I promised to lend money to my unemployed friend so that he could start a business. I instructed him to have a lawyer draw up the necessary documents. The documents were drawn up, but I am now regretting my pledge, as I realize that I may need the money this year.

Q: Can I renege on my commitment? If so, must I reimburse him for the money he paid to have the documents drawn up?

A: The point at which a potential lender may no longer retract his commitment to issue a loan is a fundamental debate. The general principle that a valid kinyan creates a legal obligation applies to this case as well. One approach maintains that the loan document generates a lien on the borrower’s property, and once drawn up with the agreement of the lender, it is the equivalent of a kinyan. Therefore, the lender must follow through with the loan (Tur C.M. 39:19 in the name of Ramban). Others reject the assertion that drawing up a loan document creates an obligation on the potential lender to carry out his commitment, saying that the lender retains the right to renege on his agreement to issue the loan (Tur ibid.).

In our case, however, all opinions agree that there was no kinyan to obligate the lender to loan the money. Merely having a loan document drawn up without the parties signing the document does not constitute a kinyan between the borrower and lender that obligates the lender to loan money.

On the other hand, since the borrower was instructed by the lender to invest money to obtain the loan, the lender is obligated to reimburse the borrower for those expenses (Sm”a 39:46). This is categorized as garmi – a sort of indirect damage for which one is liable. It is comparable to one who places a special order for the manufacture of an object and then decides against purchasing that item. Since the manufacturer invested money to produce that object, the customer is obligated to reimburse him for his loss (Rav Akiva Eiger ibid. referencing C.M. 333:8). If, however, the lender retracts his commitment due to circumstances beyond his control, he is not obligated to reimburse the other party for his loss (Shach C.M. 386:6).

An additional factor that the lender must consider is that of tzedakah (charity). If the borrower is poor, one may not retract his pledge to lend him money. An oral agreement to fulfill the mitzvah to lend a poor person money is considered a vow, and one is obligated to follow through on that commitment (Ahavas Chesed 1:11 footnote 18). Accordingly, the right to retract one’s commitment to loan someone money is limited to a wealthy borrower for whom there is no mitzvah to lend money (see Minchas Shlomo 1:91:20, about whether hataras nedarim prevented the vow from taking place). Even if the borrower is wealthy, if the lender knows that the borrower was relying upon him, retracting the agreement may involve a violation of mechusar amanah (lacking trustworthiness), which restricts a person from reneging on an oral commitment to another person (the details of mechusar amanah are beyond the scope of this article).