According to the Halacha
Chapter A: General Provisions
1. Nature of the Guarantee
(a) A guarantee is the undertaking of a person to perform the obligation of another person toward a third person.
(b) The guarantee may relate to the obligation, whether in whole or in part, existing or future, renewable or conditional, fixed or non-fixed.
Civil Law
(a) A guarantee is an undertaking by a person to perform the obligation of another person toward a third person.
(b) A guarantee may relate to an obligation in whole or in part, whether existing or future, renewable or conditional, fixed or unfixed.
2. Limitation on Guarantees
There shall be no guarantee except for a valid obligation
Civil Law
A guarantee may be given only in respect of a valid obligation.
3. Creation of the Guarantee
(a) A guarantee is created by an agreement between the guarantor and the creditor, or by an undertaking of the guarantor of which notice has been given to the creditor. however, this applies only to a guarantee provided prior to the creation of the debt, whereas a guarantee provided for an existing debt requires an act of acquisition.
(b) Where the guarantee is imposed by Court order, the guarantee shall not be valid.
Civil Law
A guarantee is created by an agreement between the guarantor and the creditor, or by an undertaking of the guarantor of which notice has been given to the creditor; where the guarantee is given pursuant to an order of an authority — upon delivery of the written guarantee to that authority.
4. Scope of the Guarantee
(a) The guarantor shall not be liable for more than the debtor's obligation and not for a more severe obligation.
(b) The guarantor shall also be liable for expenses incurred by the debtor due to the guaranteed obligation, and such expenses shall have the same legal status as the guaranteed obligation; unless a different intention is implied from the guarantee.
(c) Where the scope of the guarantee is limited, the guarantor shall be liable only within that scope of his guarantee.
Civil Law
(a) The guarantor shall not be liable for more than the obligation of the debtor, nor for a more onerous obligation.
(b) The guarantor shall also be liable for interest, expenses, and damages incurred by the debtor in connection with the guaranteed obligation, and these shall be treated as part of the guaranteed obligation, unless a contrary intention is implied from the guarantee.
(c) Where the scope of the guarantee is limited, the guarantor shall be liable only within the limits of the guarantee.
5. Modification of the Obligation
(a) If the guaranteed obligation is reduced pursuant to agreement between the debtor and the creditor or by a waiver of the creditor, the guarantor shall be released to the extent that the debtor is released.
(b) If the guaranteed obligation is increased pursuant to an agreement between the debtor and the creditor, , such increase shall not affect the guarantor’s liability.
(c) If another change applies to the guarantor, according to an agreement between the debtor and the creditor, and the change is a fundamental change that affects the rights of the guarantor, the guarantee is void.
Civil Law
(a) Where the guaranteed obligation is reduced by agreement between the debtor and the creditor or by waiver by the creditor, the guarantor shall be discharged to the extent that the debtor is discharged.
(b) Where the guaranteed obligation is increased by agreement between the debtor and the creditor, the guarantor’s obligation shall not be affected.
(c) Where any other change is made to the guaranteed obligation by agreement between the debtor and the creditor, the guarantor’s obligation shall be modified accordingly; however, the guarantor may elect—
(1) to perform the guarantee without the modification, where possible;
(2) to cancel the guarantee where the modification constitutes a fundamental change prejudicing the guarantor’s rights
6. Discharge of the Guarantor
(a) If the creditor causes the non-performance of the guaranteed obligation, the guarantor shall be discharged.
(b) If the creditor causes the lapse of a security given to secure the guaranteed obligation, the guarantor shall be discharged.
Civil Law
(a) Where the creditor has caused the non-performance of the guaranteed obligation, the guarantor shall be discharged.
(b) Where the creditor has caused the extinguishment of a security given to secure the guaranteed obligation, and damage is thereby caused to the guarantor, the guarantor shall be discharged to the extent of the damage.
7. Defenses
(a) Every defense available to the debtor against the creditor in connection with the obligation shall also be available to the guarantor.
(b) Just as a statute of limitations defense cannot be heard against the debtor, so too a defense of statute of limitations against the guarantor not be heard.
Civil Law
(a) Any defense available to the debtor against the creditor in connection with the obligation shall also be available to the guarantor.
(b) Where the claim against the debtor has become time-barred, the claim against the guarantor shall likewise become time-barred, unless it has already become time-barred earlier.
8. Guarantor's Liability
The guarantor and the obligor are liable to the creditor; however, the creditor may only demand performance of the guarantee from the guarantor in one of the following circumstances:
(1) The creditor first demanded performance of the obligation from the debtor and failed to recover the debt from him.
(2) The guarantor is a “contractual guarantor” (arev kabbalan).
(3) The debtor is deceased and all his heirs are minors; or is outside Israel; or where making the demand involves special difficulties.
Civil Law
The guarantor and the debtor shall be jointly and severally liable toward the creditor; however, the creditor shall not demand performance of the guarantee from the guarantor unless the creditor has first demanded performance from the debtor, except in any of the following circumstances:
(1) the guarantor has waived the requirement to demand performance from the debtor;
(2) a receivership order or winding-up order has been issued against the debtor;
(3) the debtor has died, is outside Israel, or where making such demand involves special difficulties.
9. Guarantor's Right of Recourse against the Debtor
The guarantor is entitled to recourse against the debtor and to recover from him what he has given in fulfillment of his guarantee plus reasonable expenses incurred by him in connection with the guarantee, unless the guarantee was given without the debtor’s consent.
Civil Law
Unless the guarantee was given without the debtor’s consent, the guarantor shall be entitled to recourse against the debtor and to recover from him whatever the guarantor paid in performance of the guarantee, together with reasonable expenses incurred in connection therewith and interest at the full statutory rate under the Interest Adjudication Law, 1961, from the date of payment or expenditure.
10. Limitation of Guarantor's Right of Recourse
(a) The guarantor shall not be entitled to recourse against the debtor to the extent that he could have been discharged by a defense that was available to the debtor against the creditor in connection with the obligation, even if the defense was unknown to the guarantor and he did not raise it.
(b) The provisions of subsection (a) shall not apply if the guarantor performed his guarantee after notifying the debtor of his intention to do so.
Civil Law
(a) The guarantor shall not be entitled to recourse against the debtor to the extent that the guarantor could have been discharged by a defense available to the debtor against the creditor in connection with the obligation, where such defense was known to the guarantor and was not asserted; provided that the guarantor’s right of recourse shall not be prejudiced where he acted as provided in section 5(c)(1).
(b) Subsection (a) shall not apply where the guarantor performed the guarantee after notifying the debtor of his intention to do so and allowing him reasonable time to apply to the court.
11. Status of the Guarantor Before Performing his guarantee
Before performing his guarantee, the guarantor shall be entitled to the same remedies for securing his right of recourse against the debtor as those available to the creditor for securing a debt not yet due.
Civil Law
Prior to performance of the guarantee, the guarantor shall have the same remedies to secure his right of recourse against the debtor as are available to the creditor to secure a debt not yet due.
12. Lien on the debtor's property
If the guaranteed obligation was also secured by a lien on the debtor's property, such lien shall pass to the benefit of the guarantor after he has performed his guarantee, to secure his right of recourse against the debtor, and specifically if the creditor has transferred the promissory note to the guarantor. The grantor of the lien and the creditor shall, at the guarantor's request, perform the necessary acts to ensure that the transfer is valid in all respects; provided that this shall not prejudice the rights of the creditor.
Civil Law
Where the guaranteed obligation is also secured by a charge over the debtor’s property, the charge shall pass to the guarantor, upon performance of the guarantee, to secure his right of recourse against the debtor; and the grantor of the charge and the creditor shall, at the guarantor’s request, take all actions required to give full effect to the transfer, insofar as this does not prejudice the creditor’s rights.
13. Multiple Guarantors
Where two or more persons jointly guarantee a single obligation, they shall be equally liable. If the scope of the guarantees differs, they shall be liable as stated within the common scope of the guarantee; this shall apply unless a contrary intention is implied by the guarantees.
Civil Law
Where two or more persons have guaranteed the same obligation, jointly or separately, they shall be jointly and severally liable; where the scope of the guarantees differs, they shall be liable only within the scope of the common guarantee, unless a contrary intention is implied from the guarantees.
14. Guarantor for a Guarantor
If a person gives a creditor a commitment to perform the guarantee of a guarantor, the guarantor's guarantee to the creditor shall be deemed a guaranteed obligation, both in terms of the relationship between that person and the creditor and in terms of the relationship between him and the guarantor.
Civil Law
Where a person has given an undertaking to the creditor to ensure performance of a guarantor’s guarantee, the guarantor’s liability toward the creditor shall be treated as a guaranteed obligation both with respect to the relations between that person and the creditor and between that person and the guarantor.
15. Revocation of Guarantee for a Future Obligation
(a) Where a guarantee is given for a future obligation, the guarantor may, as long as the guaranteed obligation has not yet been created, revoke his guarantee by giving notice to the creditor.
(b) The same shall apply if the guarantee as aforesaid was provided with the debtor's consent; the guarantor may revoke his guarantee without notifying the debtor.
Civil Law
(a) Where a guarantee is given for a future obligation, the guarantor may cancel the guarantee, by written notice to the creditor, so long as the guaranteed obligation has not arisen; however, the guarantor shall compensate the creditor for any damage caused by the cancellation.
(b) Where such guarantee was given with the debtor’s consent and the guarantor cancelled it without giving the debtor reasonable prior notice, the guarantor shall compensate the debtor for damage caused by the failure to give notice.
16. Undertaking for Indemnity
An undertaking by a person to indemnify a creditor for the non-performance of a debtor's obligation toward the creditor, where the undertaking does not constitute a guarantee, shall be subject to sections 3, 9, 11, and 12, with the necessary adaptations.
Civil Law
An undertaking to indemnify a creditor for non-performance of a debtor’s obligation, where such undertaking does not constitute a guarantee, shall be subject to sections 3, 9, 11, and 12, with the necessary modifications.
17. Guarantee or Undertaking for Indemnity for a Defective Obligation
A guarantee for an obligation whose validity is impaired only due to the debtor's legal capacity or representation shall be deemed a valid guarantee; however, sections 9, 11, and 12 shall not apply to such a guarantee.
Civil Law
A guarantee for an obligation whose validity is defective solely due to the debtor’s legal capacity or representation shall be deemed an undertaking to indemnify; sections 9, 11, and 12 shall not apply to such indemnity.
Chapter B: Guarantee of a Individual Guarantor
18. Applicability
Repealed
Civil Law
The provisions of this Chapter shall apply to a guarantee given by an individual guarantor to a creditor, by whatever designation it may be known, including an undertaking to indemnify.
19. Definitions
In this Law
"Creditor” – someone who has provided a loan.
“Guarantor” includes a corporation, spouse of the debtor, partner of the debtor; if the debtor is a corporation, anyone who has received a guarantee on behalf of the corporation shall be considered a guarantor.
Civil Law
In this Chapter—
“Creditor” means a person for whom the granting of loans is in the ordinary course of business, even if not his principal occupation;
“Individual guarantor” means a person who is not a corporation, excluding the debtor’s spouse or partner, whether in a registered or unregistered partnership; where the debtor is a corporation, a person having an interest therein shall not be deemed an individual guarantor; for this purpose, “interest holder” has the meaning assigned in the Securities Law, 1968;
“Protected guarantor” means—
(1) an individual guarantor whose guarantee agreement specifies a sum not exceeding NIS 60,000;
(2) an individual guarantor whose guarantee agreement specifies a sum not exceeding NIS 500,000, provided that the guaranteed obligation is intended for the acquisition of rights in a dwelling designated for the residence of the debtor, his adult children, or his parents.
20. Updating of Amounts
Repealed
Civil Law
(a) The sums specified in the definition of “protected guarantor” shall be updated on 1 January and 1 July of each year in accordance with the rate of increase of the Consumer Price Index; the first update shall be on 1 March 1998.
(b) In this section—
“Index” means the Consumer Price Index published by the Central Bureau of Statistics;
“New Index” means the most recently published index prior to the update date;
“Base Index” means the index published prior to the previous update date.
21. Fixed amount guarantee
Repealed
Civil Law
(a) An individual guarantor shall be liable only for the amount specified in the guarantee agreement and for the additions as set forth in Section 25.
(b) Where no fixed amount is specified in the guarantee agreement, the individual guarantor shall be discharged from the guarantee.
22. Duty of Disclosure
A creditor shall disclose to the guarantor, before the conclusion of the contract of guarantee, the following details, as stipulated in the contract between the creditor and the debtor:
(1) The amount specified in the contract between the creditor and the debtor (hereinafter— the Principal (
(2) The term of the obligation, the repayment amounts, and the repayment dates;
(3) The number of guarantors, and the guarantor's relative share of the obligation;
Civil Law
(a) A creditor shall disclose to an individual guarantor, prior to the execution of the guarantee agreement, all of the following particulars, as stipulated in the agreement between the creditor and the debtor:
(1) the amount specified in the agreement between the creditor and the debtor (hereinafter: the principal);
(2) the annual interest rate, calculated so as to take compound interest into account in accordance with the date of repayment;
(3) the term of the obligation, the amounts payable in respect of the principal and the interest, and the dates of repayment;
(4) where the interest rate is variable—the rate of interest as of the date of execution of the agreement, taking compound interest into account in accordance with the date of repayment as of that date, and the method of variation;
(5) whether the principal or the interest is linked, and the basis of such linkage;
(6) additions prescribed pursuant to Section 25(a)(4);
(7) the rate of interest for late payment and any other payment for which the debtor shall be liable due to non-performance of the guaranteed obligation.
(b) In addition to the particulars specified in subsection (a), the creditor shall disclose to an individual guarantor, prior to the execution of the guarantee agreement, the following:
(1) whether the guarantor is an individual guarantor or a protected guarantor;
(2) the number of guarantors and the relative share of the guarantor in the obligation;
(3) whether the guarantee secures an existing obligation or an obligation replacing an existing obligation;
(4) the interest rate as defined in Section 25(a)(2).
(c) Disclosure of the particulars specified in subsection (a)(1), (3), and (4) shall be made as updated as of the date of execution of the guarantee agreement.
(d) Disclosure of the particulars specified in subsection (a) with respect to a guarantee for a future obligation shall be made as known to the creditor at the time of execution of the guarantee agreement, or as may be determined at that time.
23. Consequences of Non-Disclosure
(a) If the creditor fails to disclose to the guarantor the details specified in—
(1) Section 22(1) – the guarantor shall not be discharged from his guarantee;
(2) Section 22(2) – the guarantor shall be granted thirty days for the performance of the guarantee.
(3) Section 22(3) – the guarantor shall perform his guarantee;
Civil Law
(a) Where the creditor failed to disclose the required particulars—
(1) under Section 22(a)(1), the individual guarantor shall be discharged from the guarantee if, at the time of execution of the agreement, there was a substantial discrepancy between the amount of the guarantee and the amount of the loan;
(2) under Section 22(a)(2), the individual guarantor shall perform the guarantee according to the minimum interest rate customarily applied in agreements of the same type;
(3) under Section 22(a)(4), the individual guarantor shall perform the guarantee according to the minimum interest rate customarily applied in agreements of the same type;
(4) under Section 22(a)(3), (5), (6), or (7), and under Section 22(b)(2), the individual guarantor shall perform the guarantee in accordance with his or her understanding at the time of execution of the guarantee agreement;
(5) under Section 22(b)(1), (3), or (4), the individual guarantor shall be discharged from the guarantee.
(b) Where the creditor proves that the individual guarantor was aware of a particular detail specified in Section 22, subsection (a) shall not apply with respect to that detail.
24. Delivery of a Copy of the Contract
Repealed
Civil Law
(a) A creditor intending to execute a guarantee agreement with an individual guarantor shall provide the guarantor with a copy of the agreement and afford a reasonable opportunity to review it prior to signature, and shall provide a signed copy after execution.
(b) Upon request, the creditor shall provide the individual guarantor with a copy of the agreement between the creditor and the debtor.
25. Additions to the Guaranteed Amount
Repealed
Civil Law
(a) In addition to the amount specified in the guarantee agreement, an individual guarantor shall be liable only for the following additions:
(1) linkage differentials and interest not exceeding those agreed between the creditor and the debtor;
(2) interest for late payment, provided that its rate shall not exceed four percentage points above the interest rate stipulated in the agreement between the creditor and the debtor in the absence of late payment (hereinafter: the original interest rate); where the original interest rate is variable, the calculation shall be based on that rate as varied from time to time, plus an addition not exceeding four percentage points;
(3) expenses determined by the court or by the Head of the Execution Office;
(4) an addition to be determined by the Minister of Justice in consultation with the Governor of the Bank of Israel.
(b) An individual guarantor shall be liable for the addition specified in subsection (a)(2) only for the period commencing 15 days after the date on which the guarantor received notice of non-performance of the obligation as provided in Section 26.
26. Notice of Non-Performance
(a) If the debtor fails to perform his obligation, the creditor shall notify the guarantor thereof;
(b) Where the guarantor notifies the creditor of his intention to repay the loan, he shall be entitled to request a thirty-day extension.
(c) If the guarantor notifies his desire to repay the loan in installments, he may do so in accordance with the terms of the loan and the terms of the payment schedule as stipulated in the contract between the creditor and the debtor.
(d) If the guarantor does not notify the creditor of his intention to repay the loan, , the creditor shall be entitled to seize his assets as any other debtor, in accordance with the terms of the loan and the terms of the payment schedule as stipulated in the contract.
Civil Law
(a) Where the debtor fails to perform the obligation, the creditor shall notify the individual guarantor within 90 days from the date on which the debtor was required to perform; failing such notice, the guarantor shall be released to the extent of the damage caused thereby.
(b) In such notice, the creditor shall set out the substance of the provisions of subsection (d)(2) and (3), and of Sections 27 and 29.
(c) The Minister of Justice may, in consultation with the Governor of the Bank of Israel, prescribe types and amounts of obligations in respect of which the creditor shall be exempt from the duty to notify the guarantor of non-performance as provided in subsection (a).
(d) (1) Where a creditor seeks to accelerate a loan repayable in installments due to late payment, the creditor shall notify the individual guarantor at least 15 days in advance; failing such notice, the individual guarantor shall not be liable for the accelerated repayment.
(2) Where the individual guarantor notifies the creditor of the intention to repay the loan in installments, the guarantor may do so in accordance with the loan terms and the installment schedule set forth in the agreement between the creditor and the debtor, without prejudice to the guarantor’s rights as a protected guarantor.
(3) Where the individual guarantor does not notify the creditor of such intention within 15 days from receipt of the creditor’s notice under paragraph (1), the creditor may accelerate the loan.
(e) Notice by the creditor under subsections (a) and (d)(1) shall be sent by registered mail to the address provided by the guarantor; the manner of delivery of notice by an individual guarantor under subsection (d)(2) shall be prescribed by regulations.
27. Action Against the Debtor First
Repealed
Civil Law
(a) No action shall be brought against a guarantor unless both of the following conditions are met:
(1) a judgment has been rendered against the debtor;
(2) the Head of the Execution Office has certified that all enforcement proceedings reasonably required under the circumstances—including proceedings to realize a mortgage on a dwelling or a pledge of rights in a dwelling—have been exhausted.
(b) Notwithstanding subsection (a), an action may be brought against a protected guarantor if one of the following exceptions applies:
(1) the debtor has died, been declared legally incapacitated, placed under receivership, or has permanently left the country; where the obligation is secured by a mortgage or pledge, this exception shall apply only if the court or the Head of the Execution Office determines that reasonable efforts were made to locate the debtor or to realize the security;
(2) where the debtor is a corporation—an order for receivership or liquidation has been issued against it.
(c) Where an action is brought against the debtor, the creditor shall notify each protected guarantor, who shall be entitled to join the proceedings.
(d) For the purposes of this section, “bringing an action” includes a demand for payment of the debt, in whole or in part, set-off, or realization of any remedy available to the creditor against the protected guarantor.
28. Recourse Against the Debtor
Repealed
Civil Law
Where a guarantor has performed the guarantee, in whole or in part, the guarantor shall have the same status as the creditor with respect to the debt-collection proceedings initiated by the creditor against the debtor, and may continue such proceedings.
29. Multiple Guarantors
Repealed
Civil Law
(a) Protected guarantors shall be liable to the creditor in equal shares.
(b) Where there are also guarantors who are not protected guarantors for the same obligation, the share of each protected guarantor shall be calculated according to the total number of guarantors.
(c) Where the amount specified in a protected guarantor’s guarantee agreement is lower than the guarantor’s share under subsections (a) or (b), that guarantor shall not be liable beyond the amount specified; this shall not affect the shares of the other guarantors.
30. Scope of a single guarantor's guarantee
Repealed
Civil Law
The provisions of this Chapter shall not derogate from Section 4(a).
31. Priority
The provisions of this Chapter shall apply notwithstanding the provisions of Section 57 of the Bills Ordinance.
Civil Law
The provisions of this Chapter shall apply notwithstanding Section 57 of the Bills of Exchange Ordinance.
32. Non-Derogation
Notwithstanding any law, in a guarantee under this Chapter, any condition derogating from the provisions of this Chapter or from Sections 5, 6, 7, 11, and 12, which is not in favor of the guarantor, shall be valid.
Civil Law
Notwithstanding any other law, in a guarantee under this Chapter, any stipulation waiving the provisions of this Chapter or of Sections 5, 6, 7, 11, and 12, which is not for the benefit of an individual guarantor, shall be void.
Chapter C: Various instructions
- 33. Preservation of Laws
This Guarantee Law is intended to add to, and not derogate from any other law.
Civil Law
This Guarantee Law is intended to add to, and not derogate from, any other law.
- 34. Implementation and Regulations
Repealed
Civil Law
The Minister of Justice is charged with the implementation of this Law and may, with the approval of the Constitution, Law and Justice Committee of the Knesset, enact regulations concerning its implementation, including—
(1) prescribing additional particulars to be disclosed by a creditor to an individual guarantor;
(2) prescribing the methods of disclosure of particulars required under Section 22;
(3) prescribing the manner of presentation of the information referred to in Section 22(a)(3);
(4) prescribing the additions for which an individual guarantor is liable under Section 25(a)(4);
(5) prescribing exemptions from notice under Section 26(c);
(6) prescribing procedures for the collection of a debt under Section 28.