Beit Midrash

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To dedicate this lesson
based on ruling 75001 of the Eretz Hemdah-Gazit Rabbinical Courts

Losses from Financially (and Morally) Bad Loans – part II

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Beit Din Eretz Hemda - Gazit

Kislev 7 5781
Case: The plaintiff (=pl) and the defendant (=def) were the primary players in a business (=bus) that provided large, high-risk, high-interest loans (=bor); pl ran the business, and def was the silent owner. Bus advanced cash at interest rates of up to 8% monthly in return for much higher post-dated checks. After its own initial investment of funds, bus received cash from another business (=sup) to whom they gave those checks for a lower rate (2.1%) of interest (bus’s profits were from the margin); pl and/or def served as cosigners to sup. Pl got some borrowers to give cash instead of honoring the checks, even when their checks were already given to sup. Several of the borrowers have defaulted, bus has closed, and pl and def now owe sup and other investors many hundreds of thousands of NIS. Pl demands the following: 1. To be released from debts as a cosigner to sup (441,000 NIS) and Mr. P. (400,000 NIS), because he was improperly pressured. 2. To have money he and his mother invested (350,000 NIS) and expenses he outlaid for bus (149,000 NIS) returned. 3. Back-pay for months of work. Def claims that pl caused great losses by surpassing the amount of credit def agreed to, especially for some very large loans. Pl admitted in discussion with Mr. P, who mediated, that he should pay for much of the losses (1.25M NIS plus interest). Def claims to have not promised pl a salary, just 15% of profits.

Ruling: [Last time we criticized the taking of high interest and determined that pl can be held responsible for unauthorized lending and was deserving of salary.]

During the mediation attempts of Mr. P., who invested 900,000 NIS in bus, pl took responsibility for 600,000 NIS of losses. In general, when one singles out witnesses for an admission or it is done in a serious setting such as a beit din, he is held to it (see Shulchan Aruch, Choshen Mishpat 81). There is a machloket Rishonim whether admission in front of one is also valid. The Shulchan Aruch (ibid. 10) rules that it is valid, but the Shach (ad loc. 22) says that one can prevent extraction of money based on the other opinion (kim li). Thus, while there is not a full status of admission, that which was said before Mr. P., which was also recorded, is significant.

Pl claims that his openness to obligation was based on a mistake. In general, admission is fully impactful regarding facts, but when the actual obligation depends on not simple legal/ halachic considerations, the admitter is not assumed to necessarily know the halacha. In general, if one can demonstrate that his admission was based on a mistake, he is not bound by it (Shulchan Aruch ibid. 20). In this case, pl says that had he known the extent to which def was aware of all the loans and took steps to cover himself by working on liens for some of the big loans, he would not have seen himself as responsible. Therefore, we will take the facts agreed upon with Mr. P. as accepted, but not fully accept as binding all responsibility pl accepted then.

We conclude next time.
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