Chametz on Pesach Part 3 of Halakhot of Investing in the Stock Market

by Rabbi Dr. Asher Meir

This article is divided into six parts:

Part 1 – The Nature of Stock Ownership
Part 2 – Forbidden Interest (Usury)
Part 3 – Chametz on Pesach
Part 4 – Trading in Forbidden Foodstuffs
Part 5 – A Company with Shabbat Operations
Part 6 – Varying Levels of Stock Ownserhip

In the first installment of this shiur, we discussed the GENERAL question of the ownership status of the shareholder. As we explained, one point of view sees the shareholder as an owner of the company and of its assets – like an ordinary partner. The other point of view views the shareholder as a kind of creditor – he has made an investment and will receive a return, but the true owner of the company is someone else: a controlling interest, the management, or perhaps even the company itself, recognized as a legal person in halakha as it is in the secular law.

We also called attention to the many ways in which a shareholder resembles a silent partner (noten iska), whose halakhic status is well established.

We concluded that while many lenient opinions exist, the most prominent contemporary authorities are not willing to create a blanket exemption from halakhic responsibility for the shareholder, but rather view him as a partner to at least some extent. We also pointed out that the power of the minority shareholder and his SECULAR legal status as owner are rather greater than many people are aware. However, even the stringent opinions acknowledge the high degree of insulation of the shareholder from company operations and this insulation may lead to various leniencies which however need to be discussed on an ad hoc basis.

The second installment focused on problems of forbidden interest between Jews.

This installment will focus on the problem of owning shares in a company which owns chametz on Pesach.

 

I. DEFINITION OF THE PROBLEM

The halakhic discussion regarding shares in a chametz-owning business around Pesach revolves around three distinct prohibitions:

 

  1. “Bal yiraeh uval yimatzeh”: the Torah prohibition to own chametz during Pesach – even if we do not derive any benefit from it;
  2. The Torah prohibition of deriving benefit from chametz on Pesach – even if the chametz does not belong to us;
  3. The Rabbinic prohibition of deriving benefit from chametz which belonged to a Jew during Pesach and was not properly disposed of.

We will discuss each problem in a separate section.

 

II. “BAL YIRAEH” – PROHIBITION OF OWNING CHAMETZ

The Torah commands us (Shemot 12:19) “For seven days no leavened matter shall be found in your houses”. This commandment has a “twin”, (Shemot 13:7) “And no leavened matter shall be seen to you. nor any leaven [itself] be seen to you, in all your borders, for seven days”. Although according to some opinions there may be cases where chametz is “found” without it being “seen”, as a rule these prohibitions overlap and they are generally referred to as a single prohibition, “bal yiraeh uval yimatzeh” – “[chametz] may not be seen and not be found”.

The properties of being “found” and “seen”, as characterized by the words that the chametz shouldn’t be seen “to YOU”, make this prohibition practically speaking basically one of OWNING chametz. Chametz not belonging to a Jew is NOT part of the prohibition, and chametz which DOES belong to a Jew is subject to the prohibition even when it is is not in the Jew’s house. (Though there were Geonim who ruled that a Jew’s chametz in gentile’s domain was not forbidden – see Rosh Pesachim I:4. This view is rejected by the Rishonim.)

The definition of ownership as regards chametz has slight differences from the definition of ownership regarding other laws, being both more stringent and in one way and for a related reason more lenient.

Here are three stringencies regarding the characterization of “ownership” as it relates to chametz:

  1. In many cases, an object’s status as an “issur hanaah” – something forbidden to benefit from – in effect expropriates it, making it no longer the property of the supposed owner. However, the gemara tells us: “Two things are not in a person’s possession yet Scripture rendered them as if they were in his possession: a pit in the public domain, and chametz from noon [Erev Pesach – when the prohibition of benefit begins] onward.
  2. Mere responsibility for an object is not always considered like ownership; regarding chametz, Jewish responsibility IS considered like ownership. (Regarding chametz, responsibility is considered like ownership “lechumra” – both ownership without responsibility and responsibility without ownership are forbidden – see SA OC 440:1. Cases where responsibility is NOT considered full ownership, see OC 649 (lulav), EHE 28:1 (kiddushin). Case where it is considered responsibility only as a leniency – YD 320:7 (bechor). Case where it is considered ownership in both directions – stringent and lenient – YD 168-9:21 (interest). A disputed case – OC 246:4. Chametz is the most stringent of these cases.)
  3. The Jew’s partial ownership is considered total ownership, and expropriates the ownership interest of the non-Jewish partner. “Rava said: hekdesh (dedication), chametz and manumission expropriate liens.” (Yevamot 46a.)

However, some authorities perceive an associated LENIENCY. The Chatam Sofer writes (OC 63) “Since chametz is not really in a person’s possession and Scripture made it as if it were in his possession, [therefore] a mere demonstration [gilui daat] that he doesn’t want it is enough”. And the Mishna Berura (448:17) writes “Since chametz after the time it becomes forbidden is in any case not in his possession except that Scripture made it as if it were in his possession to transgress the prohibition, even a minimal conveyance is sufficient, since at any rate he has demonstrated that he doesn’t want it and removed it from his domain.” (These leniencies are ultimately based on our ability to nullify our chametz. See Ran on the Rif at the beginning of Pesachim s.v. “umahu”)

When we examined the applicability of the interest prohibition to the modern corporation in the last installment, we found many different approaches to the question. While some lenient views were based on a particular way of looking at corporations, many others were based on novel ways of looking at the interest prohibition in general. On the whole we find fewer innovative approaches to the prohibition of owning chametz on Pesach. Most of the discussions boil down to the GENERAL question of whether a shareholder is a partner – in which case the company’s assets belong to the shareholders – or whether he is a mere creditor.

As was the case with interest, a pioneering – and lenient – responsum was written by Rav Yitzchak Izaak HaLevi Ettinga (Mahari HaLevi II:124). Rav Ettinga begins by discussing the question of chametz that belonged to a Jew during Pesach, but later on he asserts: “It seems that [the shareholders] are guilty of no wrongdoing in that they did not sell their shares”.

Rav Ettinga then goes on to liken the company’s chametz to chametz in the mouth of a snake, which one need not go to lengths to destroy (Pesachim 10b). We can understand this halakha in one of two ways:

  • Chametz in the mouth of the snake still belongs to the owner, but even so he need not destroy it since currently he has no access to it. This is similar to the approach outlined by the Ramban on the Torah, Shemot 12:19.
  • Chametz in the mouth of the snake is already destroyed, since the owner will not be able to recover it.

According to the first understanding, the Mahari HaLevi would be saying that even if the chametz really does belong to the shareholders, this ownership is of no consequence for the prohibition of “bal yiraeh” since this prohibition requires some degree of access or control.

According to the second understanding, Rav Etinga would be saying that just as the difficulty of recovering the chametz in the snake’s mouth demonstrates that it is no longer in the ownership of the erstwhile owner, likewise the legal impossibility of a shareholder getting a hold of “his” chametz in the company’s inventory convincingly shows that company assets don’t belong to the shareholder at all.

We recall from last week that regarding interest the Mahari HaLevi explicitly wrote that the bank funds do not belong to the shareholders.

Rav David Tzvi Hoffman (Melamed LeHoil OC 91) was asked the same question, again regarding chametz AFTER Pesach. He revealed that this question was asked on an exam in the Hildesheimer Seminary; that all of the students ruled leniently; and that Rav Hildesheimer wrote on all the exams that the final ruling was proper. Rav Hoffman mentions all of the different leniencies which were mentioned by the students, but unfortunately we do not know which ones Rav Hildesheimer considered decisive, and this is very significant since most of the reasons are relevant only for the issue of chametz after Pesach, whereas Rav Hoffman sought to use this incident as a basis for a lenient ruling even on chametz DURING Pesach. In the end the ruling is that there is no need to sell the shares of a brewery before Pesach if a loss will be involved.

At least one of the students in the seminary did not forget about this question after the exam was finished. Seminary student Shaul Weingurt, who went on to become a charismatic Torah leader in Switzerland after the war until he perished in a tragic accident, wrote a long article on the subject of the limited liability corporation in halakha which was later printed in a memorial volume “Yad Shaul”. This article, in which Rav Weingurt concludes that corporate assets do NOT belong to the shareholders, was a seminal piece of halakhic research cited by many other authorities.

It would be interesting to research corporate law in 19th century Germany to see if the extent of shareholder participation was similar to what it is in 20th century Israel or the Unites States. Certainly regarding banks, which are highly regulated and in which the shareholders may only have been depositors, there is a basis for making a distinction; however, it does seem from Rav Hoffman’s responsa in particular that shareholders had a genuine stake in the business.

One attempt to relate our question to a more fundamental study of the nature of the chametz prohibition is found in Sheelat David of Rav David Karlin. In this responsum, the author examines the ruling of the Geonim, mentioned above, which exempts chametz which belongs to the Jew but which is not on his property, and wonders if this may not be an additional lenient consideration. But in the end he does not find sufficient grounds to be lenient.

As mentioned in part I, Rav Weiss (Minchat Yitzchak III:1) and Rav Sternbuch (Mo’adim U-zemanim Vol. III, 269, note 1) both reach the conclusion that a shareholder is a partner and therefore it is forbidden to own shares in a publicly traded company which owns chametz. However, both are lenient to allow selling the shares as part of the customary sale of chametz.

This is a significant leniency because regarding shares, which are extremely liquid and whose price is widely publicized, the sevident subterfuge of the sale of chametz is very great. Unlike whiskey which is certainly worth a lot but which may require special knowledge to assess and to market, the gentile who buys the chametz can easily evaluate if it will pay him to sell the shares of stock he acquired instead of selling them back to the Jew. Even so, the lenient considerations which led some other authorities to permit owning shares altogether influenced these poskim to allow this evident subterfuge.

Rav Sternbuch expresses worry that such a sale may not be valid according to securities laws. While it is true that these laws require registration of every sale of securities, an expert I spoke to confirmed that failure to report does NOT void the sale, so that it seems this worry is unfounded. (This question recalls the famous dispute between the Chatam Sofer and the Barukh Taam – Rav Barukh Frenkel – regarding the “stempel” or tax stamp. Rav Frenkel was concerned that the sale of chametz was void since no tax stamp was placed on the liquor. But the Chatam Sofer (I:113) explained that this did not mean that the Kaiser failed to recognize the validity of the sale, merely that he was willing to exempt this particular sale from the stamp.)

A separate problem is in the validity of the sale itself. Superficially, it would seem that my sale to the Rav, which is done with a proper halakhic conveyance (kinyan) is at least as good as my original acquisition of the securities which was in all probability made with a telephone call to a non-Jewish broker whom I don’t even know. However, the true situation is a bit more complicated. The latter sale is certainly a conveyance universally recognized in commerce – a sitomta. Halakha definitely recognizes such an acquisition. (See BM 74a, SA CM 201.) The former sale is certainly adequate for ordinary goods, but could be problematic if we consider the stock certificate to be a “shtar” or note. Sale of notes are subject to special restrictions, and picking up the Rav’s pen or handkerchief is not sufficient. (SA CM 66.)

It seems that this also is not an obstacle. Ultimately, looking at the stock certificate as a note is tantamount to saying that my shares are not an asset but merely a credit. And as we have emphasized, according to this approach the problem of chametz actually does not arise, since a creditor does not own the chametz of the debtor and certainly need not divest himself of it.

It would seem even more logical to sell the company’s chametz itself. After all, if I own it I can sell it, and if I DON’T own it I don’t have to sell it! The problem with this approach is that the company is likely to acquire or create more chametz during the holiday.

It seems that the most prudent course is to explicitly mention to the Rav that sales of chametz-owning companies are being sold together with other chametz at the customary pre-Pesach sale.

 

RESPONSIBILITY – “ACHARIUT”

It could be objected that even if the company’s assets do not belong to shareholders, they are at any rate in the shareholders’ responsibility. The value of the shares declines dollar for dollar with a decline in the value of company assets, and even if the shares are a loan, loan collateral is also a case of responsibility when the collateral is the only way to collect!

However, this does not add any additional stringency, since responsibility is forbidden only in the Jew’s own domain (as we see in SA 440 and 441). This is unlike ownership which is forbidden anywhere, and also unlike chametz which belongs completely to a non-Jew which we may have even on our own property (SA OC 440:2). Those who view the chametz as belonging to the company, and not the shareholder, view the company premises as well as belonging to the company, and so this responsibility does not create a problem.

This resembles the issue of insurance. Since the insurance company will have to pay the company if the company’s chametz is burned or destroyed, the insurance company has a kind of responsibility for the chametz. The solution to this problem is again that the chametz is not in the possession of the insurer.

PROHIBITED BENEFIT – “ISSUR HANAAH”

Again, it may be argued that the chametz does not belong to the shareholder, but the shareholder certainly benefits from it. In the case of a brewery or a bakery, it is a primary source of revenue. (We could be lenient regarding benefit in the case of a company cafeteria and the like – which WOULD be a problem for the ownership prohibition.)

However, it seems that this also does not add any stringency. If the shareholder does not own the chametz, then the change in the value of his shares is not due to the chametz itself but rather to the change in the price of chametz. We could use the parallel of someone who owns an option to buy a stock, or a future on some commodity. The value of the option or the future is directly influenced by the price of the company or commodity, but it is clear that the holder of one of these financial instruments does not own anything beyond a bet on their value.

We might object that in this case we still run into the Rabbinical prohibition of “rotzeh bekiyumo” – desiring the existence of chametz. Some Rishonim forbid this, and the SA seems to rule like them. (See SA OC 450:7 and Mishna Berura there.) However, this prohibition is violated only when the benefit is from the chametz directly, not when the chametz will help the Jew indirectly by helping him to collect his loan (OC 441:2) or to hire out his draft animal (OC 450:7).

It seems that regarding this prohibition the benefit from the chametz’s existence needs to be quite direct.

 

CHAMETZ AFTER PESACH

As we mentioned, chametz which belonged to a Jew during Pesach becomes forbidden to benefit from after Pesach. Can this be a problem for shareholders?

Of course, chametz after Pesach is no more problematic than chametz during Pesach, and if one’s share in a company is not considered ownership of the chametz then there is no problem. It also seems that according to the point of view which views shares as a partnership, if the shareholder sold his shares as explained above, then he is benefitting from his own chametz which belonged to a non-Jew during Pesach.

The problem arises according to the approach which sees shareholding as partnership, in the case where the shareholder neglected to sell his shares before Pesach or where he desires to purchase shares AFTER Pesach from some Jew who neglected to sell.

In this case, there are two main avenues to a leniency. One is that various leniencies apply toany Rabbinical prohibition. Regarding Rabbinic prohibitions we may apply the principle rule of “bereira” (imputation). If there are many non-Jewish shareholders and many asssets which are not chametz, we may attribute the chametz to the non-Jews and other assets to the Jews. Several authorities have written that in such a case we may rely on nullification of the forbidden chametz if it is the minority of the firm’s chametz. (See Melamed LeHoil 91 in the name of Rav Hildesheimer.)

In addition, this particular prohibition is a “kenas” or fine. Since we customarily do not apply a fine when the offending party has some authoritative opinion to rely on, it seems that the lenient opinions are sufficient to prevent this problem even for someone who will not rely on them for the much more severe Torah prohibition of owning chametz on Pesach.

 

CONCLUSION

Regarding chametz on Pesach, the halakhic authorities more or less follow their fundamental opinions regarding their approach to stock ownership in general. Those who view the shareholder as a mere creditor are lenient, and are not concerned by ancillary prohibitions such as the benefit prohibition or “desiring the existence” of the chametz. Those who view the shareholders as a full partner forbid owning shares of companies which own chametz during Pesach, but it seems that we may be lenient to include these shares in our customary sale of chametz, and that it is prudent to do so.

Part 1 – The Nature of Stock Ownership
Part 2 – Forbidden Interest (Usury)
Part 3 – Chametz on Pesach
Part 4 – Trading in Forbidden Foodstuffs
Part 5 – A Company with Shabbat Operations
Part 6 – Varying Levels of Stock Ownserhip

Rabbi Dr. Asher Meir received his Ph.D. in Economics from MIT, and received his Rabbinic ordination from the Israeli Chief Rabbinate after 12 years of study at Israeli Rabbinic Institutions (yeshivot). Rabbi Meir directs the Jewish Business Response Forum at the JCT Center for Business Ethics and Social Responsibility, and is a Senior Lecturer in Economics at the Jerusalem College of Technology