Case:


Ruling: The Shulchan Aruch (Choshen Mishpat 2:1) says that the leaders of a city can administer punishments, including the confiscation of money at their discretion. Those who differ refer to the confiscation of money; all agree that a city’s leadership can levy taxes to finance the needs of the city (S’ma 2:11). Therefore, the city had the right to demand pl to pay for the work they did. So too the need to consult a great man before obligating someone does not apply to standard taxes.
Was it permitted, though, to charge interest on the overdue payment? Rav Daichovsky said that they can do so for two reasons: 1) Since "the city" is not a private legal unit, it may borrow and lend with ribbit. 2) Interest required of one who is late in paying his debt to a government entity is not ribbit but a penalty payment they can levy. Rav Eliezerov argued on both points, claiming: 1) Those who treat governments differently only allow them to borrow money with ribbit, not to obligate citizens to pay them ribbit. 2) The city should have defined the late payments as a penalty; once they referred to them as interest, it became forbidden to charge that money. Still, he did not feel one could extract damage payments from def. Rav Elchadad said that linkage to the CPI was permitted, but the interest payments were not. However, since it was not done in the form of a loan, the prohibition was only rabbinic.
According to Rav Daichovsky def was permitted to serve as an agent and thus is not a party to a suit about something he did properly for another. Rav Eliezerov said that the agency (his acting as an agent) was valid because def acted without realization that it was forbidden (b’shogeg) to extract the interest payment, as the prohibition in this case was not a clear cut one. In the case of shogeg, we cannot blame the agent for accepting the agency and therefore he does not share legal responsibility (see Tosafot, Bava Metzia 79a). Rav Elchadad pointed out that regarding a rabbinic violation some say that the agency is valid after the fact. Furthermore, the Rama (Yoreh Deah 160:16) posits that the prohibition of taking interest applies only when the money changes hands between the borrower and the lender, and not when an agent is the middle man. Although many dispute this Rama, the Nekudot Hakesef (ad loc.) supports it and, therefore, def can cling to the Rama’s position and pl cannot extract payment from him.