Footnotes

1. Copyright 1998, all rights reserved, by Steven H. Resnicoff. This article is a revised version of an article that I originally published at 20 Seton Hall Law Review 77 (1989), in which I hold, and hereby assert and reserve, a copyright interest.

2. Professor of Law, DePaul University College of Law, B.A., Princeton University (1974); J.D., Yale Law School (1978); Rabbinic Degree, Beth Medrash Govoha (1983); Chair, Section on Jewish Law, Association of American Law Schools (1998-1999).

The author wishes to express his gratitude to Professors Stephen Siegel, Mark Weber and Michael Jacobs, Rabbis Shmuel Blech and Yaakov Forchheimer and L. David Medinets, Esq., for reviewing and commenting on various drafts of this article and, especially, to Shalom L. Kohn, Esq., for his detailed suggestions.

3. A literal translation of the term used for the contract would be "permission for a venture." The Hebrew is transliterated in many ways including "hetter iska," "hetter isske," "hetter iske" and "heter iskoh." This phrase is often employed to refer to the venture itself. The expression permissible venture captures this meaning.

4. The term "Jewish law" is used merely for convenience to refer to the body of Jewish religious precepts known as "halakhah" [which is a transliteration from Hebrew], a word which is generally translated as "law." In this article I neither describe this body of precepts generally nor evaluate whether it should properly be called "law," as that term is technically employed in legal literature.

5. The ban on the payment and collection of interest in transactions between Jews is of biblical origin. See Exodus 22:25 ("If you lend money to any of my people with you who is poor, you shall not be to him as a creditor, and you shall not exact interest from him."); Leviticus 25:35-37 ("And if your brother becomes poor and cannot maintain himself with you, you shall maintain him . . . Take no interest from him or increase, but fear your G-d . . . You shall not lend him your money at interest . . ."); Deuteronomy 23:20-21 ("To a foreigner you may lend upon interest, but to your brother you shall not lend upon interest.").

6. Increased awareness of the need for permissible ventures is evidenced by the recent publication of related English articles and Hebrew treatises. In addition, various religious organizations have recently taken steps to further educate Jews about permissible ventures through informative mailings and seminars. A number of lending institutions seem to have relatively recently adopted a general permissible venture, as same is described in Part II, infra.

7. Israeli financial institutions ordinarily utilize the general permissible venture described in Part II, infra. Both institutional and individual investors may employ permissible ventures in international transactions as well.

The interplay between religious and secular law regarding the charging of interest might also be studied in the context of a different religious law system, such as Moslem law, which also bans interest, or a different secular law system, such as the law of Saudi Arabia. Although each instance will present its own peculiar facts and tensions, this article may provide a useful initial analytical framework.

8. See note 5, supra. A religiously observant Jew would be required to avoid this prohibition even if the other party is a non-observant Jew.

9. Arba'ah Turim, Yoreh De'ah 160; Shulhan Arukh, Yoreh De'ah 160.

10. There are many differing opinions. At one extreme there are views that the ban on interest applies only to a lender who is an individual. See Shevus Yaakov, at 166 (citing view of the BE'ER OSHOK). At the other extreme is the view that the charging of interest is impermissible even where a single partner or shareholder is Jewish, because the loan is treated as having been made on a pro rata basis by each and every one of the partners or shareholders. See Y. Blau, BRIS YEHUDA (1979), at 508.

The predominant opinion, however, states that the prohibition only applies if the majority of the business is owned by Jews. One explanation is that the partnership or corporation is an entity possessing a discrete identity, and that this identity is either "Jewish" or "non-Jewish" based on who owns a majority of the ownership interests. See, M. SILBERBERG, V'CHAI AKHIKAH I'MAHK (1986), pp. 33 et seq. Another explanation of this "majority rule" principle involves application of Jewish law principles known as "brera" or "battel b'rov," which permit the transaction to be treated under Jewish law as if the loans were made by the non-Jewish partners or shareholders to the Jewish borrower. Id.; see also Z. SHAPIRO, DARKAY TSHUVAH, no. 150 (1976); Y. NATHANSON, SHO'EL U'MAYSHIV, Vol. I, part 3, no. 31 (1973).

As to whether a partnership or corporation is an entity separate and apart from the identity of its owners, a parallel debate exists in secular law. See, e.g., Crane, "The Uniform Partnership Act and Legal Persons," 29 HARV.L.REV. 838 (1916); Note, "The Partnership as a Legal Entity," 41 COLUM.L.REV. 698 (1941); Jensen, "Is a Partnership Under the Uniform Partnership Act an Aggregate or an Entity," 16 VAND.L.REV. 377 (1963).

11. See, generally, J. BLEICH, CONTEMPORARY HALAKHIC PROBLEMS, II (1983), for a discussion of the historical development of various types of permissible ventures. The earliest permissible venture agreement of which there is a written record dates back to the sixteenth century. Professor Bleich reviews the rabbinic debate as to the efficacy of a permissible venture in avoiding the religious ban against interest, a debate which has now largely been resolved in the affirmative. The focus of the instant article does not address when a permissible venture should be entered into but, rather, the possible secular ramifications when it is used.

12. As discussed later in the text, the notion of a "business venture" may be extraordinarily elastic.

13. There is flexibility regarding the proportional sharing of profits and losses. Many permissible venture agreements however, injudiciously call for profits and losses to be shared equally, even if the parties have disproportionate investments in the venture.

14. In a typical case there is no reason why such a provision should be omitted, because the parties ordinarily intend that the Financier's liability be limited. As discussed in Section "I," infra, this clause might permit the filing of a limited partnership agreement, even "after the fact" which would protect shield the Financier from claims from third parties. Even if the clause proves ineffective as to third parties, it should be enforceable between the Financier and the Recipient so as to permit the Financier to receive indemnification from the Recipient. Nevertheless, a review of various permissible venture documents revealed that none contained such a restriction.

15. Permissible ventures may employ different terminology but the effect is to create a presumption.

16. Many Jewish law authorities contend that if the Financier personally believes that there were no profits, he cannot force the Recipient to take an oath, even though the permissible venture agreement is silent on this point. See, e.g., M. FEINSTEIN, IGGEROT MOSHE, Yoreh De'ah, II, nos. 62 and 63; TESHUVOT SHAI, I, no. 3; PANIM ME'IROT, II, no. 3. But see TESHUVOT MAHARSHAG, Yoreh De'ah, no. 4. This position is based on Jewish law precepts regarding the taking of an oath which are independent of the particular clauses of the permissible venture agreement. According to this view, the Recipient, in such a case, would be discharged from his obligation of making the fixed payment scheduled in the permissible venture document without having to take an oath. In commercial transactions, however, the likelihood that the Financier would have direct knowledge as to the operation's profitability would be rare. Moreover, where, as in most instances, the permissible venture agreement does not prescribe the nature of the venture and the Recipient is engaged in various business activities, including, for example, stock market investments, it would be virtually impossible for the Financier to "know" whether there were profits or losses and the oath may be required according to all authorities. See M. STERNBUCH, MO'ADIM U-ZEMANIM, VI, no. 41.

17. See BLEICH, supra note 11, at 378. Because this aversion may have become attenuated in recent years, it has been suggested by some rabbinic authorities that alternative conditions be utilized, such as allowing the Financier to examine the Recipient's financial records and to participate in all decisions regarding expenditure of the sums advanced until and unless the fixed amounts are paid. Id., at p. 381. To the degree that the Financier possesses the power to control the operations of the business, there is a greater likelihood that the permissible venture will be characterized as a partnership. Indeed, even where there is no initial intent to establish a partnership, courts have increasingly found lenders liable as principals when they have exercised control in their borrowers' businesses. See, e.g., Flick & Replansky, Liability of Banks to Their Borrowers: Pitfalls and Protections, 103 BANKING L.J. 220 (1987); Lundgren, Liability of a Creditor in a Control Relationship with its Debtor, 67 MARQ. L. REV. 523 (1984); Sanchez, Symposium: Lender Liability, 15 WEST. STATE L. REV. 577 (1988).

18. See, e.g., I. ENGLARD, RELIGIOUS LAW IN THE ISRAEL LEGAL SYSTEM 185 (1975)("Jewish law relating to testimony is noted for its many restrictions in respect of the competence of witnesses. Among others, close relatives, wives, interested parties, persons guilty of religious transgression are disqualified.")

19. See I. ISSERLIN, TERUMAT HA-DESHEN, no. 302, which states that the Financier may even require that only the testimony of the community's rabbi and cantor will be acceptable, despite the fact that such testimony, as a practical matter, is essentially impossible to secure.

20. A Recipient may arrange separate permissible ventures with different lenders for discrete investments in connection with a single ongoing business. The Recipient will have a direct relationship with each of the Financiers, but the Financiers will not bear any direct relationship with each other.

A Recipient might also enter into two permissible ventures and pool the funds for a single investment, such as the purchase of one piece of equipment, for use in his business. If a permissible venture is viewed as a partnership, the Recipient, in such a case, would be a partner with the first Financier, forming partnership "A." The Recipient would also be a partner with the second Financier, forming partnership "B." The two partnerships, by putting their assets together for one investment, may be partners as well. If the permissible venture does not create a partnership, the scenario would presumably be identical to the one in the preceding paragraph, with the Recipient being directly related to each of the Financiers while the Financiers are independent of each other.

21. In this way, even if the lender fails to prepare a personalized permissible venture in a given case, it will have complied with Jewish law at least according to some authorities.

22. BLAU, supra note 10, at 641.

23. Even if the specific documentation contains boilerplate language purporting to incorporate the lender's general "official terms and conditions," such language should not incorporate contradictory terms.

24. Some Jewish law authorities may believe that for religious purposes it is irrelevant whether a secular court would enforce the terms of the agreement. The better, and apparently predominant, view, however, is that secular enforceability of the agreement's provisions is essential, particularly where institutional lenders are involved, see BLAU, supra note 10, at 631, or where one of the parties is likely to submit any dispute to a secular court.

An issue arises under Jewish law as to how it should be determined whether a permissible venture agreement is enforceable under secular law. A Jewish law tribunal could choose to interpret applicable secular law itself, relying in part on testimony from secular scholars, attorneys, judges or other authorities. See generally FEINSTEIN, IGGEROT MOSHE, Hoshen Mishpat, Part II, no. 62. Another approach would be for the parties to seek an actual secular determination of this issue, such as through an action for declaratory judgment. An interesting question would be whether, for Jewish law purposes, the Jewish law tribunal's interpretation of secular law could "overrule" a ruling of a trial or appellate secular court.

25. BLEICH, supra note 11, at 381; M. ELON (editor), THE PRINCIPLES OF JEWISH LAW (1975), at cols. 187 and 504; G. HOROWITZ, THE SPIRIT OF JEWISH LAW (1953), at 562. The latter sources sometimes refer to it as a "limited partnership."

26. BLEICH, supra note 11, at 381.

27. The rabbi who authored the provision excerpted above, for instance, told me that he had intended that the Financier's exposure be limited to the amount of his investment and that, in fact, he had explained the agreement to those who used his forms as if there were such a restriction.

28. Several United States courts mention permissible venture agreements even though an analysis of such agreements does not figure in their rulings. See, e.g., Barclay's Discount Bank, Ltd. v. Levy, 743 U.S. 722, 724 n. 2 (9th Cir. 1984) (stating that a permissible venture agreement "appears to be a religious document purporting to characterize the bank and those to whom the bank charges interest as a 'venture' in order to avoid violation of religious law"); Pereira v. Goldberger (In re Stephen Douglas, Ltd.), 174 Bankr.Rptr. 16 (Bankr. E.D.N.Y. 1994).

One would expect to find a number of Israeli cases dealing with permissible venture agreements. Nonetheless, I know of only published opinion, Bank HaMizrachi HaMiyuchad v. Zvi Tessler (Beis Mishpat Ha-Mekhuzi, Tel Aviv, September 28, 1987). Although that case treated the permissible venture agreement as an enforceable contract, none of the partnership implications were raised.

29. 11 A.D.2d 327 (1st Dept. 1960), 205 N.Y.S.2d 551, leave to appeal denied, 11 A.D.2d 1019, 207 N.Y.S.2d 995 (1960).

30. Id., at 553. It would seem that the entire thrust of the defendant's assertion was to deny the plaintiff's limited explanation of the document's purpose.

31. 57 Misc.2d 141, 290 N.Y.S.2d 997 (N.Y. Civ. Ct. 1968).

32. Id., at 142-43, 290 N.Y.S.2d at 999-1000.

33. Id. at 142, 290 N.Y.S.2d at 998-99.

34. It should be noted that a formal, explicit guarantee by the Recipient to return all of the Financier's capital violates Jewish law. In this case, it is unclear whether, under Jewish law, the reference subordinating the undertaking to the unspecified terms of a permissible venture agreement would save the transaction.

35. Id. at 144-45, 290 N.Y.S.2d at 10001.The agreement contained the following provision: "This agreement is drawn according to, and with the full understanding of the 'HETTER ISSKE', which forbids the acceptance or the payment of interest." Id. at 142, 290 N.Y.S.2d at 999. The agreement also characterized the venture as a profit sharing arrangement. Id.

36. Id. at 144, 290 N.Y.S.2d at 1001. There was testimony, however, that subsequent to the advancement of funds, the Financier wrote to the Recipient mentioning that no permissible venture document had been executed and enclosing one for his signature. Id. No proof was offered to establish that the agreement was ever signed.

37. Id., at 144, 290 N.Y.S.2d at 1001-02.

38. Id., 290 N.Y.S.2d at 1001 (citations omitted).

39. Id.

40. Id. at 1465, 290 N.Y.S.2d at 1001 (citing Orvis v. Curtiss, 157 N.Y. 657, 661-62, 52 N.E. 690, 691-92 (1899)).

41. BLEICH, supra note 11, at 381, relies on this case for his conclusion that civil courts have recognized permissible ventures as bona fide partnerships. In fact, however, the case may not support that conclusion. At one point in its opinion, and despite the language quoted in the text, the court simply stated that it was not usury for a lender to receive a share of profits in lieu of interest. Leibovicki, 57 Misc. 2d at 144-45, 290 N.Y.S.2d at 1001 (emphasis added) (citations omitted). Consequently, the court's ruling did not depend upon whether the permissible venture at question was a partnership or a loan.

42. 130 Misc.2d 221, 495 N.Y.S.2d 560 (N.Y. Civ. Ct. 1985).

43. Id. at 222, 495 N.Y.S.2d at 561. The Recipient claimed that he borrowed the funds on behalf of a third party, his employer, Elco Elevator Co., with the Financier's knowledge and consent. Id. The Financier denied any knowledge that the money was being borrowed for a particular company, but knew that the Recipient was in the elevator business and admitted knowing that the Recipient would build elevators with the money. Id. at 225, 495 N.Y.S.2d at 563.

44. Id. at 222, 495 N.Y.S.2d at 561. The permissible venture stated that the loan was to be for six months with the Financier receiving a profit of 24% per month. Id. At the time of the transaction, the maximum lawful annual interest rate was 10.5%. Id. at 224, 495 N.Y.S.2d at 562 (citations omitted). When the Financier sought to have the agreement enforced, the Recipient attempted to have the transaction voided as usurious. Id. at 221, 495 N.Y.S.2d at 561.

45. Id. at 223, 495 N.Y.S.2d at 562. The permissible venture agreement which was signed by the parties was written in Hebrew and translated for the court by an official court interpreter. Id. at 221, 495 N.Y.S.2d at 561.

46. Id. at 224, 495 N.Y.S.2d at 562-63. See Kenneth H. Ryesky, Secular Law Enforcement of the Heter 'Iska, XXV JH&CS 67, 80-81 (1993) reports a similar result in what seems to be an unreported case, Berger v. Moskowitz, stating that it is referenced at N.Y.L.J., October 30, 1991, at 25, Index No. 15601-91 (Sup.Ct. Kings Co. 1991). Ryesky states that, despite the fact that a formal permissible venture agreement had been signed and was introduced into evidence, the court treated the transaction as a loan between the parties and not as a business transaction.

47. 130 Misc. 2d at 223, 495 N.Y.S.2d at 562.

48. Id.

49. Id. At trial, "Rabbi Singer testified emphatically . . . that the agreement did not create a joint venture or partnership." Id. The court did not elaborate on the specific statements made by Rabbi Singer. It may well be that Rabbi Singer meant no more than that, as a matter of substance, the permissible venture agreement was not intended to create what he believed was a secular partnership. From the court's opinion, it is not clear whether this expert agreed with the Financier's contention that the Recipient was unconditionally responsible for the return of the principal.

50. Id. at 224, 495 N.Y.S.2d at 563.

51. 180 A.D.2d 463, 579 N.Y.S.2d 382 (1st Dept. 1992).

52. 1998 N.Y. Slip Op. 98086, 670 N.Y.S.2d 301 (1998).

53. Mr. Berkovitz and his wife, Barbara Berkovitz, were the corporate defendant's sole shareholders.

54. Technical aspects of the permissible venture may cause additional problems not separately discussed in the text. Because Jewish law does not recognize a partnership as a discrete entity, fractional title to partnership property is vested in each of the partners, according to their respective interests. Many permissible ventures expressly provide for this vesting of title. At the end of the term specified in the permissible venture, the Recipient returns the Financier's investment (minus a pro rata share of any losses) and acquires title to all of the venture's property. Consummation of this purchase might require recorded documentation and might trigger transfer or other taxes, depending upon applicable state law.

55. Meehan v. Valentine, 145 U.S. 611 (1892); Houston General Ins. Co. v. Maples, 375 So.2d 1012 (Miss. 1979).

56. See, e.g., Schwaegler Co. v. Marchesotti, 199 P.2d 331 (3rd Dist. Ct. Cal. 1948).

57. Dinkelspeel v. Lewis, 50 Wyo. 380 (1936), 62 P.2d 294, reh'g. denied, 50 Wyo. 408, 65 P.2d 246; Brand v. Elledge, 101 Ariz. 352, 419 P.2d 531; Schwaegler Co. v. Marchesotti, supra note 26. This rule is also reflected in the Uniform Limited Partnership Act ("ULPA") and Revised Uniform Limited Partnership Act ("RULPA") provisions shielding persons from liability as general partners when they erroneously believe they have become limited partners in a limited partnership. See ULPA, s. 11 and section RULPA, s. 304(a), which are discussed in the text, infra. There would be little need for provisions to protect such silent partners unless the general rule would impose liability.

58. Consequently, if the Recipient's business fails and goes bankrupt, the Financier may be personally liable to creditors. Another problem arising in the bankruptcy setting involves any claim the Financier himself might otherwise have against the Recipient. The Financier would have an unsecured creditor's claim as to the money which was loaned to the Recipient. In addition, the funds invested by the Financier would give rise to an equity interest, subordinate to claims of all creditors.

Moreover, if the Recipient's trucks cause an accident and inflict injury, the Financier may be responsible. If the Recipient's products are defective and cause damage, the Financier may have to pay. If the Recipient invests in real estate which turns out to be a toxic waste dump-site, the Financier may be obligated to expend millions of dollars in clean-up costs. If the Recipient's facilities expose employees to dangerous substances, such as asbestos, the Financier may find itself thirty years down the line facing an insurmountable liability. There is no end to examples of the Financier's exposure; this is far and away the most serious problem which might result from a finding that a permissible venture created a partnership.

59. The existence of such a clause, along with other factors, however, may convince a court that a permissible venture arrangement does not create a partnership to begin with.

60. Vohland v. Sweet, 433 N.E.2d 864 (Ind. 1982) (citing Bacon v. Christian, 184 Ind. 517, 111 N.E. 628 (1916)). See also Murphy v. Stevens, 645 P.2d 82 (Wyo. 1982) (partnership conduct is determinative); Randall Co. v. Briggs, 248 N.W. 752 (Sup. Ct. Minn. 1933) (court examines specific partnership conduct); Wyatt v. Brown, 281 S.W.2d 64 (Ct. App. Tenn. 1955) (intent to do partnership acts establishes partnership);Claude v. Claude, 228 P.2d 776 (Sup. Ct. Or. 1951), reh'g denied, 191 Or. 308, 230 P.2d 211 (1951) (partnership intent determined in light of total contract). There is an exception to liability arising out of partnership contracts where the third party claimant had prior knowledge of the restrictions agreed to by the partners. 59A AM.JUR.2D, Partnership, s. 640.

61. For Jewish law purposes, that part of the funds advanced that are considered to be an "investment," rather than a loan, must be "at risk." In the example used in Part II, supra, the amount at risk would equal one-half of the total funds advanced.

62. See, e.g., Meehan v. Valentine, 145 U.S. 611 (1892)(a partner cannot insulate himself from creditors' claims through an agreement with his other partners). See also Demas v. Convention Motor Inns, 268 S.C. 186, 231 S.E.2d 724 (1977); Mosely v. Commercial State Bank 457 So.2d 967 (Ala. 1984).

63. Kenneth H. Ryesky points out that secular characterization of a permissible venture agreement as a partnership might affect federal and state estate taxes, because certain permissible venture obligations might not be regarded as enforceable debts but, instead, as the sharing of future profits. See Kenneth H. Ryesky, Secular Law Enforcement of the Heter 'Iska, XXV JH&CS 67, 83-84 (1993).

64. I.R.C., 7872 (West Supp. 1988).

65. It is possible that a court could still distinguish the interest-free loan portion of the permissible venture from the investment element. As to the former, it could apply Section 7872 and find imputed interest. As to the latter, the court might find that in substance, if not form, it constituted an interest-bearing loan and the Recipient's payments could be treated as taxable interest income. If a court adopted this approach, the Financier could still be taxed on more money than he received. This result, however, is logically unappealing. If a court were to apply a substance rather than form analysis, it should do so to the entire permissible venture transaction, not just to bits and pieces, and find that the money received from the Recipient represented interest on all of the monies advanced by the Financier.

66. If the payments are made pursuant to the presumptions in the permissible venture agreement, the payments might be perceived as a further investment by the Recipient to purchase the Financier's share of profits.

67. State lending institutions are ordinarily the creatures of statutes and they are often deemed to be excluded from any activities not authorized by such statutes. See Nassau Bank v. Jones, 95 N.Y. 115 (1884); State Bank of Blue Island v. Benzing, 383 Ill. 40, 48 N.E.2d 333 (1943); 9 CAL.JUR.III, Banks, s. 37. These restrictions would forbid institutional lenders from participating as a partner in particular types of businesses.

In other states, such lenders may be precluded from entering any type of partnership. Marien Bank v. Ogden, 29 Ill. 248 (1862); Home State Bank v. Vandolals, 188 Ill.App. 123 (1914); Interstate Trust & Banking Co. v. Reynolds, 127 La. 193, 53 So. 520 (1910); Norris v. Oklahoma State Bank, 159 Okla. 51, 14 P.2d 218 (1932).

As to this particular issue, there is a difference between a "joint venture" and a partnership. Although it is difficult to delineate between the two types of entity, a joint venture is often found to exist when two or more parties join for an extremely limited purpose. States generally allow a lender to participate in joint ventures. Annotation, Corporation in Firm or Joint Venture, 60 A.L.R.2D 936-39 (1958).

68. National banking associations, for example, are restricted as to the purposes for which they may acquire, hold or lease real property. 12 U.S.C. 29. National banks are also prohibited generally from participating in partnerships. Merchants' Nat. Bank v. Wehrmann, 202 U.S. 295 (1906), 26 S.Ct. 613, 50 L.Ed. 1036; First Nat. Bank v. Stokes, 134 Ark. 368, 203 S.W. 1026 (1918); First Nat. Bank v. Weise, 333 Ill.App. 1, 76 N.E.2d 538 (1947).

69. FDIC, Manual of Examination Policies, s. "U" (1979).

70. See, e.g., Bank of Marin v. England, 385 U.S. 99, 101 (1966), which states that the "relationship of bank and depositor is that of debtor and creditor, founded upon contract."

71. Kenneth H. Ryesky, Secular Law Enforcement of the Heter 'Iska, XXV JH&CS 67, 82-83 (1993).

72. This concept is distinguished from the principle of "mandatory accommodation," which states that when government has infringed a free exercise right, government must accommodate the right unless it is outweighed by a compelling and narrowly tailored state interest. See Lynch v. Donnelly, 465 U.S. 668 (1984), reh'g denied, 466 U.S. 994 (1984).

73. For discussions regarding the accommodation of religious rights, see Adams and Gordon, The Doctrine of Accommodation in the Jurisprudence of the Religion Clauses, 37 DE PAUL L. REV. 317, 319 (1988); Choper, The Religion Clauses of the First Amendment: Reconciling the Conflict, 41 U. PITT. L. Rev. 673 (1988); Giannella, Religious Liberty, Nonestablishment, and Doctrinal Development: Part I: The Religious Liberty Guarantee, 80 HARV. L. REV. 1381 (1967); Kurland, Of Church and State and the Supreme Court, 29 U. CHI. L. REV. 1 (1961); McConnell, Accommodation of Religion, 1985 SUP. CT. REV. 1; Oaks, Separation, Accommodation and the Future of Church and State, 35 DE PAUL L. REV. 1 (1985); Schwarz, No Imposition of Religion: The Establishment Clause Value, 77 YALE L.J. 692 (1968); Note, Permissible Accommodations of Religion: Reconsidering the New York Get Statute, 96 YALE L.J. 1147 (1987).

74. Corporation of Presiding Bishop v. Amos, 483 U.S. 327 (1987); Waltz v Tax Comm'n, 397 U.S. 664, 673 (1970).

75. The judiciary may be called upon to evaluate whether a specific accommodation made by a particular branch of government is constitutional or whether an additional accommodation, in a particular case, is mandated. Nevertheless, it seems inappropriate for the judiciary to fashion a substantive law accommodation. Of course, courts do sometimes "accommodate" religious litigants or counsel with respect to procedural matters such as scheduling.

76. To avoid having decisions depend upon judicial construction of the terms of particular permissible venture agreements, a legislature might adopt a per se rule treating as a loan all documents which are labeled a "permissible venture" or which declare themselves to be a permissible venture as per the particular statute. Alternatively, the legislature could recognize a particular form permissible venture agreement as constituting a secular loan. For Jewish law purposes, however, any such legislature must also state that the particular provisions of the agreement regarding the Recipient's ability to rebut the presumptions of profitability be enforceable.

77. The Congress would have to specify federal tax treatment.

78. If, for instance, banks were otherwise precluded from participating in partnerships, a law enabling them to enter into permissible venture limited partnerships might be challenged as promoting religion.

79. Opponents would presumably contend (1) that the "same type" of financing is presently available from non-Jews; or (2) that permissible venture agreements, because of the possibility of participation in profits and losses, would not in fact be the "same type" of financing.

80. See supra note 41. Pennsylvania may be the exception that proves the rule. The Pennsylvania Supreme Court has accorded weight to a declaration by contracting parties that their arrangement is not a partnership. Pappas v. Klutinoty, 383 Pa. 183, 18 A.2d 202 (1955). Citing this authority, a Pennsylvania Superior Court took the extra step of "enforcing" such a declaration against a third-party creditor even where the contracting parties were sharing both profits and losses from the business activity. The creditor sought to recover from the party who was inactive in the conduct of the enterprise. Rosenberger v. Herbst, 210 Pa.Super. 127, 232 A.2d 634 (Super. Ct. 1967). Interestingly, in commenting on this case, the Second Circuit Court of Appeals not only remarked that it would be inequitable for the parties' declaration to affect the rights of third parties, but also, erroneously, stated that there had been no such effect. In re PCH Associates, 804 F.2d 193, 198 (2d Cir. 1986).

81. Vohland v. Sweet, 433 N.E.2d 860 (1962), reh'g denied; Bacon v. Christian, 184 Ind. 517, 111 N.E. 618 (1916); Wyatt v. Brown, 281 S.W.2d 64 (Tenn. 1955), cert. denied; Murphy v. Stevens, 645 P.2d 82 (Wyo. 1982), reh'g denied, Beecher v. Bush, 45 Mich. 188, N.W. 785 (1881).

82. See, e.g., Randall Co. v. Briggs, 248 N.W. 752 (Sup. Ct. Minn. 1933); Claude v. Claude, 191 Or. 308, 228 P.2d 776, 783, reh'g denied, 191 Or. 341, 20 P.2d 211 (1951)(although agreement was designated as a property settlement agreement, it was a partnership agreement).

83. Oshatz v. Goltz, 55 Or.App. 173, 637 P.2d 628, 629 (Or. Ct. App. 1981).

84. Oshatz v. Goltz, 55 Or. App. 173, 637 P.2d 628, 529 (Or. Ct. App. 1981) ("A mere community of interest, such as the right to share in profits . . . does not make one a partner; the right to share in profits must result from part ownership of the business.").

85. Uniform Partnership Act 4(40(d), 6 U.L.A. 38 (1969).

86. Fenwick v. Unemployment Compensation Comm'n, 133 N.J.L. 295, 44 A.2d 172, 174 (E. & A. 1945).

87. See, e.g., In re Opelika MGF. Corp., 67 B.R. 169 (Bkrtcy. N.D. Ill. 1986)(applying Ga. Comm. Code 1-201(37)); In re PCH Associates, 804 F.2d 193 (2nd Cir. 1986)(legislative history indicates that Section 365(d)(3) of the Bankruptcy Code was intended to apply only to "true" leases).

88. Consider, e.g., the historical treatment as mortgages of documents which purport to convey to creditors legal title to real property.

89. See, e.g., In re Washington Communications Group, Inc., 18 Bankr. Rptr. 437 (Bankr. D.C. 1982) (use of a partnership agreement to establish a tax shelter will not create a partnership if the prerequisites of a partnership are not present); ; Skaar v. Wisconsin Dept. of Rev., 61 Wis.2d 93, 211 N.W.2d 642 (1973) (examining elements of a partnership), cert. denied, 416 U.S. 906 (1974); Fenwick v. Unemployment Compensation Comm'n, 133 N.J.L. 295 (Ct. E & A 1945) (profit-sharing agreement not conclusive of partnership); Preston v. State Industrial Accident Comm'n, 149 P.2d 957 (Or. 1944) (the parties' conduct toward a business venture determines whether they established a partnership or a partnership contract); Chaiken v. Employment Security Comm'n, 274 A.2d 707 (Super. Ct. Del. 1971) (intent to distribute profits is an indispensable requirement of partnership). See also supra note 60 (where a partnership relationship exists, the court will disregard agreements to the contrary).

90. In attempting to fathom the true intent of the parties, courts consider diverse factors including the parties' subjective goals, the parties' expectations, the negotiations between the parties, the parties' statements concerning their relationship, the parties' conduct and the economic effect of the transaction. See, e.g., In re Washington Communications Group, Inc., 18 Bankr. Rptr. 437 (Bankr. D.C. 1982) (creditor does not become partner by receiving percentage of profits); In re Opelika MGF. Corp., 67 Bankr. Rptr. 169 (Bankr. N.D. Ill. 1986) (disguised security agreement between debtor and creditor renders bankruptcy doe provision inapplicable); In re Nite Lite Inns, 13 Bankr. Rptr. 900 (Bankr. S.D. Cal. 1981) (implicitly holding that the same criteria may be applied to determine if a sale-leaseback is bona fide whether the context of the inquiry is state usury law or federal tax law).

91. One proposed justification is that in order to avoid paying the profit presumed by the permissible venture document, the Recipient must in any event take an oath. By making the scheduled payments to avoid taking the oath, he is not regarded as paying interest. See S. Schwadron, TESHUVOT MAHARSHAM, II, no. 216. In such a case, however, there would not have been the carrying-on of a partnership business for profit.

92. It is argued that the Recipient's employment was a profit-making activity and the advancement of funds which permitted the activity to continue constituted a business venture.

Another explanation was advanced where, but for the loan, the Recipient would have been forced to abandon his employment and seek a higher paying position. See J. NATHANSON, TESHUVOT SHO'EL U-MESHIV, Vol. I, part 3, no. 160. It is difficult to believe that a secular court would characterize the continued employment of the Recipient by a third party as the carrying-on of a partnership business. Indeed, many, perhaps most, Jewish law authorities do not view such an arrangement as a business venture. See, e.g., M. FEINSTEIN, IGGEROT MOSHE, Yoreh De'ah, II, no. 62; M. ARAK, TESHUVOT IMREI YOSHER, I, no. 108; GINAT VERADIM, Yoreh De'ah, klal 6, no. 4; S. ZALMAN, SHULKHAN ARUKH HA-RAV, Hilkhot Ribbit, s. 42; and S. GANZFRIED, KIZUR SHULKHAN ARUKH, 66:10.

If such an arrangement would be treated by secular law as a partnership, new problems might arise where such money was provided to a professional, such as an attorney who is an associate in a law firm, by someone who is not licensed to practice in that profession. Often, such as in law, there are rules which forbid the licensed professional to enter into a partnership with a non-licensed individual.

93. As already discussed, the Recipient must prove the amount of profits, or the absence of profits, through a solemn oath.

94. Cf. Moore v. Walton 17 F. Cas. 708 (N.D.Miss. 1874)(No. 9,779) (where agreement merely conferred upon a lender the option to receive a share of the borrower's net profits in lieu of interest, only an executory contract for a partnership was formed).

95. Of course, according to this particular part of my analysis, taken independently, if a Recipient proved profits and losses, a partnership relationship could exist.

96. A theoretical impossibility of calculation, however, could pose a problem from a Jewish law perspective, because Jewish law requires that there be a possibility that the permissible venture would have enforceable substantive effect unlike that of a loan.

97. If the permissible venture deems that the investment was made in the activity which was in fact most profitable, the investment activity will not be identified until after the venture terminates. It will be too late then to arrange for witnesses.

98. Factors such as increased good will, for instance, are not easily ascertainable, particularly when the temporal scope of the inquiry may be severely circumscribed.

Permissible ventures for the purchase of particular pieces of equipment needed by the Recipient in his ongoing business would also pose conceptual problems as to what the permissible venture "business" is. One might argue that it is a venture to rent the purchased property to the Recipient for use in his preexisting business. Alternatively, one could contend that it is an enterprise to participate, as a partner, in the Recipient's preexisting business. The fact that the permissible venture agreement does not specify the nature of the business may make it impossible to determine profits and losses. It is not at all clear that a rabbinic or secular court would supply such a missing material term.

99. Elon, supra note 25, at col. 504; Horowitz, supra note 25.

100. Feder, "Either a Partner or a Lender be": Emerging Tax Issues in Real Estate Finance, 36 TAX LAWYER 191, 204 (1983).

101. At least this is the case if the permissible venture agreement is properly prepared. See supra note 14 and accompanying text (restrictions on liability are seldom included in the permissible venture agreement).

102. Of course, if a court finds that the other features of a permissible venture are sufficient to constitute a partnership, the court could rule that, as a matter of law, the Financier was unlimitedly liable as a partner. Nonetheless, the fact that the parties expressly restrict the Financier's liability is relevant as to the parties' intent.

103. See, e.g., Buford v. Lewis, 87 Ark. 412, 112 S.W. 963 (1908) (sharing of business profits is an element in establishing a partnership relationship when assessing third party rights); Dubos v. Jones, 34 Fla. 539, 16 So. 392 (1894) (a lender who shares in the profits of the debtor's business in exchange of interest will be liable to third parties if the third party is misled into believing that a partnership existed); Southern Fertilizer Company v. Reams, 105 N.C. 283, 11 S.E. 467 (1890) (the fact that a partner is paid interest by the partnership in consideration of capital contribution will not change the parties' relationship to that of debtor/creditor).

The language of these decisions generally suggests that there might be special circumstances which could result in a finding that there was no partnership. See supra text at III-B (identifying special circumstances).

There is no valid policy justification for these precedents even where, in substance as well as form, the obligation to repay is conditional. The rule of these cases surely should not be extended and applied to a permissible venture, which is clearly a partial loan, that the Recipient is unconditionally obligated to repay. Viewing the two parts of the venture arrangement together, a court should conclude that a permissible venture is distinguishable from a partnership that attempts to limit liability.

104. See, e.g., Chocknok v. State, Commercial Fish. Entry, 696 P.2d 669 (Alaska 1985) (extent of spouse's participation in family business is an element in considering the existence of a co-ownership relationship); Commonwealth v. Southeastern Iron Corporation, 128 S.E. 528 (Sup. Ct. App. Va. 1925) (lack of community interest in and over business and property may prevent existence of partnership).

105. In conjunction with other restrictions on the Financier's rights during the term of the agreement, the buy-out option ensures that the Financier does not share in the venture's growth potential, further evidencing an intent not to form a partnership.

106. Where, for example, the permissible venture is for a limited purpose within the framework of an ongoing business, separate records would have to be kept on the permissible venture business.

107. From the perspective of Jewish law, it is certainly better that there be a reasonable connection between the expected profits and the rate of return on the funds "invested" by the Financier. Nevertheless, it is not clear to what extent such an interrelationship is actually required.

108. See supra text at II-D (restrictions indicative of permissible ventures).

109. See, e.g., supra notes 59-62 and accompanying text.

110. See Rochester Capital Leasing Corp. v. K & L Litho Corp., 13 Cal.App.3d 697, 91 Cal.Rptr. 827 (1970). The court stated that "[i]n determining whether a transaction constitutes a loan, the significant consideration is the substance of the transaction rather than its form or the terminology used by the parties." Id. at 702, 91 Cal.Rptr. at 830 (quoting Burr v. Capital Reserve Corp., 71 Cal.2d 983, 989, 80 Cal.Rptr. 345, 349, 458 P.2d 185, 189 (1969)).

111. See, e.g., Freese v. United States, 455 F.2d 1146 (10th Cir. 1972) (employee who received percentage of profits is not a partner); Sutton v. Schaff, 104 Kan. 282, 178 P. 418 (1919) (the sharing of profits and losses is a principal, but not conclusive test of partnership's existence); Rosenberger v. Herbst, 210 Pa.Super. 127, 232 A.2d 634 (Super. Ct. 1967) (although agreement provided for the sharing of profits and losses, one party's full control of the business prevented the establishment of a partnership).

112. If a particular permissible venture agreement would result in an effective interest rate, based on the entire sum advanced, in excess of that permitted under applicable usury law, an improper motive might be found.

113. Equitable estoppel may be employed to hold a party to a permissible venture liable to a third party. In the context of a permissible venture, however, there is little likelihood of third-party reliance on the existence of a partnership between the Financier and Recipient. Further, the parties to the permissible venture agreement themselves do not perceive themselves as partners.

114. See supra notes 59-60 and accompanying text.

115. The exact objectives may not be obtained by every investor in a corporation's common stock. For example, in a pursuant to the hetter iska, the Financier may still want the "profits" it is paid, or it pays, to be treated as interest. In a subchapter "S" corporation the income, if distributed, may be treated as ordinary income and in a non-subchapter "S" corporation, the income may be treated as a dividend. Nevertheless, at least ignoring possible securities law complications, a person could accomplish the financial objectives of a Financier in a permissible venture by purchasing stock in a subchapter "S" corporation where there is only one other shareholder.

116. The gain may be realized actually, through a dividend distribution, or equitably, through stock appreciation.

117. This may not be exactly what the parties to a permissible venture desire, because the income is treated for tax purposes as partnership profits and not as interest.

118. Uniform Limited Partnership Act 11, 6 U.L.A. 594 (1969). ULPA Section 11 states in its entirety:

A person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership; provided that o ascertaining the mistake he promptly renounces his interest in the profits of ht business, or other compensation by way of income.

Id.

119. Revised Uniform Limited Partnership Act 304(a), 6 U.L.A. 297 (1989). RULPA section 304(a) states in its entirety that:

Except as provided in subsection (b), a person who makes a contribution to a business enterprise and erroneously but in good faith believes that he [or she] has become a limited partner i the enterprise is not a general partner in the enterprise and is not bound by its obligations by reason of making the contribution, receiving distributions from the enterprise, or exercising any rights of a limited partner, if, on ascertaining the mistake, he [or she]:

(1) causes an appropriate certificate of limited partnership or a certificate of amendment to be executed and filed; or

(2) withdraws from future equity participation in the enterprise by executing and filing in the office of the Secretary of State a certificate declaring withdrawal under this section.

Id.

120. Id. at 304(b). Subsection (b) of RULPA section 304 provides for liability as a general partner where:

A person who makes a contribution of the kind described in subsection (a) is liable as a general partner to any third party who transacts business with the enterprise (i) before the person withdraws and an appropriate certificate is filed to show withdrawal, or (ii) before an appropriate certificate is filed to show that he [or she] is not a general partner, but in either case only if the third party actually believed in good faith that the person was a general partner at the time of the transaction.

Id.

121. Of course, if in a particular instance there is reasonable and detrimental reliance by a third party on the existence of a partnership arrangement, rather than a permissible venture, general rules of apparent liability might apply to protect them.

122. See Morrisey v. Commissioner, 296 U.S. 344 (1935). In addition, the Internal Revenue Service Treasury Regulations do not find state law classifications controlling. Treas. Reg. 301.7701-1-4.

123. The seminal case in this area is Gregory v. Helvering, 293 U.S. 465 (1935). In Helvering, the taxpayer was a shareholder in a corporation X. Corporation X owned 1,000 shares of corporation Y. The taxpayer desired to have corporation X convey to her the 1,000 shares of corporation Y in order that the taxpayer could sell the shares for her personal profit. If accomplished directly, the conveyance would have been treated as a dividend to the taxpayer and taxable as ordinary income. In order to be taxed at the then lower capital gain rate, the taxpayer caused a "reorganization" under section 112(g) of the Revenue Act of 1928. The court disregarded the reorganization, which was declared to have been a sham because the underlying tax avoidance motive was outside the plain intent of the reorganization statute.

124. See, e.g., Dorzbach v. Collison, 195 F.2d 69 (3rd Cir. 1952)(25% share of profits paid in lieu of interest held deductible as interest); Arthur R. Jones Syndicate v. Comm'r of Internal Revenue, 23 F.2d 833 (7th Cir. 1927)("[I]nterest, regardless of the name by which it is called, may be deducted by the taxpayer from its income."); Kena, Inc. v. Commissioner, 44 B.T.A. 217, 2119-21 (1941)(80% share of profits paid in lieu of interest held deductible as interest); Wynnefield Heights, Inc. v. Commissioner, 25 T.C.M. (CCH) 953 at 960, T.C.M. (P-H) para. 66, 185 at 1079(1966)(payment of fixed amount per house constructed in lieu of interest held deductible as interest); REV. RUL. 69-188, 969-1, CUM. BULL. 54 (whether something is interest does not depend on the label given to it by the parties; interest is "the amount one has contracted to pay for the use of borrowed money, and as compensation paid for the use or forbearance of money.").

125. Call v. Palmer, 116 U.S. 98 (1885); Rochester Capital Leasing Corp. v. K & L Litho Corp., 13 Cal. App.3d 697 (1970); Curtis v. LeMoyne, 248 Ill. App. 99 (1928), cert. denied, 278 U.S. 645 (1928); Bollag v. Dresdner, 130 Misc.2d 221, 495 N.Y.S.2d 560 (N.Y. Civ. Ct. 1985).

126. If the rabbinic authorities upon whom the parties to the permissible venture rely believe that the permissible venture need not be enforceable under secular law in order to be valid under Jewish law, then the permissible venture document should clearly recite that it is only to be effective under Jewish law and not under secular law. This might indeed insulate the parties from the implications discussed in the text.

127. The label which parties give to their relationship is of some limited weight when courts determine whether a partnership was formed. See, e.g., Fenwick v. Unemployment Compensation Commission, 133 N.J.L. 295, 44 A.2d 172 (Ct. E. & A. 1945); Chariton Feed and Grain, Inc. v. Harder, 369 N.W.2d 777 (Iowa 1985).

128. In a permissible venture, the Financier's investment typically equals one-half of the total sum advanced.

129. If a secular partnership is found to exist, a statement purporting to limit a partner's liability to third parties will be ineffective. Nevertheless, this type of declaration may be relevant when the court considers the threshold question of whether the permissible venture creates a partnership.

130. Unless, of course, there is some special reason why the Financier wants such control. In deciding whether the Financier desires such control, it should evaluate the prospects for imposition of lender liability. See supra note 17.

131. The purpose of this provision is to minimize the likelihood that the Recipient can prove losses.

132. Suppose, for example, that the Recipient called two witnesses to establish that there were net losses, and the Financier contended that the witnesses were not qualified under Jewish law or that their testimony was not competent or sufficient under Jewish law standards. A secular court might decide that it could not properly evaluate or determine such religious questions -even with the assistance of expert witnesses - and, therefore, could refrain from ruling on the dispute. See, e.g., Serbia Eastern Orthodox Diocese for the U.S.A. and Canada v. Milivojevich, 426 U.S. 696 (1976), reh'g denied, 429 U.S. 873. Although secular courts have determined or taken judicial notice of certain precepts of Jewish law, it is unclear whether those cases involved a genuine dispute as to the relevant rules. See, e.g., Burns v. Burns, 223 N.J.Super. 219, 538 A.2d 438 (1987); Rubin v. Rubin, 75 Misc.2d 776, 348 N.Y.S.2d 61 (N.Y. Fam.Ct. 1973)(Jewish family law issues).

Some have suggested a distinction between matters involving religious dogma and those relating to religious "civil" law. Minkin v. Minkin, 180 N.J.Super. 260, 437 A.2d 665 (1981) General qualifications of witnesses and evidentiary standards could be characterized as "civil" and a court could arguably construe and apply them just as the court might proceed if the parties had agreed to be bound by the law of a foreign country. But this distinction would collapse when applied to the eligibility of Jewish law witnesses. Improper religious observance can disqualify a witness, and a secular court is unlikely to rule as to the conduct which constitutes proper ritual performance.

Alternatively, a court could find that there was an implicit agreement between the parties to submit their dispute, if any, to a rabbinical court. In the family law context, at least one court has found that the parties to a Jewish marriage, who agreed to wed in accordance with Jewish law, also implicitly agreed to comply with a rabbinical court's decision regarding divorce. Id. The Financier in the permissible venture context could argue that in agreeing to witnesses who were reliable and trustworthy under Jewish law, the parties agreed to submit any dispute as to such requirements to a rabbinical court.

133. The Recipient's investment would include the present value of any pre-existing assets the Recipient has dedicated to the business.

134. Regarding the monies provided as an interest-free loan, the Recipient could be personally liable and could grant whatever security interest is agreed upon. Any such security interest could be set forth in a separate document or could be incorporated in the security document dealing with the funds the Financier invests.

135. Another reason to perfect the security interest would be to maintain its priority vis-a-vis other claimants and to prevent avoidance of its interest in any subsequent bankruptcy proceeding.

136. A modified non-recourse loan model might provide for the Recipient's personal liability, collateralized by a security interest in all of the venture's assets unless the Recipient properly proves losses, in which case the liability would be transformed into the non-recourse debt discussed in the text and collateralized by a security interest in only a fraction of the venture's assets. If feasible, this alternative would grant the Financier greater protection. Unfortunately, because conditional loan schemes are not in general use, a court might be less inclined to treat the arrangement as a loan.

137. Fenwick v. Unemployment Compensation Comm'n, 2133 N.J.L. 295, 44 A.2d 172, 174 (E. & A. 1945).

138. See, e.g., Dunlap v. Commissioner, 74 T.C. 1377, 1435 (1980)(non-recourse nature of mortgage does not preclude taxpayer from claiming depreciation).

139. See supra text at IV-B.

140. See supra text at III- B.

141. Of course even in a traditional debtor-creditor relationship, there is an inherent risk that the creditor will exercise "control" rights which might expose it to direct liability. See, e.g., supra note 17.

142. See supra notes 118-120 and accompanying text.

143. RULPA 204.

144. The probability of such a problem would be substantially diminished If the permissible venture agreement is properly drafted and requires the Recipient to indemnify and hold harmless the Financier from any liability in excess of the monies invested.

145. Revised Uniform Limited Partnership Act 207, 6 U.L.A. 281 (1989); Uniform Limited Partnership Act 25, 6 U.L.A. 610 (1969).

146. The proposal also assumes that the funds so deposited by non-Jewish sources, despite the fact that any funds physically deposited may be commingled and that any funds wired or carried on the books of the Federal Reserve do not physically "exist" to be separately maintained, can be maintained and dealt with as a distinct asset.

147. The rights of shareholders emanates from ownership of stock. The only conceptual manner in which to restrict the shareholders' respective rights is to affect the type of stock they own.

148. There is a possible problem, however, if during the term of the loan to or from the Jewish customer, the majority stock ownership shifts to from non-Jews to Jews. In such a case, the Jewish customer would have to liquidate its account, by withdrawing his deposits and paying off his loans. It would therefore be preferable for a lender continuously to keep track of the relevant percentages and to notify religious Jews of any significant changes. The disadvantage of this approach is that Jewish customers may be chilled by the risk that they would have to liquidate accounts in the future.

149. It is interesting to note that a religiously observant Jew desiring to deposit money in a "Jewish" bank will not necessarily be able to accomplish his religious objective by merely convincing the bank to enter into a permissible venture with him. Through such a permissible venture, the depositor would become a partner with the bank as to the bank's other business activities. Consequently, the depositor might become a partner of the bank as to interest-bearing loans made by the bank to other Jews. Presumably this problem could be solved if the permissible venture between the depositor and the bank is restricted to the bank's commercial activities with non-Jews.

150. Under Jewish law it would probably be best if the language of such nonrecourse loans states that there would be no personal obligation on the borrower, either as a matter of secular law or as a matter of religious law, to repay the loan, but that if the loan were not repaid in accordance with its terms, the lender was entitled to any and all rights against the collateral set forth in the respective collateral documentation.

151. The permissible venture document provides for, or should provide for, only a limited sharing of losses, not for the unlimited sharing which is incidental to a partnership.

152. The provisions set forth below in brackets are optional. Refer to Part IV of this article for a discussion of the function and usefulness of the proposed provisions.

As indicated in the text, there are disparate rabbinic opinions on Jewish law. Consequently, a person concerned with Jewish law requirements should consult a rabbinic authority of his or her choice to determine the propriety of this form.

Additionally, some states require consumer contracts to be drafted in language which may be plainly understood by the general population. See, e.g., N.J. Stat.Ann. 56:12-1 et seq.