CHIEF RABBI, HACHAM SHAUL KASSIN 5681 – 5779 / 1921-2018

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A TIMELY COLLECTION?

By: Rabbi Max Sutton



THE CASE

Jack extended a loan of $10,000 to his brother-in-law, Nathan, nearly five years ago when Nathan was out of a job. Since then, Nathan’s financial status has well improved, though he never responded to Jack’s request to pay his outstanding debt. Nearly a year later at a family wedding Nathan noticed that Jack was sporting a new watch. Nathan inquired about purchasing Jack’s previous watch and Jack replied that he was interested in selling it for ten thousand dollars. The very next day he gave Jack ten thousand dollars cash for its purchase. Jack received the cash payment and informed Nathan that he was collecting the payment on account of the ten-thousand-dollar unpaid debt he was owed. Nathan was upset that he was shrewdly lured into such a predicament and pledged to bring an additional ten thousand dollars the following evening to pay back his debt. He told Jack that although he already purchased the watch, he agreed that it is to serve as collateral until he brings him the money owed. Jack responded that the watch is not for sale, and that he already collected the money owed. The two brothers-in-laws brought their case to our Bet Din.

Is Jack required to accept another $10,000 and sell Nathan his watch? Can Jack refuse to sell him his watch after he received the cash from Nathan under false pretenses? How should the Bet Din rule and why?

TORAH LAW

According to the ruling of the Shulhan Aruch, one is required by law to pay back an outstanding loan. In the absence of an agreed upon term to pay back the loan, it is assumed that the lender extended the loan for a thirty-day time period. It is a serious injustice when a borrower has the financial capacity to pay back a loan and withholds the required payment. A borrower who does not pay back his debt promptly is severely labeled by a Bet Din for his misconduct.

According to leading halachic authorities, when a borrower and lender explicitly discuss the sale of an item prior to payment, the lender may not retain the payment as collection for his debt. Since the lender verbally agreed to receive payment for the sale, he is required to honor the sale. Nevertheless, in such instances, although the lender must honor the sale, he is entitled to withhold the item sold as collateral until he receives payment for the loan. In short, only after the borrower first pays back the loan is the lender required to honor the payment he received and give the item purchased to the borrower. 

The above ruling is applicable in instances in which the lender verbally consented to the sale. If, however, the borrower initiated the purchase and the lender remained silent throughout the transaction, never consenting to the sale, the lender may collect the payment for his loan. Alternatively, if the lender initially requested his loan, and during that same conversation the borrower and lender discussed the possibility of a purchase, the lender is entitled to collect the subsequent payment to cover the debt owed to him. In this instance as well, the lender has the legal right to claim that he never explicitly consented to the sale, and accepted the payment in lieu of the outstanding debt.

Leading halachic authorities record a possibility in which a lender is permitted to nullify a purchase even in the instance in which he explicitly consented to the sale. As per nearly all sale transactions, both parties maintain the legal right to immediately nullify a sale. Hence, if within one and a half seconds of the payment the seller announces that he is reneging on the sale, the sale is effectively cancelled. Once cancelled, the lender may retain the payment he received for the outstanding loan. While this technical loophole is legally valid, due to the required swiftness, there is only a remote possibility that it would occur. Upon inquiry, a Bet Din can easily determine if such a loophole is applicable.

As with all cash payments for merchandise, it is the legal responsibility of both parties not to renege on a transaction. Nevertheless, if the product purchased was not yet taken into the possession of the buyer, various laws that are beyond the scope of this article determine the status of the sale if one of the parties decides to renege.

VERDICT It’s About Time

Our Bet Din ruled that since Jack explicitly consented to selling the watch, he is not entitled to nullify the sale and retain the payment for the outstanding loan. Although he did not yet transfer the watch to Nathan’s possession, nevertheless, receiving payment is a form of acquisition, and nullifying such a transaction is a complicated matter with undesirable consequences.

Although Jack is required to honor the sale, since he is owed an additional $10,000, he is entitled to withhold the watch as collateral until the debt owed him is paid. Our Bet Din consented to Nathan’s offer to first pay back Jack for the loan, and only after is he to receive the watch he purchased.

For reasons unknown to our Bet Din, Nathan never did pay Jack the additional $10,000 he owed and agreed to pay him. When we inquired as to Nathan’s future intentions, he responded that he no longer was interested in purchasing the watch. Hence, our Bet Din informed Jack that he was entitled to retain the payment for the outstanding loan. Additionally, our Bet Din took the opportunity to chastise Nathan for having the capacity to pay back his debt, but rather chose to neglect his responsibility and attempt an exorbitant purchase.  A borrower who does not promptly pay back a debt is severely labeled by a Bet Din for his misconduct.