Beit Midrash

  • Series
  • P'ninat Mishpat
To dedicate this lesson
part I

Precedence in the Payment of Multiple Debts


Various Rabbis

There are distressing scenes from time to time, when a company is in great debt and its few remaining assets will not suffice to pay all of the creditors, people who entrusted the company with hard-earned money, which can be lost forever. We saw such a case regarding many hundreds of people who paid the Heftziba building company for homes whose construction may never be completed. Some of them decided to take unilateral steps and squat in company-owned apartments, in lieu of the home they were to receive. Does such an action work or in any way improve the legal status of the creditor in relation to other creditors who did not take active physical steps?
The following is the Shulchan Aruch’s (Choshen Mishpat 104:1) rule for precedence among creditors when there is not enough property to go around for all. Whoever has the earlier date on his contract with the debtor is first to receive payment, whether it be to be paid from the real estate or from movable objects. This is true even if the payment date for the later creditor comes before that of the earlier creditor. He continues that if one who came later went and received payment from real estate before his turn, the property is taken away from him. Only when the rights of the two creditors started on the same day would we say that taking control of the property gives precedence to the one who did so (Shulchan Aruch ibid.:8).
One should point out that even in a case where taking control of the real estate has an impact, that is only when it was done with the involvement of beit din. This is because taking control without beit din estimating the value of the property is not valid. The way to have taken control improperly but in a somewhat valid manner is if the creditor can convince beit din that there are no creditors that have precedence over him and later on it will emerge that someone else did. In any case, squatters will gain nothing and may even be obligated to pay rent to the owner, and they are perhaps in the meantime in violation of theft.
The above applies to real estate, but the picture is different regarding movable objects (S’ma 104:1), for the following reason. One’s real estate becomes meshubad (subject to a lien) to the creditor from the time of the loan, as is recorded in a contract. The result of the lien is that payment can be executed from the property even if it was subsequently sold to another. Whoever holds the earlier contract has the earlier lien, which enables him to take it even from the other creditor who received the loan as payment (which makes it no more his than had he bought it). Regarding movable objects, there are no liens and therefore it makes no difference when the loan took place, in their regard. Actual possession of the objects, even if done outside the framework of beit din, is effective for movables, and the earlier creditor cannot remove the object from the "seizer’s" possession.
What happens if one does not actually seize movable objects but asks beit din to seize the objects on his behalf. The Shach (104:6) says that beit din would split the property equally among the creditors, regardless of who demanded the action. According to the S’ma (104:1), this is so regarding movable objects even if one with the earlier contract comes before beit din.
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