It is of great importance for anyone giving a loan and receiving a guarantee for that loan, and for anyone providing such a guarantee, to obtain appropriate legal advice before signing the guarantee agreement, as there can often be many implications related to the identity of the guarantor.
The Guarantee Law, 1967, defines a guarantee as a person's commitment to fulfill another person's obligation to a third party. When the guarantor is an "individual guarantor," there are special protections in the law that are important to know. The term "individual guarantor" does not mean being the sole guarantor, but rather being a natural person and not a corporation. Furthermore, a person who is the debtor's spouse, partner, or an interested party in the corporation that provided the loan does not benefit from these protections. The protection applies only when the creditor (the loan provider) is someone whose regular course of business includes granting loans (even if it is not their primary occupation).
A guarantee agreement with an individual guarantor must be in writing and must detail a list of particulars stipulated by law. The individual's guarantee covers only the amounts specified in the agreement, linkage differentials, interest, and certain additional expenses. Moreover, in certain loans, an individual guarantor enjoys the status of a "protected guarantor," in which case their guarantee is limited to a proportional share of the debt (i.e., if there are three guarantors, the protected guarantor will be liable for no more than a third of the debt, unlike a regular guarantor who is liable for the entire debt). Failure to fulfill disclosure duties (insofar as the guarantor did not know the details themselves) can narrow the scope of the guarantee. However, the most important protection for an individual guarantor is that the guarantee cannot be unlimited—if the guarantee contract does not state a specific guarantee amount, the guarantee has no validity.
In the case of an individual guarantor, the creditor is also obligated to provide the guarantor with a copy of the guarantee contract and give them a reasonable opportunity to review it prior to signing. The individual guarantor is entitled to receive a signed copy of both the guarantee agreement and the loan agreement they are guaranteeing.
A regular guarantor and a debtor are jointly and severally liable to the creditor, but the creditor may not demand that the guarantor fulfill their guarantee without first demanding that the debtor fulfill their obligation, unless the guarantor waived this requirement, or the debtor has passed away, gone bankrupt, is located outside of Israel, or there is a special difficulty in reaching them. For an individual guarantor, however, there is generally a duty on the creditor to notify the individual guarantor of the debtor's breach of obligation within 90 days; if they fail to notify them, the guarantor is exempt. More importantly, generally speaking, while in a regular guarantee the creditor is only required to demand that the debtor fulfill the obligation and can subsequently demand it from the guarantor, in the case of an individual guarantor, the creditor cannot sue the guarantor until a judgment has been issued against the debtor or the Head of the Execution Office has confirmed that all reasonable proceedings have been taken against the debtor, including the realization of a mortgage on a residential apartment.
The Guarantee Law includes additional and important provisions regarding guarantee agreements in general and the guarantee of an individual guarantor in particular, and the implications of signing a guarantee for another can be far-reaching. Thus, it is highly important to consult with a lawyer specializing in the field before signing any guarantee agreement. Furthermore, if a person receives a guarantee from another, it is important to ensure that the guarantor is not an individual guarantor to avoid a situation where the guarantee has no validity due to non-compliance with the required procedures.