Bava Metzia 67 - Excessive Penalty on Default is Illegal


The rule that the lender takes a field , pledged for a loan of smaller value, is not universally true. It applies only to a case where the borrower transmitted the field to the lender at the beginning of the term, so that upon payment the sale is cancelled retroactively. In the interim the produce is deposited with a third party, because for the lender produce may constitute interest if the borrower pays, and the borrower can't take, because the field is not his.
Normally, however, any agreement that calls for an excessive penalty IF the party defaults is NOT binding. If the borrower mistakenly gives the field up, the lender returns both the field and the fruit he collects.