I was approached by a friend to invest money along with him in his cousin’s project. Initially, he asked for a small sum which I gave him. Since I don’t know his cousin, when he asked me to invest an additional amount, I asked him to guarantee that my money will be invested and not used by his cousin for other purposes, by giving me his own personal checks to cover my entire investment i.e. both the money I had given previously and also the money that I was investing now. He complied with my request and gave me a number of signed but undated checks, leaving the payee blank, which covered the entire amount I invested. After two years it became clear that my fears were well-founded since it turned out that his cousin was, much to my friend’s dismay, a simple crook. Rather than invest my money, he used my money to pay off personal debts and now when I asked my friend for my money he replied that his cousin doesn’t have any money to pay his debts. May I deposit my friend’s checks?
Since your friend’s checks were given with regard to your investment with a third party, his cousin, we have to discuss the rules of guarantors or areivim as they are called in the Torah and halachic literature.
In order to understand the answer to your question, we will discuss four issues:1] The halachic basis for the creation of an obligation on a guarantor to pay someone else’s debt; 2] Whether a guarantor is obligated to pay a debt that existed before he obligated himself as a guarantor; 3] What role checks play in establishing one as a guarantor and, 4] Whether there is a difference between guaranteeing a loan and guaranteeing an action such as, in your situation, investing money.
The reason it is necessary to find a source for a guarantor’s obligation to pay is that he did not receive any money from the lender. When one receives money as a loan, that creates an obligation to pay it back. However, here we wish to create an obligation to repay money that was given to someone else. The Gemoro (Bava Basra 173B) cites one source from the Torah and one from Mishlei. The Torah source is Yehuda’s acceptance of responsibility for Binyomin’s return. The source from Mishlei are pesukim that indicate that a guarantor is liable to pay what he guaranteed. The poskim discuss whether in the end the Torah source suffices, but in any case a guarantor is liable for what he guaranteed even if he just stated verbally to the lender that he guarantees repayment of a loan.
Having established that a guarantor is liable we have to understand the mechanics that actually create this liability. The reason this needs clarification is that generally one cannot create liability by statements alone. For example, if one says he will give someone a present he has no enforceable obligation to actually give the present. While it is improper behavior to not fulfill one’s statements, nevertheless, there is no enforceable liability. If the one who was promised a present takes the one who made the promise to beis din he will not be able to force the one who promised to pay.
To make things worse, a guarantor is generally only creating a conditional obligation, known as asmachta, since if the borrower repays (as the guarantor expects) the guarantor will not be liable for the loan. Conditional guarantees are normally not enforceable since the granter of a conditional guarantee does not have full intention to pay since he expects the borrower himself to repay the debt.
The meforshim offer two approaches to explain the mechanics of how a guarantor verbally creates personal liability. One approach Tosafos (Bava Metsiyo 71B) as explained by Machane Efraim (Ribbis 11)) is that the Torah views the guarantor as an intermediary. Even if the loan money does not physically pass through the guarantor’s hands, the Torah looks at what transpired as if the lender gave the money to the guarantor who then lent the money to the borrower. Thus, the obligation is not created verbally but rather by the borrower’s receipt of the lender’s money from the guarantor.
The second approach (Ritva Kiddushin 6B) is that the guarantor’s liability is created by the fact that he derives benefit from the lender’s granting the loan based upon his guarantee, since this shows that the lender considers him to be reliable.
These two approaches explain clearly why the Mishna (Bava Basra 175B) rules that liability cannot be created verbally by a guarantor after the funds were given to the borrower. Since in your situation part of the funds were given prior to your receiving the checks, it would seem that you have that issue with regard to those funds.
However, even though one cannot generally create liability verbally, there are methods to create liability even after the funds were given and we will therefore have to clarify if what you did qualifies as one of those methods.
The Gemara (Bava Basra 176A) writes that if the guarantor makes a formal kinyan to obligate himself to pay in case the borrower fails to pay, it obligates the guarantor even after the funds were given to the borrower. The kinyan that the Gemara refers to is a kinyan sudar i.e. the lender gives an object to the guarantor, similar to what we do when we appoint the rabbi as our agent to sell our chametz. The reason it is effective is because a kinyan of sudar can always create an obligation.
Therefore, since the transfer of money from the lender to the borrower cannot create an obligation if it preceded the obligation of the guarantor one must give over an object to obligate the guarantor to pay if the borrower fails to pay. However, in your case you did not use a sudar to obligate your friend to pay in case the funds are not invested. You just received checks.
In order to decide if checks are effective in creating an obligation on a guarantor, we have to first determine whether a shtar – a legal document, written and/or signed by the guarantor stating that he is obligating himself to pay if the borrower fails to pay – is effective.
In order to understand the issue it is important to preface that the halocho (CM siman 40), based on the Rambam, Ramban and others, is that if one wishes to create an obligation on himself by writing this on a piece of paper and giving it to the one he is obligating himself to, it is effective and a debt has been created on the one who wrote the obligation. Therefore, it would seem that this should be valid in order to create an obligation on a guarantor as well and in fact that is the opinion of many Rishonim, including the Ra’avad and the Ramban, and it is one of the opinions that is recorded in the Shulchan Aruch (129, 4).
However, the Shulchan Aruch cites other opinions that maintain that this is invalid, i.e. even though it is valid to create a normal obligation, it is invalid to obligate a guarantor. The Shach (129, 11) explains that the reason it is not effective is because, as we mentioned earlier, every guarantor has an issue of asmachta. A kinyan of sudar overcomes the issue of asmachta but signing a piece of paper does not. We will continue next week by discussing whether giving a check is better than signing a written obligation or not.
In conclusion: We determined that one can verbally obligate himself to act as a guarantor of a future loan but for a past loan one certainly cannot create an obligation verbally. One certainly can create the obligation if he does a kinyan sudar. There is a major dispute if he can create the obligation by means of only a formal legal document. Next week, Be’ezras Hashem, we will study whether checks can create this obligation.