By Aaron Lang. The theoretical basis of halacha differs from that of the common law. Obligations and liability are regulated in halacha by defining the nature of an act, did a particular ma’asa occur, whereas the common law regulates with an eye toward social policy, what consequences were set in motion by an actor. Halacha turns on the act of stealing, the act of eating matzoh, the act of acquisition, the act of homicide, the act of damaging, and the act of marrying, rather than respectively, the interference with property rights, the recognition of a symbol, the contract of sale, the violation of the right to life, the efficient allocation of risk, or the vows of marriage. This divergence in analytical rigor reaches three notable legal distinctions. Damages for loss of expectations are not assessed in halacha as they are under the common law, parties are not bound by contracting mutual promises or d’varim, and consent plays no role in the criminal law. Moreover, halacha gives rise to the ubiquitous concept of kinyan, unknown among the laws of the nations, defining relationships between individuals, between individuals and property, and between individuals and government.

Part One–Expectations and the Ban on Interest

Common law damages for breach of contract are most readily understood to cover expenditures made by the non-breaching party in reliance of the contract. The parties entering into contract guarantee the expenses of their opposing parties in case of breach. This reliance interest in contract law has a correlation in halacha. A promisor is viewed as a a quasi-recipient of the expenditures of the promisee who made them in reliance of the contract.1 As such, he is liable for restitution as if he was the recipient. Common law, however, allows a party to collect more than his expenditures, but also his expectations of profits. The expectation interest requires a party in breach to “‘compensate’ the plaintiff by giving him something he never had.”2 Halacha does not recognize damages for loss of expectations.

Halacha bans payment of interest for monetary loans. It allows payment of rent for property loans. The difference between the two types of loans is well known. A borrower takes title to the money that he borrows but does not take title to tangible property that he borrows. Rent is the compensation to the lender, who still owns the rental property, for the use of the property. By contrast, since a lender does not retain title to a monetary loan, he cannot charge rent for this money that no longer belongs to him. Interest, then, can only be understood as compensation for loss of profits, payment for the economic cost of the lender or his expectations, “something he never had.”

The origin of the common law expectation interest in contract law is found in tort law (the correlate to dinai n’zikin). A suit in tort turns upon the consequences of a deed, even distant ones, as long as they were reasonably foreseeable. Tort law considers reasonable expectations of profit as foreseeable losses. The expectation interest in contract law follows because it is an expected consequence of entering into a binding agreement.3

Tort law allows recovery for damages to expected gains including those caused by a party interfering with the conduct of a business. For instance, one who wrongly prevents another from selling his merchandise is held liable for the loss of the merchant’s profit. As will be discussed in Part Three, halacha does not allow damages for loss of profit or expectations (m’nias revach). Hence, there is no restitution for the loss of an expectation caused by the breach of a binding agreement. So understood, interest is not a property for which a lender of a monetary loan is due compensation.4. To be continued.

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Footnotes:

Kiddushin 7a. Just as an arev becomes personally encumbered to a lender when a third party borrows from the lender, an eisha becomes married to an eish when a third party of her choosing receives a ring or value from the eish. The reception of the borrower or third party is as if the arev received the loan and as if eisha received the ring or value.

2. Lon L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages, 46 Yale L.J. 52, 53 (1936-37).

3. Professors Fuller and Perdue point out that the expectation interest proceeded the credit economy to answer “(1) the need for curing and preventing the harms occasioned by [contractual] reliance, and (2) on the need for facilitating reliance on business agreements.” Id. at 62. This explanation is not sufficient for our purposes, as expectations are assessed in tort law.

4. B”M 61a: Rava said, Why does the Torah write a prohibition of interest, a prohibition of stealing, and a prohibition of o’naeh? . . . The common thread is stealing.