Deposit – But No Return!

Question

Zevulun collected one hundred thousand dollars for a widow who was left with fifteen
orphans. He decided that maximum benefit could be gained from the funds if they were well
invested. Good friends advised him to invest with Yankel, who was known to be honest, had
a good track record and promised a return of twenty percent on funds invested with him.

For the first year, all went well. The dividend was paid out on time, and Zevulun was
happy. Unfortunately, Yankel’s fortunes then declined and all the money was lost.
Zevulun now wishes to know whether he is responsible for the lost funds. Does he have the
status of one who was negligent in guarding another person’s property?


Answer

According to the Shulchan Aruch (Choshen Mishpot 290:8), a guardian
appointed to administer the funds of orphans under the age of thirteen may invest these
funds under certain conditions. The recipient of these funds must be honest and G-d
fearing. In addition, he must provide adequate security for the principal sum invested
with him. This could take the form of a lien on land or deposit of some valuable item as
collateral. The Rema (Note 17) explains that the object of this condition is to eliminate
the risk of losing the principal sum invested. We are not so concerned about loss of
profit.

What if the guardian did not take the precaution of demanding adequate security and the
principal was therefore lost? The Noda B’Yehuda (Responsa, Vol. 2, Choshen
Mishpot, No. 34
) states that the guardian is considered not just negligent, but guilty
of actively causing damage to the money entrusted to his care. He is therefore obligated
to return the full sum of money lost to the orphans’ estate. (If the Beis Din who
appointed him gave him a free hand, he has no liability even under these circumstances.)
However, any profit previously earned from this investment may be deducted from the sum he
has to pay. Since he had no obligation to invest the money, his liability is limited to
ensuring that the principal is returned to the hands of the orphans.

The Maharik (No. 23) presents another situation where the guardian is
considered negligent. If the recipient of the funds is known to be honest, but is also
known to be heavily in debt, a guardian should refrain from investing with him. Even if he
has land which could act as security, there are many potential claimants to this land.
There is therefore no guarantee that the guardian will actually be able to retrieve the
sum invested, since some other debtor might have priority.

AS TO OUR ORIGINAL QUESTION, it is well known that those who offer unusually high
returns on investments generally do not have the cash to cover the principal sums
deposited with them. A guardian would therefore not be permitted to invest the
orphans’ money with such a person unless suitable security were provided. This could
take the form of an item of sufficient value given as collateral or an exclusive lien on
an apartment.

Zevulun became the guardian of the funds which he raised on behalf of certain
clearly-defined individuals. The widow and orphans acquired the money when it reached his
hand. Since his negligent investment caused the loss of this money, he is fully liable for
its return. A charity collector or guardian must act responsibly! He may deduct any profit
earned from the investment from the principal to be returned. Alternatively, if the
orphans decide to forgo their rights to repayment on reaching the age of majority, Zevulun
will not have to pay.