THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean 

Lesson # 88 •Property that May Be Traced

When the creditor makes a levy on the assets of the debtor, all assets in the hands of the debtor may be levied upon, whether or not they were owned by him when the loan was made. If the debtor does not have sufficient assets to pay the creditor, the creditor can trace realty of the debtor that he owned at the time that the loan evidenced by an instrument of indebtedness was made. If the debtor, after the loan was made, sells or transfers such realty by gift, the creditor can trace it to the purchaser or the donee. However. if the debtor acquires the assets after he borrows the money, the creditor does not have a lien on such assets and cannot trace them to purchasers or donees, except as stated in the next paragraph. 

The creditor may not levy on realty sold by the debtor if it is acquired by the debtor after the loan is made unless the instrument of indebtedness expressly places a lien on the after-acquired realty. If the instrument includes such a lien, then the creditor may trace such after-acquired realty to a purchaser from the debtor. The clause regarding after-acquired realty must be specific and cannot be inferred, i.e., the omission thereof cannot be ascribed to an omission of the drafter of the instrument. There is a strong dissent that holds that just as failure to include a lien clause in the instrument is attributed to the error of the draftsman of the instrument and the instrument is treated as if the lien clause were contained therein, so an instrument, without any lien clause (for owned or after-acquired property) is deemed to contain an after-acquired property lien clause. Even according to this last view, if the instrument includes some lien clause and omits a clause regarding after-acquired property, then there will be no presumption that the after-acquired realty clause was omitted in error. 

There is an opinion that even if the instrument contains a clause liening after-acquired realty, the borrower may rescind this clause until such time that he actually acquires property after the loan. The later commentators reject this view. 

The debtor borrowed money from lender on January 1, which loan is due on March 1, and the instrument of indebtedness does not include a lien on after-acquired realty. The debtor sells his realty to Reuven on February 1. On March 1 the debtor has no assets to pay the lender. The lender wishes to levy on the realty purchased by Reuven from the borrower. Reuven pleads that the realty purchased from the borrower was not owned by the borrower on January 1 but was purchased by the borrower after January 1 and is therefore not covered by the lien of the lender on the borrower's realty. The lender pleads that the realty was owned by the borrower on January 1 and is therefore covered by his lien and is subject to the levy of the lender. The lender has the burden of proof that the borrower did own the realty on January 1. However, there is an opinion that if there are witnesses that the debtor owned the realty for a long time and he was possessed of it when Reuven purchased it, then Reuven has the burden of proof as to when the borrower purchased the realty. The first opinion is the preferred view.

On January 1 Reuven makes a gift of all his realty to Shimon to take effect: "from today but after my death.” It is not known which realty was owned by Reuven on that date. Reuven dies and the heirs claim that the realty they inherited was not owned by their father Reuven on January 1. Shimon pleads that the realty the heirs inherited was owned by Reuven on January 1 and therefore belong to Shimon. Shimon, the recipient of the gift. has the burden of proof that the realty was owned by Reuven on January 1.

Reuven loans $100 to borrower on January 1 and on February 1 Shimon loans $100 to borrower, both loans being payable on April 1. On April 1 the borrower does not have sufficient assets to pay both of the debts except for one parcel worth $100. Reuven pleads that on January 1 the borrower owned the realty the borrower holds, and therefore Reuven should be able to make the first levy on the realty in the hands of the borrower. Shimon pleads that the borrower did not own any realty until February and therefore neither Reuven nor Shimon have a lien or priority on the realty owned by the borrower on April 1, and therefore each should receive $50. Absent proof of either creditor's position, Reuven will receive $75 and Shimon will receive $25.

The same facts as in the above paragraph, except that Shimon pleads that the borrower purchased the realty on January 15. Reuven and Shimon will each receive $50. 

Reuven loans $100 to Shimon and the instrument of indebtedness does not contain an after-acquired property lien clause. Shimon dies and leaves only a daughter who inherits his assets and is then married. Reuven pleads that the assets inherited by the daughter were owned by Shimon on the date of the loan and were therefore liened to Reuven. The daughter and her husband plead that the assets were not owned by Shimon on the date of the loan and were therefore not liened to Reuven. Reuven cannot levy on the inherited assets in the hands of the daughter's husband because the husband stands in a position equivalent to any purchaser of the assets of the borrower from the heirs of the borrower, which assets were not liened.

Reuven could trace the inherited assets to the daughter if she did not marry.
Reuven loans money to Shimon on January 1, and on that day Shimon owns a valuable gold watch. The loan is due on March 1. On February 1 Shimon sells the gold watch to Levi. On March 1 Shimon has no assets to pay Reuven. Ruven may not trace the gold watch to Levi. The law is the same if Shimon gave the gold watch to Levi as a gift. rather than by sale. Even if Reuven, the lender, warns Levi not to purchase the gold watch from Shimon, Reuven cannot trace the watch to Levi.

If the borrower gives away the watch as a gift made in contemplation of death, then the lender can trace the watch into the hands of the recipient of the gift. If the instrument of indebtedness contains a clause liening the personal property of the borrower along with the lien on the realty, then the lender obtains a lien on the personal property owned by the borrower on the date of the loan. The lender can trace the personal property to a purchaser if the borrower sells the personal property and does not have sufficient assets to pay the lender.

If the lien clause also specifies that it covers after-acquired personal property along with the lien on realty, then it will be given affect. This holds true even if the borrower sold his realty before he acquired the personal property.

The lien will be effective if the instrument contains the words that the lien "is not an illusory contract8 nor a draft form” or if the lien clause should contain the words that the lien is effective ''as of now." 

In order for the lien along with realty to be effective, the borrower must own some realty, however small. It is not necessary that the personal property be on the realty. The lien also attaches to things that move about on their own, such as cattle. 

If the borrower does not own any realty, the lender may transfer to the borrower a small piece of realty among his own realty. Or he may loan or lease some realty to the borrower. The precise location of the realty need not be designated for the lien on the personal property to be effective. If neither the borrower nor the lender has realty, the lender may still state that he transfers realty to the borrower and takes a lien on the borrower's personal property along with the lien on the realty. 

The laws of liening the borrower's personal property along with the lien on the borrower's realty are not in effect today in order to protect the purchasers of personal property and thus encourage the free flow of commerce. 

The subject matter of this lesson is more fully discussed in Vol. IV, Ch.118-119 of A Restatement of Rabbinic Civil Law by E. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores. 
Questions to quint@inter.net.il