Legal Updates

In the absence of a personal guarantee one cannot demand from an intermediary party to repay a third-party debt

May 9, 2024

One gave his friend $50,000 so that he would allegedly transfer it as a loan to a third party. After the loan was not repaid, he demanded that his friend repay the loan as he had given him his "word" that he is "responsible" for the loan being repaid.

The Court rejected the claim and held that although the loan was given to a third party through the friend, he was not a guarantor. Pursuant to the Israeli law, a guarantee is created by an agreement between the guarantor and the creditor or by the guarantor's commitment of which notice was given to the creditor. There is no objection that a guaranty agreement will be executed orally, but a guaranty agreement is not a normal agreement and therefore one should not be satisfied with the "reflections of the heart" of the creditor only, and it will be required to present convincing evidence. Here, the lender’s friend completely denied that he took upon himself any personal liability for the repayment of the loan or that he agreed to serve as a guarantor in the transaction, because in practice he served as a intermediary between the lender and the borrower. The fact that the lender did not take any procedure or actions against his friend for many years, even though he considered him personally liable, is also to be considered against him. Also, the lender is the one who avoided a written agreement, so if there is any doubt as far as to the friend’s consent to be a guarantor, it is a doubt that should be taken against the lender and therefore his claim was rejected.