Great excitement is currently gripping the corridors of the legal world, in light of the Supreme Court's decision in Case RA 8301/13. Tal Trading Corp. vs. Bank Leumi Le'Israel Ltd., which was published a few weeks ago - which annuls a previous ruling regarding the law of promissory notes.
Despite increasingly advanced technology, credit cards, digital banks, etc., checks are still one of the most common means of payment in the economy.
Therefore, the new ruling from the Supreme Court will affect all of us.
In this article, we will briefly review the new halakha and its impact.
Executing a transaction using deferred checks
A buyer and seller made a transaction. The buyer gave the seller post-dated checks (""The basic deal""), it was clear that the date of payment of the checks was after receipt of the goods. The checks were transferred to the seller's bank and converted to the order of the bank, and they may even have been transferred for discounting at the bank in order to cover the seller's debt to the bank (i.e. the bank gave consideration for the check). Even before the date of payment of the checks arrived, the seller breached the agreement and did not deliver the goods to the buyer (a situation known as (return failure). If the check is in good condition and without defect - the bank is said to be - "in good possession" of the bill (check) or draft. In view of the failure of the consideration - the buyer rushes to cancel the check, but against him the bank argues that since he (the bank) is in good possession of the bill (check), then the buyer must repay the amount even though in fact the basic transaction failed. Whose right will prevail? The buyer's or the bank's? This is in fact the question that was at the center of the changed law.
Who is holding the bill correctly?
Section 28(a) of the Bills of Exchange Ordinance defines a "holder in good standing" as someone who holds the bill in his hands when it is complete and proper according to its appearance and when he received the bill before its expiration, he had no knowledge that the bill had been previously voided, if indeed it had been, and that he took the bill in good faith, for valuable consideration and when he took the bill he did not know that there was a problem with the underlying transaction. In other words, a holder in good standing is someone who received the check when it is complete and proper according to its appearance, in good faith, for valuable consideration and when he received the bill he did not know that there was any problem with the rights existing under the bill.
Holds for value
"A lower "status" than "proper holder of a bill" is "holder for value." The definition is found in Section 26(b) of the Bills of Exchange Ordinance. Valuable consideration - is any consideration sufficient to establish a simple engagement or a prior debt or prior liability, against which a bill of exchange is given for immediate or future payment. In other words, a holder for value is someone who has given any consideration for the bill.
In the previous ruling (which was repealed), it was determined that even someone who holds the goods for value prevails over the buyer whose basic transaction failed. For example, the buyer is "out of the woods," meaning that he neither received the goods nor is he required to pay the consideration, given that a third party is dependent on it. In this case, the buyer will have to pay the amount stated on the check, as stated, and then claim it from the seller. If the seller went bankrupt, as happened, the buyer's supplier would be able to get his money back.
What does the new law state?
Current law states that only someone who holds it properly can receive the proceeds of a check from the buyer, which was given to the seller, even when the buyer did not receive any proceeds for the check he gave to the seller.
In the case of the current halakha, two companies made a deal to purchase diamonds (the basic deal). The buyer gave the seller a post-dated check and the seller returned the check to the bank. In return, the bank gave the seller credit. The seller's business collapsed, and the buyer canceled the check. The bank claimed that it was holding the goods properly or at least holding them for value, and therefore the buyer must pay it the consideration.
In previous courts, it was determined that the bank was not properly holding the bill, given the defects that had occurred in it, and therefore was at most holding it for value.
The Supreme Court overturned the rule that even a holder of value could sue for the bill, leaving the situation as it is. Only those who hold it properly will be able to sue under it, if, as stated, the basic transaction has been violated..
In summary, a person who receives a check in exchange, whose payment date is in the future (and in fact no consideration was given for it), will be able to force payment of the check only if he proves that he is in proper possession of the check.
Some argue that changing the law will lead banks to reduce the provision of credit/loans based on future checks. This is possible, but the more likely scenario is that the bank will carefully isolate the checks that are issued to its order so that it is always in a position to properly hold them.
We will end with two practical tips:
1. As a general rule, rarely give checks that can be converted to third parties - this will reduce the chance of a party getting away with it.
2. If you are the party receiving the check's transfer - you must ensure that the check is correct and complete, so that you are granted the status of a valid holder and not a holder for value. In order to enjoy the status of a valid holder, the check must be complete and correct. Without erasures, defects or tears. The names are accurate and there are no errors. The transferor's signature is complete, and there is complete identity between the transferor's signature and the name.
Lawyer Yuval Yishai fromWolfson Weinstein & Co.', deals with law Commercial and corporate law, Dissolution and rehabilitation of companies, Consulting and assisting corporations and individuals in steps to prevent insolvency.
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