Assignment (of Debt)
Assignment (of Debt)
ASSIGNMENT (OF DEBT)
History and Development
Basically, Jewish law did not recognize the concept whereby personal rights or obligations (whether arising from contract or from a liability for damages in tort) could be legally assigned, either by the creditor or the debtor, to one who was not a party to the obligation itself. This was because a debt was considered intangible and therefore incapable of legal transfer (Rashi, Git. 13b; R. Gershom, bb 147b; Tos. to Ket. 55b). It was compared to the case of an object that was not yet in existence (davar she-lo ba la-olam) which also could not be transferred (see Tos. to bk 36b).
The development of commerce and its increasingly sophisticated requirements made it necessary however to overcome this difficulty in the law, and the assignment of debts, whether verbal or by deed, is already mentioned in the tannaitic period (Tosef., bm 4:3, et al.). Two principal methods of assignment were invented: (1) a form of novation, whereby an existing debt was canceled and an identical, but new debt created between the debtor and the creditor's assignee – all three parties consenting; and (2) a formula whereby the creditor appointed an agent to recover a debt on his behalf, but empowered the agent to retain the proceeds for himself. From these two methods were developed the two legal forms of assignment of debts dealt with in the Talmud, namely Ma'amad Sheloshtan (lit. "a meeting of the three") and Mekhirat Shetarot ("sale of bonds"). In addition, there was the Shi'buda de Rabbi Natan a process of legal execution entrusted to the court.
Ma'amad Sheloshtan, as an authorized legal transaction, is first mentioned by the early amoraim (Git. 13b). All three parties – the creditor, the debtor, and the assignee – being present together, the creditor would say to the debtor: "There is a debt owing to me by you; give it to – (the assignee)." On this simple oral declaration the assignee acquired good legal title to the debt and could claim it direct from the debtor. In the same way it was possible to transfer a pledge. The Talmud concludes that there was no legal reason for this arrangement, it having been evolved merely to facilitate commercial dealings (Tos. to Git. 14a).
However, some amoraim do suggest a legal basis for it. For example, Amemar opines that its legal justification rests on the assumption that, when the obligation first arises, the debtor is deemed to render himself liable not only to the principal creditor but to anyone claiming through him. On the other hand, R. Ashi takes the view that the benefit which the debtor enjoys from the cancellation of the original obligation to the creditor and the creation of a new one to the assignee, with a different date of payment, is itself sufficient to demonstrate, without further act or formality, the debtor's willingness to bind himself to the assignee as his new creditor. Relying on R. Ashi's reasoning, some held that the debtor's actual consent was required to complete a Ma'amad Sheloshtan, but others held that only his presence was necessary (Ran on Rif, Git. 13b). Thus, according to R. Ashi, the institution of Ma'amad Sheloshtan would appear to be equivalent to novation and it may be assumed that before Ma'amad Sheloshtan was recognized the assignment of debt was done by canceling the old debt and creating a new one through the formal act of kinyan ("acquisition"), constituting, in effect, a novation (Git. 14a).
Mekhirat Shetarot ("sale of bonds") was a method whereby a debt, embodied in a bond, was assigned by selling the bond and was effective when the bond was delivered to the assignee (bb 76a). However, although one opinion of the tannaim was that physical delivery was sufficient in the case of a bond, another opinion (by which the halakhah was ultimately decided) held that a further deed was required in the assignee's name, because whereas the act of delivery validly assigned the bond itself, i.e., the actual paper on which it was written, the debt, and the creditor's rights to the debt were not an intrinsic part of the paper and therefore not assigned with it. Accordingly, in the ancillary deed the creditor would confirm that the assignee should "acquire [the bond] and any rights contained therein" (bb 76b).
As to the sale of bonds, the amora Samuel stated: "If one sells a bond of indebtedness to another and then releases the debtor from his liability, the release is valid [and therefore binding on the assignee], and such release can even be given by the creditor's heir [with the same third-party consequences]" (Ket. 86a). The basis for this ruling was that since the initial premise (stated above) was that a debt was intangible and thus incapable of legal transfer, the creditor is really doing no more than giving the assignee a power of attorney to recover the debt and keep the proceeds. This is, in fact, the second of the two earlier methods of assignment already referred to. As the assignee is, from the strictly legal point of view, no more than an agent of the creditor, the latter remains competent to release the debtor or even to recover the debt himself. In such a case, however, it was accepted as the halakhah that the creditor would be liable to compensate the frustrated assignee for any loss he sustained.
As the Ma'amad Sheloshtan, unlike the sale of bonds, was not based on the principle of agency, it would seem that after its completion the original creditor could no longer give a valid release to the debtor (Tos. to Git. 13b). Nor could a Ma'amad Sheloshtan be used as a means of selling a bond (Siftei Kohen, no. 97 to Sh. Ar., Ḥm 66:29), since being a form of novation whereby a new debt is substituted for an old one, the old debt ceases to exist and becomes valueless. The Talmud explains (Ket. 86a) that if a new bond is addressed to the assignee the original creditor is no longer competent to release the debtor – his debt having ceased to exist and there being no question of agency, as in the case of sale of bonds.
Other explanations have also been advanced to justify the validity of a release by the original creditor, even after he has sold his bond. One is that whereas the sale of bonds was mide-rabbanan ("instituted by the sages"), the legality of a release of a debt was mi-de-orayta ("stemming from biblical law"; Maim., Yad, Mekhirah 6:12; Tos. to bb 76b). This explanation is, however, questionable, as in other cases of sale instituted by rabbinical enactment (including the Ma'amad Sheloshtan) a subsequent release by the assignor was not recognized. Another explanation suggests that the original creditor has two rights from his debtor – one proprietary and the other personal, the latter being inalienable. This also presents difficulty since a debt itself is intangible and therefore inalienable; it is strange therefore that the idea of a personal right, which is not mentioned elsewhere, should be introduced here, when the general rule would be equally applicable. If the original creditor transferred a pledge he was holding to the purchaser he cannot then release the debtor (see *Pledge).
It may be assumed that in tannaitic times the assignment of debts, whether verbal or under bond, was also effected by means of a power of attorney proper, known in the Babylonian Talmud as urkhata (bk 70a). However, although tannaitic sources mention powers of attorney with regard to the assignment of debts (Rashi, Kid. 47b), in the Babylonian Talmud – where such a device is not recognized as applying to intangibles (such as debts) – the references mentioned are interpreted differently (Kid. 47b; Or Zaru'a, bk 296). Presumably the formula "institute proceedings, acquire and take for yourself," forming part of the text of a power of attorney, was a relic from the tannaitic period when the assignee was appointed as attorney to recover the debt and then retain the proceeds. In Babylonia this form of attornment was only used for the recovery of movables, not debts, and certainly not for the assignment of debts (bk 70a and Tos.), leaving unanswered the question of why this device was necessary in view of the well-established rule that "a man's agent is like himself" (Yam shel Shelomo, bk 7:12).
Assignment by the Debtor
Although the Babylonian Talmud does not mention the case of a debtor assigning his liability to another, reference to this can be found in the Mishnah (bm 9:12) and in the Jerusalem Talmud (cf. bm 4:1), but only in relation to a banker or shopkeeper, both commonly engaged in financial transactions (Gulak, in: Tarbiz, 2 (1930/31), 154–71). It is possible that assignments of this kind were effected by a means similar to the Ma'amad Sheloshtan, to which they are compared by the codifiers (Rif, Halakhot, bm 111a). Details of such assignments are unknown, however, particularly as the Ma'amad Sheloshtan is not mentioned in the Jerusalem Talmud.
In post-talmudic times the power of attorney was used for the recovery of debts, but not for their assignment (Tos. to bk 70a; Maim., Yad, Sheluḥin ve-Shutafin 3:7; see also *Attorney). Some authorities held that a bond of indebtedness, drawn in favor of the creditor and anyone claiming through him, enabled it to be assigned by mere delivery and thereafter precluded the original creditor from releasing the debtor; but others disagreed (Sh. Ar., Ḥm 66:26). It was also customary to draw a bond in favor of "whomsoever may produce it"; this being assignable by mere delivery and precluding the debtor's release by the assignor (Responsa Rosh 68:9), and the bond thus became negotiable (cf. J.J. Rabinowitz, Jewish Law (1956), 342ff.). In Poland, from the 16th century onward, a bond drawn in favor of "whomsoever may produce it," bearing only the debtor's signature, the amount of the debt, and the date of payment, became customary. Such a bond was known as a "Memoram" and was, in effect, a negotiable instrument like a promissory note (Levush, Ir Shushan 48; Sma to Ḥm 48:1).
Modern Israel Law
In the State of Israel the assignment of debts is governed by the Assignment of Obligations Law, 1969, under the provisions of which every obligation or any part of it can be assigned either by the creditor or by the debtor. The debtor's assignment can only be made with the agreement of the creditor. Promissory notes and checks are in common use and are governed by the Bills of Exchange Ordinance, 1929, which permits the assignment of a debt by the mere delivery of the relevant bill. According to some authorities, the assignment of debts, too, is given by an obligation in the form of "undertaking to bind himself" (mesha'abbed nafsho) (Git. 13b), in other words by obligating himself (see Lifshitz, Bibliography).
Sh. Ar., Ḥm 66 and 126; Gulak, Yesodei, 2 (1922), 96–104; A. Gulak, Toledot ha-Mishpat be-Yisrael, 1 (1939); Ha-Ḥiyyuv ve-Shi'budav, 96–104; Herzog, Instit, 1 (1936), 201–12; S. Albeck, in: Tarbiz, 26 (1956/57), 262–86; M. Elon, Mafteaḥ, 58–60. add. bibliography: B. Lifshitz, Promise – Obligation and Acquisition in Jewish Law (1988).