Money and Means of Payment in Halakha (2)

 

 

C. "CHECKS AND BALANCES": PAYMENT VIA FINANCIAL INTERMEDIARIES

 

            Today, the vast majority of money transactions do not involve any money at all - sums are "transferred" from one account to another by way of checks or interbank transfers, and all that really occurs is an offsetting of sums - the computer of the bank (or central bank) adds a sum to the account of one customer and subtracts the same sum from the account of another.  We need to consider the halakhic nature of such transactions.

 

1. BANK BALANCES

 

            First, we must examine the status of the bank balance in and of itself.  Even though we are accustomed to calling money in the bank a "deposit," in reality there is no deposit there, but only a debt of the bank to the account holder.  A bank balance of a thousand dollars is, in fact, a statement of how much the bank owes to the account holder of that sum.

 

            Government statistic view bank deposits as "money" - M1 - because they are widely accepted in trade.  But, ultimately, the acceptability depends on the reliability of the individual bank.  For this reason, it seems that halakhically we can not view regular individual bank deposits as "money."  Central bank deposits are a much more interesting subject, which will have to be left for another article.

 

            One question of interest regarding a bank balance is whether it is considered a debt which is contracted orally (milveh be-al peh) or by a note (milveh be-shtar).  There is a considerable distinction between these debts.  The lien effected by an orally contracted debt is not valid after the liened object is transferred to a third party, because such a lien is not considered notorious.  Another difference is that as long as a note exists, the burden of proof that payment was made is on the borrower.  But if there is no note, his claim that the debt was repaid is accepted in court.

 

            An intermediate form of debt is a handwritten note - "ketav yado."  Once the borrower has signed that he owes the money, according to many opinions he bears the burden of proof as if there were a notarized note.  But since there is no notoriety (as there is by a witnessed note), there is no lien (CM 40:2).  This seems to be analogous to a bank account: on the one hand, the borrower/bank provides documents to the lender/account holder to prove the size of his balance, but this information is not known to any outside parties.  This is the conclusion of Rav Tzvi Yehuda Ben Yaakov in an article in Techumin ("Hashikim - Tokfam ve-Halikhutam," Techumin 13, pp. 441-442).

 

            Another extensively discussed question regarding a bank balance is whether it is considered "muchzak" (actually held) or "ra'ui" (fit to be collected) for primogeniture - the double share of inheritance due the first born son in actually held assets.  This is partially dependent on the above question about the status of the bank balance.  A milveh be-shtar is considered collected and is therefore judged as "muchzak" (Bava Batra 124b and Rashi s.v. Milveh); but a milveh be-al peh is only "ra'ui" since it is only a promise, as it carries no lien.  It follows that a bank account, which is a "signed loan," would be considered only "ra'ui," and this is in fact the opinion of many poskim (Ginat Veradim, Even Ha-ezer 4:19; Responsa Ya'abetz II:32, Shoel U-meshiv II:D:84; see article of Rav Tzvi Yehuda Ben Yaakov, p.440).

 

       Rav Avraham bar Mordechai Ha-levi raises the possibility in Ginat Veradim (ibid.) that a bank account is considered "muchzak" since practically speaking, it is an extremely secure debt, and it should be no worse than "makirei kehuna" - priestly gifts whose owner has consistently given to a particular kohen, and which are considered muchzak (Bava Batra 123b).  But he concludes that since a gift of makirei kehuna is an existing object and not merely a debt, it is impossible to generalize from its example to that of to a bank balance.

 

            Bank accounts covered by government deposit insurance are a very safe investment indeed - do they have the status of "muchzak?"  According to Arukh Ha-Shulchan (CM 278:13) they do, but the Noda be-Yehuda (1st ed., CM 34) claims that even a debt of the government itself is like any other debt and considered only "ra'ui."

 

2. CHECKS

 

            The status of checks is one of the most interesting and involved questions in the halakhot of "means of payments."  The Talmudic precedent for check writing (as well as the linguistic source for the modern Hebrew word for check), comes from the case in the mishna and gemara in Bava Metzia 111a of "himchehu etzel chenvani."  The case is an employer who directs a storekeeper (by whom the employer has credit) to pay his workers their salary on his behalf.  The very act of directing the storekeeper to pay is considered payment at least to the extent of releasing the employer from the prohibition of holdover of pay - but it does not create a true debt from storekeeper to worker.

 

            Medieval Jewish merchants used two kinds of instruments which were very similar to the modern check or, more precisely, letter of credit: the mukaz and the mamran.  There are innumerable responsa on these instruments, but we will not discuss them here.

 

            Three main approaches to checks appear in the literature:

 

            1. The check is merely a directive from the payer to the bank to carry out his wishes and transfer money to the payee.  The bank is merely the agent of the check writer.  The check has no value (unlike money) nor does it promise value (unlike a promissory note); it merely orders someone else to provide value (like himchehu etzel chenvani).  This is the opinion of Rav J. David Bleich in an article in Tradition ("Survey of Recent Halakhic Periodical Literature," Tradition 24(1), Fall 1988, p.75) with respect to American checks given without consideration - that is, not in return for goods and services.

 

            [The check is a creature of the secular law, and its status will depend on the law of the country or state of circulation.  The checkholder is in a stronger position in the State of Israel - where it is a criminal offense to cancel a check and where, in addition, the universal presence of a heter iska gives the deposit a partial status of a bailment as well as a debt - than he is in the United States where there are criminal sanctions only for a check given with consideration.  A check given as a gift is, under American law, a "naked promise," as Rabbi Bleich points out.]

 

            2. Although the action of a check is through its "written agency," it may in addition constitute evidence of a debt from writer to payee; in this case the check may be considered the promissory note of the payer.  Rav Bleich seems to view checks given in return for consideration, as well as all Israeli checks, as falling into this category.

 

            Rav Zalman Nechemia Goldberg, in an article in Techumin ("Tokef Ha-Hitchayvut Limkor be-'Zikhron Devarim,'" Techumin 12, p.295-296), weighs these two options: "We need to examine if a check creates an obligation, as one who creates an obligation through a note ... or whether there is no language of obligation in a check, but only the language of a directive to the bank that they should give money to the payee."

 

            3. The giving of a check in and of itself effects a transfer of the bank's debt to the account holder over to the payee: the debt itself, and not merely a promise to pay the debt, is transferred.  This could occur in one of two ways:

 

            A) According to a revolutionary understanding developed at length in Rav Ben Yaakov's encyclopedic article in Techumin, the transmission of the check is actually an instance of the Talmudic rule of "ma'amad shloshtan," whereby a debt can be transferred from a creditor to the creditor's creditor by a simple verbal agreement between the debt's seller and buyer in the presence of the debtor (see Bava Batra 144, 148).

 

            B) Some poskim have considered transmission of a check to effect a valid sale of the debt according the rule of "sitomta" - a kinyan which is customary among merchants.  Such a position is advanced by Rav Yaakov Blau in Pitchei Choshen on the laws of debts (chapter 10, note 21), is also held by Rav Moshe Feinstein (Igrot Moshe, CM II:15, s.v. Ve-hinei), and is brought in the name of Rav Elyashiv in the book Mekhirat Chametz Ke-hilkhato (cited by R. Ben Yaakov, p. 429).  Since the validity of kinyan sitomta is subject to many limitations, this version is not quite identical in practice to that of Rav Ben Yaakov.

 

            According to this opinion, the check could be considered a promissory note of the bank to the payee; the check is the note which enables the payee to collect from the bank.  Rav Blau writes in Brit Yehuda (chap. 15, note 38): "In the case where there is a sufficient bank balance, the bank owes him the money, and according to banking practice it is as if the bank has obligated itself to pay anyone who will present a valid order of withdrawal."

 

            It is implied in the text above that the first two understandings are not mutually exclusive; the check is an order to pay which may in addition be considered a promissory note   Less obviously, the last two understandings are also not contradictory: the check implies an obligation of the payer and may in addition be considered an obligation of the bank.  In fact, Rav Blau himself in Pitchei Choshen on Loans, chapter 10 note 21, relates to a check in terms of a promissory note of the drawer.

 

            There are two main reasons that most poskim have not accepted the view that the check effects a transfer of the debt.  One is that the account holder has the uninhibited ability to cancel his check, or withdraw his funds (even though he will face sanctions).

 

            Answering this claim, Rav Ben Yaakov explains that the ability to cancel the check is not due to the fact that the debt belongs to the payer, rather it is because it is in his possession.  A bailee has the technical ability to prevent the deposit's owner from obtaining it from his premises, but this does not make him the owner.  By the same token, the payer has the ability to prevent the debt's owner - the payee - from collecting, but this does not make him the owner of the claim (loc. cit. p.424, note 1).

 

            Another reason is that even in Israel where the checkholder is in a very strong position, the law does not recognize any obligation between the bank and the payee; if the bank refuses to pay, then only the account holder can bring action for breaching the account agreement.  In other words, even the secular law does not recognize an obligation of the bank to the payee.  (See Rav Ben Yaakov, ibid., who has a technical resolution of this problem.)

 

            What about a check or transfer from an account in overdraft?  Since the bank does not owe the money to the account holder, it seems as though this is impossible to view as a transfer of a debt.  However, some opinions rule that there is no difference between an account in plus or minus.  For instance, Rav Blau in Pitchei Choshen (Halva'a, 10: n.21) sees a basis in "minhag ha-medina" - customary practice - for seeing even an uncovered check as creating a debt to the payee.

 

            Rav Ben Yaakov (loc. cit. p.444) bases himself on the Rambam in Hilkhot Mekhira 22:3, who writes that a valid kinyan is made when one contracts to provide a commodity at the current market price.  The Kesef Mishneh has two explanations how we circumvent the usual rule that it is impossible to transmit something not in one's possession.  One possibility is that if the object is readily available, it is as if in possession: the other is that the Rambam is not referring to a kinyan which is fully binding, only one which is impermissible to retract.  He suggests that even according to the second resolution the kinyan is valid at any rate as a conditional transfer.  Since money is certainly readily available, a kinyan effected via the bank even from an account in debit is valid, and it can create a debt from bank to payee.

 

3. ELECTRONIC MONEY

 

            Some people believe that the future heralds a truly "cashless economy" where actual tokens of value would be completely obsolete.  "Electronic money" can be expected to come in two forms:

 

            1. The debit card.  Instead of sticking a bank card into an Automatic Teller Machine and receiving cash, which is then given to a merchant, who will then deposit the cash, the payer will take a shortcut.  A card reader at the merchant will debit the payer's balance (as the ATM does) and credit that of the merchant, without the need for actual money.  Many areas are already using debit cards.

 

            In this case, it seems obvious that the debt - an object of value according to Jewish law - is transferred to the payee, and that the debit transaction constitutes payment.  This is an obvious parallel to the case of "ma'amad shloshtan" described above.

 

            2. The "electronic wallet," a portable computer which securely effects transactions and updates the holder's account information.  In this way, one can transfer money to any individual with a corresponding electronic wallet, and not only to a merchant who has a special card reader.  The owner of the electronic wallet will interface his computer with the bank every so often to update the "wallet's" transactions.

 

            What is envisioned is that the updated balances can continue to circulate among electronic wallets for a period of time without updating the bank; in effect this would create a parallel currency, backed by the banks.  Present-day checks, which can be transferred, could theoretically function as a parallel currency, but as a matter of practical fact they do not: many people do not accept third party checks at all, and almost no one accepts them from someone they do not know well.

 

            This electronic money bears a very close resemblance to the privately issued banknotes backed by specie that we mentioned above.  In return for "real" money - the account holder's deposit - the depositor receives a "token" from the bank, namely the balance registered in the electronic wallet.  This is the parallel of receiving a gold or silver certificate in return for a deposit of precious metal coins.  These balances circulate widely, even universally, but their backing is exclusively based on their convertibility to "real" bank balances.  It may be that the money/payment status of such "electronic money" is identical to that of private money.

 

            Does the working of this system require that the official currency which backs the bank-issued electronic money actually have a material token?  Not necessarily.  Even today the amount of currency extant is only a small fraction of the money supply (although not a trivial one, and not a fraction which is noticeably decreasing with the increase in electronic payment).  There is no theoretical reason why it could not be zero.

 

            It is possible that we can find a precedent in the halakhic literature even for the cashless economy.  We already saw that Rav Shlomo Kluger considers modern-day bills and coins to be mere notes of indebtedness.  In his day, the money was most likely backed by precious metal.  Perhaps he would consider even modern-day fiat money mere notes - but for debts of what?  There is no other money!  Perhaps in the modern banking system we should look at bank balances as actually constituting money, as opposed to merely being a record of it.

 

D. SUMMARY - NOTHING NEW UNDER THE SUN

 

            It is remarkable to note how little has really changed in the last four thousand years.  The first three steps - from a weighed-out to a guaranteed quantity of gold, to a bill convertible to such a quantity - really seem quite small.  The truth is, that even the "leap" to fiat money is not so far-reaching.  As the Chazon Ish (Hilkhot Ribit 72, at end of chapter) points out, even precious metal is of very little use to people, and acquires its value mostly from the convention that everyone else will accept it as money.  In the case of fiat money, the convention is enforced by decree instead of tradition, but it is still convention (and not inherent value) which enables currency to perform its purpose.

 

            Even the habit of effecting payments by transferring and offsetting debts is not new.  The "clearing-house" function, performed today by banks, was performed since ancient times by money-changers and by store-owners who granted credit to customers and had lists of numerous customers and their debts, as proven by cases cited in the Rishonim.  (See, for example, Ri Migash on Shevuot, brought down in Tur Choshen Mishpat 91, who refers to the practice of having the storekeeper pay all of one's "accounts payable," either on credit or by a deposit at the beginning of the month.)  It is obvious that numerous merchants used to employ this practice, and for debts between them the storekeeper would undoubtedly just offset the debts.

 

            According to the point of view that modern-day coins and bills are only considered promissory notes, even the "cashless economy" has been around in a technical sense for the last several decades.