Commercial Division Blog
Heter Iska Enforced as a Note, Not a Partnership Agreement
On April 15, 2015, Justice Demarest of the Kings County Commercial Division issued a decision in Kirzner v. Plasticware, LLC, 2015 NY Slip Op. 50533(U), enforcing a note that had certain characteristics of a partnership agreement.
In Kirzner, the plaintiff moved for summary judgment on its claims based on a promissory note. The defendants' arguments in opposition included an argument by defendant Deutsch that "the note sued upon is not a debt instrument, but, rather, a partnership document under a Heter Iska." The court rejected that argument, explaining:
A Heter Iska was a device developed in the 12th to 14th centuries to overcome the Biblical prohibition against charging interest by one Jew to another. It has been described as a loan structured in a certain way under Jewish law that allows interest.
It has been held that a Heter Iska constitutes merely a compliance in form with Hebraic law, and does not create a partnership, joint venture, or profit sharing agreement. Here, Deutsch has not shown that any separate Heter Iska or partnership agreement exists which could be asserted to vary the terms of the note. Rather, the explicit language of the note designated [defendant Plasticware] as a borrower and provides for payment of the note, without any terms relating to a partnership agreement. The note merely states that the loan evidenced by the note was being done within the parameters of a Heter Iska, indicating an intent to avoid religious restrictions so as to allow the charging of interest and comply with the requirements of Jewish Law.
Moreover, it has been specifically held that a Heter Iska agreement does not alter the clear civil law terms of a note. Here, paragraph 10 of the note provided that the note in any and all respects shall be governed by, and construed in accordance with the laws of the State of New York. This explicit language reflects the parties' clear and unambiguous intent to be bound by the civil laws of New York. . . . Consequently, the note is governed by New York law, not Hebraic law.
(Internal quotations and citations omitted).