A student enrolled in a college, where the tuition was paid in full directly to the college by a non-bank financing entity. After a period, the student terminated his studies and paid only five out of twelve loan repayments.
The Court dismissed the lender's claim and held that the student is exempt from repayment but the college is to repay the outstanding balance of the loan to the lender. A party who entered into a contract as a result of misrepresentation, including non-disclosure of facts, may rescind the agreement. In the case of a non-bank loan agreement, Israeli law gives significant weight to the issue of disclosure, demands that the lender provide the borrower a writing with full and detailed disclosure of all loan terms and allow the borrower a reasonable opportunity to review the documents before contracting. Where there is a tripartite loan relationship and the loan funds do not pass directly to the borrower, the lender bears an enhanced duty ensuring the borrower’s awareness of the full terms of the loan transaction. In this case, the lender did not provide the student/borrower with complete and transparent information and student/borrower was not aware of the full terms of the loan or consent thereto. The student was not invited to a meeting with the lender, did not receive an explanation, did not actually sign the loan agreement and did not give his informed consent. Therefore, the loan agreement was rescinded and the college (who received the loan funds in full from the lender) was obligated to repay to the lender the outstanding balance of the loan.