THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 96 (part 1 of...) • Guarantors and Sureties

This lesson commences the laws of guarantors and sureties. They are the persons who help the borrower or merchant to borrow money from the lender or to have credit extended. Very often the lender will not lend money nor extend credit unless the debtor or borrower or customer has a guarantor. A great deal of business is conducted on the basis of guarantees. 

In halachah, obligations do not generally arise by a mere promise of the promissor. There are certain exceptions. What makes the promise of the guarantor different, so that his mere promise makes him liable on his guarantee? The guarantor receives consideration for his guarantee from the personal pride flowing to the him that his obligation is accepted as viable. This is sometimes sufficient in the case of the guarantors and sureties. Of course, a kinyan will bind the guarantor or surety.

The time of undertaking the obligation is important. If it is made prior to the loan to induce the lender or the extender of credit (hereinafter referred to as the creditor) to make the loan or to give up some security or to refrain from enforcing his rights against the borrower, then the consideration to the guarantor is more obvious, in that the lender has prejudiced his position in reliance on the guarantor. If, however, the loan has already been made and the creditor is not prejudicing his position anymore, then the undertaking by the guarantor is not what influenced the creditor to make the loan, and thus there is nothing to bind the guarantor, unless a kinyan is made. 

There is a difference between an oral guarantee of the guarantor, a written guarantee signed by the guarantor, and a guarantee made by the guarantor which is written down and signed by two witnesses. Only in the last case does the real estate owned by the guarantor at the time the guarantee is made become liened to the creditor who relies on the guarantee. In this case only, any real estate that the guarantor sells subsequent to that writing is subject to the lien of the creditor and may under certain circumstances be traced into the hands of the purchaser. For example, on January 1 Reuven loans $100 to Shimon to be repaid on March 1. Levi acts as a guarantor (or surety). The guarantee is evidenced by a writing signed by witnesses. On January 1, Levi owns parcel #1, which he sells to Yehudah on February 1. On March 1 Shimon does not have any assets to pay Reuven. Levi has no assets to make good on his guarantee. Reuven can trace parcel #1 to Yehudah, and Yehudah may either pay the $100 or lose the parcel to Reuven. 

If the loan is not evidenced by a writing of the guarantee witnessed by two witnesses, only the property still in the hands of Levi, the guarantor, stands as security for his obligations as the guarantor. It is therefore necessary to know the type of obligation that has been undertaken, whether oral or written and, if written, whether there are at least two witnesses who signed the document of guarantee. The answer may determine whether the creditor may levy against real estate and personal property in the guarantor's hands when the creditor comes to collect from him, or even against real estate that he owned at the time of the making of the guarantee but has since sold and is now in the hands of the purchaser of such real estate. 

The two most common terms that shall be dealt with are the arev, which term I have translated to be "guarantor" and kablan, which I have translated to be “surety ." The major distinction between the two is whether the guarantor or surety is primarily or only secondarily liable to the creditor. The guarantor is secondarily liable, that is, the creditor must first exhaust certain collection procedures against the borrower before he can proceed against the guarantor. The surety is primarily liable along with the borrower, that is, the creditor need not proceed against the borrower first before he proceeds against the surety. The creditor has the option of suing the borrower or the surety in the first instance. 

There are certain words uttered by the obligor that will determine whether the obligor has undertaken to be guarantor or a surety. Since the obligation is usually gratuitous, it must be strictly construed, and thus if there is some ambiguity the obligation will be construed to be a guarantee rather than a surety. 

A third type of person involved in the lending transaction is a person who transmits the loaned money from the lender to the borrower. He is not a messenger but rather he borrows the money from the lender and re-lends it to the borrower. This type of person is designated as the "transmitter." His obligation is usually primary. 

The guarantor, the surety, and the transmitter shall sometimes be designated as the obligor.

The lender or anyone else to whom the debt is owed is the creditor. 
The principal is the person for whom the guarantee or surety is given, usually the borrower. The principal is always obligated to make the repayment. 

If the borrower promises to pay the guarantor or the surety, his promise is not binding upon him unless he obligates himself by a kinyan to make the payment.

The obligation of the guarantor and the surety applies to all types of commercial transactions, including but not limited to loans of money, loans of things, bailments, wage claims, personal performances. The last phrase refers to construction by the principal of a building or acting in a play or anything that the performer does not perform and the guarantor or the surety will perform or pay damages for the failure of the principal to perform.

Throughout these lessons appropriate substitutions can be made for the terms lender and borrower, such as employer and employee if the transaction consists of a guarantor guaranteeing the wages of an employee; or seller and purchaser, if the guarantor guarantees the payment of the purchase price; or owner and contractor, if the guarantor has guaranteed completion of construction of a building. etc. 

The guarantor is always bound if a kinyan is made. It does not matter if the kinyan is undertaken in Beth Din or outside of Beth Din, if there are witnesses present or if done in the absence of witnesses. It does not matter if the kinyan is made before the loan is made or after the loan is made. 
If no kinyan is made: 

A. the obligor will be bound if: 
(i) the undertaking of the obligation was relied upon by the lender to make the loan to the borrower. 
(ii) the undertaking was made orally or in writing prior to or simultaneously with the loan. 
(iii) the guarantor falsely or erroneously tells the lender that he can make the loan in full confidence that the borrower has the money to repay. This is the equivalent to accepting the obligation of a guarantor at the time of making of the loan. There is also an opinion to the contrary. 
(iv) the obligation was undertaken in Beth Din. This confidence that the Beth Din has in him serves as the consideration to bind the obligor. 
(v) the lender returns his promissory note to the borrower on the strength of the undertaking by the guarantor. 
(vi) the lender relieved the borrower of any further obligations on the strength of the undertaking by the guarantor.
(vii) the guarantor is holding moneys of the borrower when he 
undertakes the obligation, even if the obligation is undertaken after the loan was made.
(viii) the guarantor writes on the instrument of indebtedness before or after the signatures of the witnesses thereon that he will be a guarantor or surety of the indebtedness therein. There is another opinion that he is not bound unless the statement is included in the instrument before the signatures of the witnesses. According to the opinion of Rambam (Maimonides), even if the guarantor writes his undertaking before the signature of the witnesses on the instrument of indebtedness, the guarantor will not be bound if the moneys have already passed from the lender to the borrower. According to all three opinions, if there is a kinyan made, the guarantor is bound. 
(ix) the debtor borrows an object rather than money and undertakes to pay for the borrowed object in the event he does not return the object and the guarantor undertakes to make the money payment if the borrower does not return the object and make the money payment, this in spite of the fact that the borrower himself cannot be held to make the payment if the object is not returned. There are commentaries that hold that the obligation of the guarantor in this case is binding only if it is undertaken by a kinyan.
B. the guarantor will not be bound if: 
(i) the undertaking of the obligation is not the factor that is relied upon by the lender in making the loan to the borrower. 
(ii) the obligation is undertaken after the loan is made. 
(iii) the lender is suing the borrower and the guarantor convinces the lender to discontinue the lawsuit.
(iv) the borrower is being physically beaten by the lender or some 
other person to pay back the loan, and the obligor asks the beaters to cease the beating and he will guarantee payment of the loan. 
(v) a person makes a general announcement or writes to the public at large that if anyone will lend money to the borrower, he will guarantee the loan. There is also an opinion that he is bound as a guarantor. 
(vi) the lender is one of the witnesses to a deed whereby the borrower sold his property so that there is no property of the borrower on which the lender can now levy. The guarantee against the guarantor cannot be enforced to the extent of the sold realty.

The subject of guarantees shall IYH be continued in the next lesson.
The subject matter of this lesson is more fully discussed in Vol. IV, Ch.129 of A Restatement of Rabbinic Civil Law by E. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores. 

Questions to quint@inter.net.il