woods yet. Recall R. Feinstein's caution that hetter iska is not a "charm or incantation." Suppose G.E.E. desires a 10% premium above its cash price for selling the encyclopedia on an installment plan basis. But, suppose the Browns are non-business people whose assets consists of bank accounts yielding only a 5% return. Since the assets already in possession of the Browns cannot possibly yield the sekhar hitpashrut sum the hetter iska calls for, the iska arrangement will be nothing but a sham unless the Browns at the very least intend to invest in a new asset that could conceivably yield the sekhar hitpashrut G.E.E. seeks. Given the very significant gap between the return the Browns currently receive on their assets and the rate of return implicit in the sekhar hitpashrut sum G.E.E. seeks, use of the kullo pikkadon form of hetter iska would be very helpful and therefore recommends itself.

Now, suppose that the Browns are risk averters to the extreme and harbor a closed mind regarding entering into a speculative investment. Given that the Browns intend to do absolutely nothing in respect to achieving G.E.E.'s investment goals, the hetter iska agreement is nothing but a subterfuge to arrange a ribbit payment.36

Let's change the scenario a bit. Suppose the Browns are receptive to making a speculative investment, but end up making no new investment over the iska term. Here, given the good faith intent of the Browns, the iska arrangement is certainly not a sham. But, consider that it is a clearcut matter that the Browns' assets did not earn more than a 5% return over the iska term. G.E.E. must therefore absorb the risk that the Browns might opt to take an oath that the iska earned no more than 5%.

Hetter Iska: Hazi Milveh - Hazi Pikkadon Form37

I, the undersigned, have received the sum of $ from (hereafter referred to as the "Investing Partner"), for investment in an Iska partnership, subject to the following terms:

In exchange for the aforementioned sum, the investing partner shall acquire a share (in the value of the funds received) in any investment, real estate or business which I own. In the event that no such investments exist, the investing partner will acquire partnership (in the value of funds received) in any future investment that I shall make. The investing partner hereby appoints me as an agent to execute this investment (or investments), as I deem appropriate, on his behalf. This investment (or investments) shall be owned jointly by the investing partner and myself. Any profits realized or losses sustained shall be shared equally between the investing partner and myself.

Any claim of loss must be verified through the testimony of two qualified witnesses in, and under conditions acceptable to, an Orthodox Jewish court of law. Any claim regarding the amount of profit generated by this investment (or investments) shall be verified under solemn oath, before and under conditions acceptable to, an Orthodox Jewish court of law.

It is agreed that if I return the above-mentioned principal to the investing partner, together with an additional as payment for his share of the profits which are generated, then I will not be required to make any further payment nor will I be required to make an oath. I am obligated to make this payment on or before . If payment is not made by this time, the terms of this Iska shall continue.

I have received one dollar from the investing partner as payment for my services during the term of our partnership.

In the event of any conflict between the terms of this Iska agreement and the terms of any other agreement signed by the two parties in regard to these funds, the terms of this agreement shall prevail.

This agreement shall follow the guidelines of Hetter Iska as explained in Sefer Berit Yehudah.

It is agreed that any dispute which may arise in connection with this agreement shall be submitted before .

Judgment rendered by the aforesaid authority may be entered in any court having jurisdiction thereof.


Signature of the Recipient

Signature of the Investor

Hetter Iska: Kullo Pikkadon Form38

I, the undersigned, have received the sum of $ from (hereafter referred to as the "Investing Partner'), for investment in an Iska partnership, subject to the following terms:

In exchange for the aforementioned sum, the investing partner shall acquire a share (in the value of the funds received) in any investment real estate or business that I own. In the event that no such investments exist, the investing partner will acquire partnership (in the value of funds received) in any future investment that I shall make. The investing partner hereby appoints me as an agent to execute these investment(s) as I deem appropriate, on his behalf. These investment(s) shall be owned by the investing partner.

Any profits realized or losses sustained shall be allocated to the investing partner. However, percent ( %) of the profits shall be retained by the undersigned for his services during the term of this Iska.

Any claim of loss must be verified through the testimony of two qualified witnesses in, and under conditions acceptable to, an Orthodox Jewish court of law.

Any claim regarding the amount of profit generated by this investment (or investments) shall be verified under solemn oath, before and under conditions acceptable to, an Orthodox Jewish court of law.

It is agreed that if I return the above-mentioned principal to the investing partner, together with an additional as payment for his share of the profits which are generated, then I will not be required to make any further payment nor will I be required to make an oath. I am obligated to make this payment on or before . If payment is not made by this time, the terms of this Iska shall continue.

In the event of any conflict between the terms of this Iska agreement and the terms of any other agreement signed by the two parties in regard to these funds, the terms of this agreement shall prevail.

This agreement shall follow the guidelines of Hetter Iska as explained in Sefer Berit Yehudah.

It is agreed that any dispute which may arise in connection with this agreement shall be submitted before .

Judgment rendered by the aforesaid authority may be entered in any court having jurisdiction thereof.


Signature of the Recipient

Signature of the Investor


1. Maimonides (Egypt, 1135-1204), Yad, Malveh 5:1; R. Jacob b. Asher (Germany, 1270-1340), Tur, Yoreh De'ah 159; R. Joseph Caro (Safed, 1488-1575), Shulhan Arukh, Yoreh De'ah 159:1.

2. Exodus 22:24; Mishnah, Bava Mezia 5:11; R. Isaac b. Jacob Alfasi (Algeria, 1013-1103), Rif, ad locum; Yad, op.cit. 4:2; R. Asher b. Jehiel (Germany, 1270-1343), Rosh, Bava Mezia 5:80; Tur, op.cit. 160:2; Sh.Ar., op.cit. 160:1; R. Abraham Danzig (Prague, 1748-1820), Hokhmat Adam 130:1.

3. Bava Mezia 70a; Rif, ad.loc., Yad, op.cit. 5:8; Rosh, Bava Mezia 5:50; Tur, op.cit. 177:1; Sh.Ar., op.cit. 177:1; Hokhmat Adam 131:4, 142:1.

4. Bava Mezia 104b; Rif, ad.loc.; Yad, op.cit. 6:2; Rosh, Bava Mezia 9:9; Tur, op.cit. 177:2; Sh.Ar., op.cit. 177:2; R. Yaakov Yeshayahu Bloi, B'rit Yehudah 35:2-3 and note 3.

5. Bava Mezia 68a; 104b; Yad, op.cit. 6:2; Rosh, Bava Mezia 9:9; Tur, op.cit., 177:1-2; Sh.Ar., op.cit. 177:2; Hokhmat Adam 142:2.

6. R. David b. Samuel ha-Levi (Poland, 1586-1667); Turei Zahav, Sh.Ar., op.cit., 177, note 5; R. Shabbetai b. Meir ha-Kohen (Poland, 1621-1662), Siftei Kohen, Sh.Ar., op.cit., 177, note 9: Hokhmat Adam, loc.cit. For the monetary requirements of the nominal fee, see R. Ezra Basri (Israel, contemp.), Dinei Mamonot, vol. 1, pp. 144-5.

7. Tosafot, Baba Kamma 102a; R. Baruh (ca. 1150-1221), quoted in Mordecai, Bava Kamma 9:122; Tur, op.cit., 177:14; Sh. Ar., op. cit., 177:5; Rema, op. cit., 177:5 Hokhmat Adam 142:26. Limiting the protective force of the devolvement clause, R. Abraham Y. Karelitz, Hazon Ish, Yoreh De'ah 176:1 posits that the iska agreement may only call for MP to assume full responsibility for loss when the losses occur as a result of his failure to adhere to F's conditions. Should the realized losses be unrelated to MP's departure from F's conditions, the loss must be divided according to the profit-loss stipulation of the iska agreement. R. Shneur Zalman of Lyady (1745-1813), Shulhan Arukh of the Rav, Hilkhot Ribbit, note 44, however, validates the devolvement clause even for losses not caused by MP's departure from F's conditions.

8. R. Abraham b. Mordecai ha-Levi (late 17 cent.), Ginnat Veradim, Yoreh De'ah 6:9.

9. Hazon Ish, loc.cit.

10. Rema loc.cit.; Hokhmat Adam 142:6.

11. R. Israel b. Petahiah Isserlein (1390-1460), quoted in Turei Zahav, Sh.Ar., 167, note 1, and in Siftei Kohen, Sh.Ar., op.cit., 167, note 1; Hokhmat Adam, loc. cit.

12. Turei Zahav, loc. cit.

13. Turei Zahav, loc. cit; Siftei Kohen, loc. cit.; Hokhmat Adam, loc. cit.

14. Turei Zahav, loc. cit.; Kunteres ha-Sma Arukha ot 9; see B'rit Yehudah, 37:9, note 23.

15. R. Mosheh Isserles, Responsa Rema, n. 80; R. Meir b. Gedaliah Lublin (Poland, 1588-1616), Responsa Maharam Lublin 135; Hokhmat Adam 142:7.

16. R. Mosheh b. Joseph Trani (Safed, 1500-1580), Responsa Mabit 43; Ginnat Veradim, Yoreh, De'ah 6:8-9; R. Joseph Saul Nathanson (Lemberg, 1800-1875), Responsa Sho'el u-Meshiv, vol. 3, part 1, siman 137.

17. Leibovici v. Rawicki, 57 Misc.2d 141, 290 N.Y.S.2d 997 (Civ. Ct. 1968).

18. R. Mosheh Feinstein, Iggerot Mosheh, Yoreh De'ah 2:62.

19. R. Joseph Saul Nathanson, Responsa Sho'el u-Meshiv, vol. 1, part 3, siman 160; vol. 3, part 1, siman 133. Sharing the above broad definition of iska is R. Shalom Mordecai Shwadron (Poland, 1835-1911), Responsa Maharsham, 2:215, 252 and R. Mordecai Yaakov Breisch (Israel, contemp.), Responsa Helkat Yaakov 3: 199, 200.

20. R. Meir Arak, Imrei Yosher 1:108. R. Arak's position is articulated in various forms of elaboration in earlier rabbinic literature. C.F. Ginnat Veradim, op.cit. 6:4; Shulhan Arukh of the Rav, op.cit. seif 42; R. Solomon b. Joseph Ganzfried (Hungary, 1804-1866), Kizzur Shulhan Arukh 66:10; R. Solomon Leib Tabak (Hungary 1832-1908), Erekh Shai 177:7.

21. See Imrei Yosher, loc.cit. Requiring a third party to take possession of this merchandise on behalf of A when B acquires it, is, according R. Arak, unnecessary. B's resolve, at the time he purchases and transacts with the requisite merchandise, that his actions are on behalf of A suffices to allow A to acquire part ownership in the merchandise.

For an alternative hetter iska arrangement designed to accommodate the businessman desiring capital for personal use, see Kizzur Shulhan Arukh 66:20.

22. Yad, Sheluhin ve-Shufetin 7:4; Tur, op.cit., 177:30, Sh.Ar., op.cit 177:30.

23. R. Solomon b. Isaac, Rashi at Bava Mezia 104b.

24. Tosafot, Bava Mezia 104b.

25. R. Mosheh Isserles, Rema, Sh.Ar., Yoreh De'ah 177:5.

26. R. Barukh (ca. 1150-1221, quoted by R. Mordecai b. Hillel (Germany, 1240-1298), Mordecai Bava Kamma 9:122 and by R. Mosheh Isserles, Rema, Sh.Ar., op.cit 177:5.

27. Shulhan Arukh of the Rav, loc.cit. seif 42.

28. Iggerot Mosheh, op.cit.

29. R. Yisroel Reisman, The Laws of Ribbis (New York: Mesorah Publications, Ltd., 1995), p. 399, f.n.53.

30. See R. Samuel b. David Moses ha-Levi (Poland, 1625-1681), Nahalat Shivah, no. 40.

31. R. Shiloh Raphael, Torah she-be-al Peh, Vol 19 (Jerusalem: Mossad Harav Kook, 1977), pp. 100-105.

32. Iggerot Mosheh, op.cit.


34. Iggerot Mosheh, op.cit. See also authorities quote by Rabbi J. David Bleich in Contemporary Halakhic Problems, Vol. 2, (New York: Ktav Publishing House, Inc., Yeshiva University Press, 1983), p. 379, f.n. 2.

35. Iggerot Mosheh, op.cit.

36. See R. Avraham Mosheh Lewanoni, Mishnat Ribbit 22:18, note 24.

37. The Laws of Ribbis, op.cit. p. 421.

38. Ibid., p. 424.

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