It’s always important for business people to familiarize themselves with the cultural nuances of their customers and business partners. Doing business within the observant Jewish community is no different, so in honor of Small Business Week (May 5-11, 2019), here are four things small business owners need to know about contracts and Jewish law:
- You don’t need to do anything special to make a contract enforceable under Jewish law. Jewish commercial law can be incredibly complicated, and some of the details have to do with the requirement of a kinyan: a symbolic act that indicates agreement and that is necessary to make a contract effective and enforceable. If you’ve ever attended a Jewish wedding, you may have seen the groom perform a kinyan by taking a handkerchief from the rabbi to signify his acceptance of the ketuba, the Jewish marriage contract. But luckily, you don’t need to own a handkerchief to enter into a business contract that will be binding under Jewish law. Any solemnizing act that is customary works as a matter of Jewish law to lock in an agreement. In the time of the Talmud, placing a seal on a wine barrel signified a sale and made it binding. Today, signing a document that is enforceable under local law will typically make it enforceable as a matter of Jewish law as well.
- Jews can’t charge other Jews interest, but there is a solution to this problem. The Torah (Leviticus 25) prohibits interest payments, and the rabbis extended the prohibition to include other similar charges. Hundreds of years ago, they developed a mechanism called a heter iska, whereby interest-like payments are restructured as permissible profit distributions as a matter of Jewish law, without affecting the secular law treatment of the deal. If your contract calls for interest payments, or even for certain accruing penalties for late payments, it’s critical to include a heter iska provision in your agreement.
- Contracts should include an arbitration provision. Life is unpredictable, and sometimes even the best of business relationships end in acrimony. Disputes between Jews should be settled by mutual agreement and, in any event, not through court litigation. A beit din (rabbinical court) is the ideal forum for dispute resolution because it is compliant with Jewish law and much more efficient, and therefore less costly, than the courts. But not every beit din is the same and fighting parties can end up in a stalemate regarding which beit din should hear their case. The only way to avoid this is by including an arbitration provision in your contract naming a beit din that is known for its competence and professionalism.
- If you want, you can include a choice of law provision in your agreement. Just as Jewish law is mindful of local custom in determining how a contract is formed (see item 1 above), it also takes into account commercial custom and local law when deciding disputes on their merits. This is especially true when the parties explicitly adopt a choice of law clause. The Rules and Procedures of the Beth Din of America state that, “in situations where the parties to a dispute explicitly adopt a ‘choice of law’ clause, either in the initial contract or in the arbitration agreement, the Beth Din will accept such a choice of law clause as providing the rules of decision governing the decision of the panel to the fullest extent permitted by Jewish Law.” So if your expectation is that a particular set of laws will govern your transaction, you may want to make that clear in a governing law provision in your contract that says something like, “any disputes arising under this agreement shall be decided in accordance with the laws of the State of New York.”
There is plenty more to say about contracts and Jewish commercial law in general. But keeping these tips in mind will ensure that all parties will be bound to the written commitments they make to the greatest extent possible.
This posting is not an official document of the Beth Din of America; proceedings before the Beth Din of America are governed by its rules and procedures.