Community Magazine July 2009

88 Community magazine Torah Law The legal obligation to pay for merchandise, services or a monetary loan is enforced by the Bet Din in accordance with Torah law. 1 When the debt is too overwhelming for the defen- dant to pay all at once 2 , the Bet Din may propose a payment schedule. With regard to forms of payment other than cash, the law varies depending on the nature of the debt. If a monetary loan was extended and the borrower has no cash to meet his obligation, he may use real estate as a form of payment to reimburse the lender. Since the lender was obviously aware at the time of the loan that the borrower was short on funds, he must have anticipated the possibility of being compensated for his loan in forms other than cash. 3 If, on the other hand, debt is accumulated by means of trade or service, the creditor is entitled to demand a cash payment because at the time when the merchant shipped the goods, he expected to be paid with money and not in any other from. Therefore, in such cases the creditor may impose on the debtor the responsibility of selling his property in order to make a cash payment. This rule applies as well to accumulated debt for back wages or other types of services rendered. 4 These laws pertain to both personal debt and corporate debt. If, however, a corporation effectively ceases to exist as a result of bankruptcy, a debtor is not personally liable to the company’s creditors. Corporate bankruptcy law established by the American government has been accepted by Torah law under the rule of dina demalchuta dina (the law of the land is binding). 5 Corporate bankruptcy law has two primary goals: to protect a debtor by giving him a fresh start, free from creditors’ claims, and to ensure the equitable division of the debtor’s assets among competing creditors. As both these objectives are for the benefit of the commercial market, corporate bankruptcy legislation is upheld by the Bet Din, provided that no fraudulent activity transpired. Furthermore, all transactions performed in the commercial market are subject to the customs and considerations of the merchants. Hence, when a creditor ships merchandise to a corporate entity, he assumes the rules and regulations of the market – including corporate bankruptcy – to be in effect. 6 In addition, very often a vendor is known to have poor credit, and the risk factor was anticipated from the onset. In light of all these reasons, corporate bankruptcy legislation is commonly accepted by nearly all Rabbinical courts. Interestingly, a creditor need not collect directly from his debtor; at times, he may collect from a third party. For example, if Reuven owes Shimon money, and Shimon owes Levi, Reuven is considered to owe the money directly to Levi. 7 Although Reuven did not borrow from Levi, the debt transfers automati- cally, and Reuven must therefore recognize Levi as his creditor and litigate with him. 8 Hence, if Reuven negotiates a deal with Levi to settle the debt at a lower price, the savings are to his advantage. However, it is important to note that this rule applies only if Shimon does not have the means to pay Levi on his own. 9 If Shimon has property or assets to pay Levi, the debt is not auto- matically transferred to Reuven, and Reuven may not negotiate a deal with Levi. Hence, if Reuven chooses to negotiate a deal nonetheless, he is acting as an agent on behalf of Shimon, and all proceeds of the negotiations are to Shimon’s advantage. Verdicts VERDICT 1 WHEELING AND DEALING Bet Din ruled in favor of Al and obligated Marc to pay him the outstanding balance of $50,000. Although Marc owed Al, and Al owed the bank that exact sum, since Al had corporate assets to cover his debt to the bank, Marc is not considered a debtor of the bank. Hence, when Marc negotiated a deal with the bank, he assumed the status of an agent acting on Al’s behalf, saving him $50,000. Since Marc only paid $400,000 of his debt for Al, he still owes him the balance of $50,000. And while it is true that Marc secured the discount through his shrewd negotiations, he is not entitled to any compensation, since Al also may have been able to achieve the same settlement had he negotiated with the bank himself. VERDICT 2 IN GOOD FAITH Jack, president of a limited liability corpora- tion which declared bankruptcy, is absolved of all debt to Albert. He surely need not sell his private home and is not obligated by law to compensate Albert in the future. However, in good faith, Jack verbally reas- sured Albert that when he manages to get back on his feet, he would do his best to at least partially compensate Jack for the loss. VERDICT 3 SLOW BUT SURE Norman is not entitled to repay his creditors in any form other than money. The Bet Din therefore worked out a 27-month payment plan at $10,000 a month, enabling Sol to collect the debt without putting Norman out of business. At first, Sol wasn’t happy with the terms, but after the Bet Din explained to him that the payment plan was also in his better interest, he readily accepted H ashem’s PrioritiesOur Sages write in the Gemara, “He who gives life provides sus- tenance.” May Hashem have mercy on us and restore our livelihoods, for we are His children. It is our respon- sibility to maintain our service to Him even during these difficult financial times. A Yeshiva education for our children, support of worthy Torah institutions and charity for the poor and needy are the utmost priority to Hashem. Instead of cutting out or altering these vital necessities, we now have an opportunity to prove our dedication to Hashem. May we rise to the occasion by generously supporting the Torah, and Hashem will then guarantee us unlimited blessing from His plentiful hand. Shulhan Aruch, Hoshen 1. Mishpat 1:1. Ibid. 97:27. 2. Shulhan Aruch, Hoshen 3. Mishpat 101:2. Aruch Hashulhan 101:3; 4. Shulhan Aruch, Hoshen Mishpat 336:2. Igrot Moshe, H.M. 2:62 5. and Y.D. 2:62,63. Hidushei Rabbi Akive 6. Eiger, H.M. 12:13; Pit’hei Hoshen 1, pg. 27. Shulhan Aruch, Hoshen 7. Mishpat, 86:1. Kesot Hahoshen 86:1. 8. Shulhan Aruch, Hoshen 9. Mishpat 86:2.