New Heter Iska case, reported by Larry Kobrin, Esq.:
A reported case in the New York Law Journal illustrates the dangers of an attempted use of the heter iska form without coordination with counsel on the transaction. Heimbinder v. Berkovitz, King County NY Supreme Court, IA Part 4, Justice Demarest, reported in New York Law Journal, February 17, 1998, page 29, col. 4.
The case involved a claim that following a corporate borrowing from plaintiff, the defendants had fraudulently conveyed the corporate assets to other corporations without consideration. For the most part, the court found for plaintiff on factual grounds not here relevant.
As a last cause of action, plaintiff sought to recover personally from one of the principals who had been asked to sign a heter iska agreement governingt the transaction to permit the interest payments. Plaintiff claimed that the heter iska text (which individual defendant did not understand in Hebrew and had never seen before) was properly construed as a personal guarantee.
After some analysis, particularly the fact that a personal guarantee had been requested and previously rejected, and distinguishing earlier New York cases on the heter iska, the court found for the defendant on this particular claim.
While this decision may have come out correctly, the danger remains that a last minute request for a heter iska, if it is considered necessary, without any attempt to coordinate the document and possibly without any conversation with counsel on either side, has the potential for great confusion and danger.
It may be that in this particular case, it would have served the defendants right, given the report of the fraudulent conveyances, the risk might be imposed on blameless individuals in other circumstances.
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