Borrow Alone – Return Together?

Question

Efraim
and Menashe are business partners. Efraim borrows a large amount of money
from the State Bank of Outer Mongolia at a low rate of interest, on his
own name. The money is used profitably by the jointly owned business. When
the repayment date arrives, the partners wish to repay the loan from the
business funds. Would this raise any problem, since interest is being paid
to a non-Jew?


Answer

The
Taz (Yoreh Deah 170, Note 3) discusses our question. He
writes that many err on this point. The truth is that if one member of the
partnership borrows money on interest from a non-Jew on his own name, he
– and he alone – is considered to have borrowed from the non-Jew. The
non-Jewish lender considers him to be solely responsible for repayment.
When he subsequently puts the funds at the disposal of the partnership, of
which he is a member, he is in effect lending his own money to the
partnership. Since this is a loan from Jew to Jew, any interest is
strictly forbidden. Thus, if the borrowing partner were to stipulate that
the loan, principal plus interest, must be paid out of partnership funds,
he is actually lending to the partnership with ribbis ketzutzah
(fixed interest), violating a Torah prohibition! The Taz
therefore advises that whenever money is borrowed on interest from a
non-Jew for the use of a partnership, all partners should sign on the bill
of debt. Since they then are all responsible for repayment to the non-Jew,
there is no problem of ribbis. However, he adds that if one partner
borrowed on interest from a fellow-Jew relying on a heter iska,
there is no problem for him to repay the loan, including the interest,
from the partnership funds. We assume that, by investing the money in the
joint business, the borrower is just fulfilling the commitment he made in
the heter iska. (The heter iska is a document which states
that half the money being lent is an interest-free loan. The other half is
a deposit. The recipient undertakes to do business with the money and
share his profits with the depositor in accordance with the terms set out
in the document. The “interest” specified is merely a minimum
guaranteed return, irrespective of whether the recipient reaps profits
from the invested money.)

The
Chochmas Odom (132:8) suggests that prevention is better than cure.
When a group of people establish a partnership, the agreement they draw up
should include a clause specifying that every partner has the right to
borrow money on interest for the use of the partnership, either from a
non-Jew or through a heter iska (for example, from a Jewish bank).
Even though only one partner will sign for the loan, it is hereby agreed
that all partners automatically become responsible for repayment of the
loan. Thus, even if only one partner signs, all partners are viewed as
borrowers and the loan, plus interest, may be repaid from joint funds.
Similarly, if it is the accepted custom that one partner’s signature
obligates all partners, one partner may borrow on permitted interest even
if no such condition was specifically made (since it becomes an automatic
condition). 

Is there any way that repayment may be made out of joint funds
even if no condition (specific or automatic) was made? The Maharsham
(Responsa, Vol. 7, No. 63) states that we can view the sum lent to the
partnership as being the sole investment of the borrowing partner.
A sole investor is entitled to all the profits. He is also solely
responsible for repayment of the invested sum, including the interest. He
may therefore repay principal plus interest to the non-Jew, since he is
paying out of his own funds. When we see him sharing the profits with the
other partners, we just praise his generosity of heart. Even though he is
entitled to the entire profit, he generously shares it with his
colleagues!