THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean 

Lesson # 69 - Application of Proceeds 

The borrower admits that he has two loans that he owes to the lender, each in the sum of $100. From the perspective of the lender, one is a stronger loan since it has security deposited with the lender or because it has a strong guarantor guaranteeing the loan. The other loan does not have a security deposit or a guarantor, and from the lender’s perspective is a weaker loan. The payment date of both loans is due or past due. The borrower gives $100 to the lender and does not specify to which loan the $100 repayment should be applied. The lender wants to apply the $100 to the repayment of the weaker loan and the borrower pleads that he intended to pay off the stronger loan. Beth Din will accept the plea of the lender and the repayment is applied to the weaker loan. The result would be the same even if the borrower states that he wants the $100 to be applied to the stronger loan and the lender states that he will apply it to the weaker loan.

Furthermore this would apply even if the borrower stated he was repaying the stronger loan and the lender remained silent. The lender can allege that he remained silent when the borrower stated that he was repaying the stronger loan because otherwise the borrower would not have made the repayment. The lender is permitted to plead that his intent was to receive the payment on behalf of the weaker loan. The repayment will be applied in all of these instances to the weaker loan and the stronger loan will be still be owed. 

If at the time that the loan is repaid, the lender states that he is receiving the repayment for the stronger loan, he may not recant. If the lender is holding collateral security for the stronger loan, he must return it to the borrower and cannot now state that he is holding the security for the weaker loan. However, if Beth Din feels that the position of the borrower has financially deteriorated so that the lender’s ability to collect the weaker loan is impaired, Beth Din may permit the lender to retain the security for the weaker loan. If a disagreement arises between the parties as to whether the lender agreed to accept the payment to the stronger loan, and the payment was made without witnesses being present, the lender may take a hesseth oath and the repayment will be applied to the weaker loan. The borrower, if paying by check, can write on the check that the repayment is for the stronger loan and if the lender deposits the check then it will be deemed that he agreed that the repayment is for the stronger loan. 

If the loans were not yet due when the borrower repays $100, the borrower can designate for which loan the repayment should be applied. If the borrower fails to designate at the time of repayment, the lender can designate to which loan he will apply the repayment. 

If one loan is not yet due and the other loan is past due, neither party may allege that the repayment of the loan is to the loan not yet due. Since, as was stated in a prior lesson (Torah Tidbits #448) 

Beth Din will take judicial notice that a person will not repay a loan not yet due, especially when he owes money on a past due loan. If a loan does not have a specified time of payment, it will be deemed to be repayable thirty days after the loan was made and the law of the prior sentence will apply to it. However, if there are witnesses who testify that the repayment was for the loan not yet due, their testimony is controlling, although it contradicts the presumption that a person does not prepay loans.

Reuven borrows $100 from Shimon and thereafter Levi borrows $100 from Shimon and Reuven is a guarantor of the later loan. Both loans are past due and Reuven paid $100 to Shimon. The payment must be applied to the loan of Reuven and not the loan of Levi for which Reuven is a guarantor. 
Levi, a borrower owes $100 to his lender Reuven and also $100 to another lender Shimon. Levi, in the presence of witnesses, designates Shimon to be his messenger to deliver to Reuven $100 that Levi owes to Reuven. Shimon takes the $100 without stating anything. Unless Shimon agreed that he will take the $100 to Reuven, Shimon may retain the $100 for the repayment of his own loan. If Shimon had agree that he would take the $100 for Reuven, Shimon must give the $100 to Reuven. Assume there were no witnesses present when Levi gave Shimon the money and it was in cash or by a check made out to cash so that there is no evidence to show the repayment was meant for Reuven. Shimon can successfully allege that he never received the money since there were no witnesses when the money was delivered to him. Therefore Shimon can plead that he did receive money and to be applied to the debt due to him. 

Levi, a debtor with several creditors sends a messenger to repay several creditors in cash. The messenger pays he entire amount to one creditor. The creditor who is holding the entire moneys must return it so that it can be paid to all of the creditors according to the original instructions of the borrower. The reason is that as soon s the messenger receives the moneys on behalf of all of the creditors, each creditor is deemed to have received his share by the messenger acting as his agent. A person need not be aware of the fact that someone is acting on his behalf if there is benefit to the person on whose behalf the agent, in this case the messenger, is acting. 

In the presence of witnesses, Reuven the lender, designates Shimon to be his agent to receive payment from the borrower for moneys due from the borrower to Reuven. Or else Reuven instructs the borrower to make the payment to Shimon. After Shimon receives the money from the borrower, Shimon states that he received the money in payment of a debt from the borrower to himself. Shimon must return the money to Reuven. 
The lender designates Shimon to receive payment from the borrower and tells Shimon that he may apply the payment from the borrower to whichever of the two loans is outstanding. Shimon receives payment and gives the payment to the lender. Shimon leaves the jurisdiction and is not present to be asked to which loan he received the payment. The borrower pleads that Shimon received the payment on behalf of the stronger loan. The lender cannot plead to deny this, so that his plea is one of uncertainty. The borrower’s pleas is believed without even having to take an oath. But if the lender does not instruct Shimon to apply the repayment to whichever loan he desires, then the lender is believed, since he holds the notes of indebtedness.

The subject matter of this lesson is more fully discussed in Volume III, Chapter 83 of A Restatement of Rabbinic Civil Law by E. Quint and on sale at local Judaica bookstores. Questions to quint@inter.net.il