Abu Dhabi Commercial Cassation Ruling on Banking Facilities, Loan Rescheduling, and Personal Guarantee Liability

Abu Dhabi Court of Cassation – Commercial Circuit

In the hearing held at the Abu Dhabi Court of Cassation on 2 Muharram 1448 AH, corresponding to 17/06/2026 CE.

Presided over by Judge: Mohamed Zaki
And the membership of Judges: Emam Abd Al-Zaher Hassanein and Amr Abdullah

Examined Case No.: 521-2026 Commercial – Main Headquarters
Registered on: 20/05/2026
Subject: Commercial Cassation Appeal

After hearing the oral pleadings, reviewing the case documents, and conducting deliberations, the following judgment was rendered:

Grounds of Judgment

Whereas the cassation appeal has satisfied its formal statutory requirements;

And whereas the facts—as revealed by the challenged judgment and the remaining case documents—are summarized in that the respondent instituted Commercial Lawsuit No. 1150 of 2025 before the Abu Dhabi Court of First Instance, requesting that the appellants be jointly and severally ordered to pay the sum of AED 1,025,200.93, along with statutory interest at the rate of 12% per annum from the date the lawsuit was filed until full payment. This claim was grounded on the basis that pursuant to banking credit facilities, the borrower obtained Loan No. [...] in the amount of AED 878,000, repayable over 120 monthly installments at an annual interest rate of 9%. However, the appellants defaulted on their contractual obligations and ceased making payments despite debt rescheduling, leaving an outstanding balance against them amounting to AED 1,025,200.93, which prompted the filing of the lawsuit.

The appellants pleaded the inadmissibility of the lawsuit on the grounds of the bank's failure to obtain sufficient collateral at the time the credit facility was extended. The second appellant further pleaded the inadmissibility of the action against him due to a lack of legal standing (capacity). The supervising judge appointed a court accounting expert. Following the submission of the expert report, the Court of First Instance rejected the appellants' first defense concerning loan collateral and upheld the second appellant's defense regarding lack of capacity, dismissing the case against him. The court ordered the first appellant solely to pay the respondent the amount of AED 1,025,200.93, along with statutory interest at 9% per annum on the principal debt of AED 798,951 from 17/11/2025 until full settlement, not exceeding the principal claim, while dismissing all other claims.

The respondent appealed this judgment under Commercial Appeal No. 460 of 2026 (Abu Dhabi), and the first appellant cross-appealed under Commercial Appeal No. 489 of 2026 (Abu Dhabi). The Court of Appeal joined the two appeals. On 22/04/2026, the court ruled in Appeal No. 460 of 2026 to partially reverse the appealed judgment to the extent that it had dismissed the claim against the second appellant for lack of capacity, and rendered a new judgment holding him jointly liable with the first appellant for payment of the awarded sum, affirming the judgment in all other respects, while dismissing Appeal No. 489 of 2026. The appellants challenged this appellate decision before this Court via cassation. The appeal was deliberated in chambers and deemed worthy of full hearing, whereupon a session was scheduled for its consideration.

Appellants' Grounds of Challenge

Whereas the appellants assign against the challenged judgment grounds alleging violation of the law, erroneous application thereof, contradiction of established case records, defective reasoning, insufficiency of legal grounds, and infringement of the right of defense. They contend that the appellate court erred in upholding the rejection of their defense concerning the lawsuit's inadmissibility due to the bank's failure to obtain sufficient collateral under the Central Bank Law. They argue that the bank received a guarantee check that failed to fulfill the formal legal requirements governing commercial paper under the Commercial Transactions Law. Moreover, they assert that the guarantee agreement executed by the second appellant constituted a mere personal surety devoid of in rem security against which execution could be levied, and that the judgment impermissibly held him liable for an amount exceeding the guarantee limit of AED 878,000. Furthermore, they assert that the court relied on the expert report despite fundamental technical deficiencies, notably that the expert did not review account statements dating back to the inception of the loan relationship due to the bank's refusal to provide them, and that the expert wrongly calculated compound interest and duplicate administrative fees by liquidating the debt starting solely from the rescheduling date rather than the commencement of the contractual relationship as ordered in the preliminary judgment, thereby warranting reversal.

The Court's Legal Reasoning

Whereas this assignment of error is devoid of legal merit. It is well established that a contract legally formed with lawful cause, competent parties, and free consent serves as the law between the contracting parties, obligating each to perform the reciprocal rights and covenants stipulated therein. The primary criterion in characterizing contracts is the true intent of the parties rather than the literal wording or chosen terminology, whenever such terminology deviates from the actual contractual reality. The court must be guided by the facts and the joint mutual intention expressed in the agreement.

It is likewise settled that a bank loan is an agreement whereby the lending institution delivers a sum of money to its customer or credits the amount to the borrower's account for authorized use, with the customer covenanting to repay the funds alongside agreed interest at stipulated maturity dates. Interest is calculated at the contractual rate across the loan tenor and is payable at the conclusion of each year if the term is one year or more, or at maturity if less, unless customary commercial or banking practice dictates otherwise.

It is further established that parties to a banking contract may effect novation by mutually agreeing to extinguish a prior obligation and substitute a new obligation differing in an essential element. Novation requires a pre-existing obligation to be extinguished and a valid new obligation to be created; it is not presumed but must be expressly agreed upon or clearly deduced from the documents and surrounding circumstances. The closing of a current account and the debtor's formal acknowledgment of the resulting balance extinguishes the underlying original obligation and substitutes a new obligation arising directly from the debt acknowledgment. Once an account is definitively settled and approved by the parties explicitly, implicitly, or by judicial decree, such liquidation becomes conclusive and cannot be reopened or disputed absent fraud.

The determination of whether a customer's account has been closed falls within the sole discretionary authority of the trial court, provided its conclusions are supported by cogent evidence. Article 150 of Federal Decree-Law No. 14 of 2018 (as amended by Federal Decree-Law No. 6 of 2025 regarding the Central Bank and Organization of Financial Institutions and Insurance Operations) mandates that licensed financial institutions must obtain and maintain adequate collateral for all credit facilities granted to natural persons and sole proprietorships commensurate with the customer's income or collateral and facility volume. Paragraph 2 provides that no claim, action, or defense shall be accepted before judicial or arbitral authorities if submitted by a financial institution regarding a facility lacking the requisite collateral. Relevant sovereign directives additionally restrict execution to the security presented to the bank across all banking disputes concerning credit facilities regardless of their execution dates, applying broadly to both natural persons and corporate entities. The Central Bank's Regulations Concerning Bank Loans and Other Services Offered to Individual Customers No. 29/2011 dated 23/02/2011 serve as an interpretive framework for these provisions.

Legal Rules on Security Checks and Novation Findings

Article 7(c) of Central Bank Regulation No. 29/2011 provides that banks and finance companies may obtain from a customer post-dated checks covering installments for a value not exceeding 120% of the loan amount or debit balance. Thus, checks are legally recognized securities for installment repayments and aggregate loan balances plus interest. While a bare personal guarantee is insufficient on its own for obtaining credit facilities without in rem security evaluated by the bank, the Commercial Transactions Law (Articles 627, 628, 629, and 630) prescribes the essential requisites of a commercial check:

1. The term 'check' written in the text of the instrument in the language of execution;

2. An unconditional order to pay a determinate sum of money;

3. The name of the drawee bank;

4. The payee or order beneficiary;

5. The place of payment;

6. The date and place of issuance; and

7. The signature of the drawer.

An instrument omitting any such details loses its character as a check, subject only to statutory exceptions regarding omitted places of payment or issuance. Moreover, the law authorizes issuance through dedicated bank request forms, and whoever draws a check—or directs another to draw it on their behalf—must maintain sufficient funds for payment; otherwise, the drawer is personally liable to holders and endorsees for payment consideration.

The evaluation of evidence, interpretation of agreements, and reliance on expert findings fall within the exclusive jurisdiction of the trial court, provided its findings are grounded in verified records. The court is under no obligation to appoint an alternative expert if existing evidence is sufficient, nor is it required to respond exhaustively to every line of argument where its established findings implicitly refute them.

Review of the case records and the court-appointed expert report reveals that the respondent extended the initial loan pursuant to the application dated 28/08/2019, designating the second appellant as the primary borrower. Subsequently, the parties restructured the outstanding indebtedness across multiple applications, culminating in the debt rescheduling agreement dated 20/10/2022, wherein the first appellant was designated the primary borrower for a rescheduled principal of AED 878,000 at the SME base rate plus 6% per annum (totaling AED 463,960.00 in interest), repayable in monthly installments of AED 11,183 across 120 months, with a total repayable balance of AED 1,341,960. The agreement explicitly confirmed the second appellant as the primary debtor/guarantor.

The expert examined the bank's accounting records from the date of the rescheduling agreement, which validly novated the debt into a distinct, autonomous obligation that settled and superseded prior accounts. The expert calculated interest on a simple interest basis at the agreed 9% rate without compounding or unverified charges. Total repayments made between 21/10/2022 and 14/01/2026 amounted to AED 79,049.00 (the last payment being AED 10,000 on 07/02/2025), leaving an outstanding balance of AED 1,037,526.45 as of 27/10/2025, which comfortably exceeds the respondent's restrained claim of AED 1,025,200.93.

The expert further verified that the bank obtained collateral comprising an undated check drawn by the second appellant on the first appellant company's bank account in the amount of AED 1,341,960, an additional undated check (No. 21910) drawn by him in the amount of AED 1,363,488, and a signed credit guarantee agreement capping his personal guarantee at AED 878,000. Under Article 630 of the Commercial Transactions Law, the second appellant is jointly liable with the corporate borrower for the check value, which serves as valid security for the debt.

Affirmation of Joint Liability and Rejection of the Appeal

The security check drawn on the first appellant company's account fully covers the outstanding debt. Because the second appellant personally drew that check without proving the existence of sufficient provision at the time of issuance, he became personally and jointly liable with the corporate borrower for its payment pursuant to the provisions of the Commercial Transactions Law. The check fulfilled all statutory formal requirements under commercial law.

Given that the appellate court's conclusions are supported by verified documentation and fall squarely within its legitimate authority to assess evidence, the appellants' challenges are devoid of legal basis and must be rejected.

Operative Judgment

For these reasons, the Court ruled: To dismiss the appeal, order the appellants to pay the statutory court fees and expenses plus AED 1,000 for respondent's advocate fees, and order the forfeiture of the security deposit.

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