Reuven organized a charity drive to raise funds for a widow and her six
orphaned children in his town. The campaign was successful, and over
$100,000 was raised. A very prominent and successful businessman with a
sterling reputation as being honest and G-d fearing approached Reuven and
offered to provide a guaranteed 20% return on the funds if Reuven would
invest them with him on behalf of the widow and her children. Reuven
agreed, and a Hetter Iska (a contract confirming that this transaction
was an investment and not a loan, and thus not subject to the Torah's
restriction on interest) was drawn up.
For six months, the businessman paid the dividends in a timely manner,
but unfortunately went bankrupt after that, and the entire sum was lost.
Reuven is now asking the Bais Din to determine whether or not he was
negligent with the funds that had been entrusted to him, and if he is
obligated to reimburse the widow from his own private funds.
Lending or investing funds earmarked for charity without securing the
transaction with collateral that can be used to collect from in case the
transaction is defaulted is not merely considered negligence, it is
considered as if the trustee personally damaged the people that it was
intended for! (As we note in our sources section, the practical
ramification of this is that even if Reuven had accepted responsibility
to be guardian on these funds on condition that he may do as he sees fit
with them, he is still responsible for their loss.)
Therefore, Reuven must reimburse the full amount that he had collected
and then lost from his private funds, unless the widow and orphans (upon
becoming adults) explicitly forgive his obligation to them. However,
Reuven is permitted to deduct the dividends paid during the six months
that the widow had received from the total amount owed.
Any person who invests in the manner described in our question, is
going against the dictums of our Chazal, and must realize that he is
recklessly risking his money. It is important to note that in various
types of investments there are different problems that may arise with a
Hetter Iska, which can cause all involved to transgress the Torah
prohibition of Ribbis (interest and usury).
The Shulchan Oruch (Choshen Mishpat 290:8) states that a guardian
appointed to take care of the finances of orphans is permitted to invest
them with an honest businessman, on condition that the entire investment
be secured in a manner that there be no risk to the capital investment.
The only risk permitted may be regarding how much interest or dividends
may be earned.
Based on this, the Teshuvos Nodeh BiYehuda (Tinyona, Choshen Mishpat 34)
writes in a case similar to ours, where the guardian invested money and
lost it, that this must be considered more than mere negligence, he must
be held responsible for taking their money from a "protected place"
(Mokom HaMeshumar) and placing it in a situation where it was no longer
protected. He is not only a Shomer (watchman) who has not fulfilled his
duties, he is a Mazik, a person who actively damages others. This can
also be found in the Nesivos Mishpat (291:7 and 14), and in the Ketzos
Therefore, the Nodeh BiYehuda rules that even if the Bais Din told the
guardian at the time that he was appointed that he may take whatever
action that he deems fit on the behalf of the orphans, this does not give
him license to invest the money in a manner where there is risk to the
capital. The guardian must reimburse the orphans from his own funds, but
may deduct any interest already paid to the orphans from the original
The Gemara in Bava Metzia (42a) states "Rav Yitzchok says, a person
should divide his money into thirds, and invest 1/3 in real estate (which
is the most secure investment), 1/3 in inventory (to turn a business
profit), and 1/3 should remain liquid so that it will be available in
case merchandise is suddenly available to him at a bargain price". Every
person should make use of this advice, and avoid taking risks with their
money, especially since there are many Halachic complications that one
runs into when lending money to others for interest, even if a Hetter
Iska is executed. It is no wonder that our Rabbis tell us that one who
lends his money to earn interest will ultimately lose his possessions
(Shulchan Oruch Yoreh De'ah 160:2).
This week's class is based on a column by Rabbi Tzvi Shpitz, who is an Av
Bais Din and Rosh Kollel in the Ramot neighborhood of Jerusalem. His
Column originally appears in Hebrew in Toda'ah, a weekly publication in
Jerusalem. It has been translated and reprinted here with his permission
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Please Note: The purpose of this column is to make people aware of Choshen Mishpat
situations that can arise at any time, and the Halachic concepts that may be used to resolve them. Each
individual situation must be resolved by an objective, competent Bais Din (or Rabbinic Arbitrator) in the
presence of all parties involved!