Case Number

CA 776/80

Date Decided

9-24-1984

Decision Type

Appellate

Document Type

Full Opinion

Abstract

The appeal turns on the question as to when the cause of action arises, for the purposes of limitation of actions, in a suit brought by a bank against its customer and founded on a debit balance in a current account: on the date the debit balance came into existence or on the date of the demand for payment.

Held by the Supreme Court:

A. (1) All of the terms, upon which a particular indebtedness is conditional, must be complied with in order to vest in the other party to a contract the right to claim its discharge. That is a fundamental rule in the law of contracts and, in the absence of any flaw nullifying a particular condition (for example, where it offends against some compelling rule of law), it should be preserved by dint of the principle of freedom of contract and the will of the parties.

(2) Where a party to a contract undertakes to perform a certain obligation "on demand" or "within a specified period of time after demand," the reasonable construction is, that an actual demand on the part of the creditor constitutes an essential condition of the formation of the right to have that obligation fulfilled. Only with the demand (besides other conditions, if any) as agreed upon, is the creditor's cause of action established and, accordingly, only then does the limitation of that right begin to run.

B. (1) The rule, whereby a contract is to be construed in accordance with the parties' intention, was accepted early in Israel also and took root here.

(2) The parties' intention is to be deduced from the contract itself and, if not apparent therefrom, then from the circumstances.

(3) The intention of the parties to a particular contract is the determining factor.

(4) The ancient exception laid down in English law, whereby the cause of action for a loan debt repayable on demand arises without a demand immediately upon the granting of the loan, contradicts the foregoing test of construction of contracts and the accepted policy in Israel. It is, therefore, regarded as incompatible with local conditions, within the meaning of that phrase in Article 46 of the palestine Order-in-Council, 1922.

(5) The object of a loan agreement is the use of the loan monies by the borrower in return for the profit that the lender derives, within the framework of his business, from such use for as long as it continues. The condition, the repayment shall be "on demand" (namely, on the demand of the lender), only enables him to bring the transaction to a close whenever he so desires but, as long as the thing is, in his opinion, worthwhile, he may elect to prolong the transaction even for many years, going beyond the period of limitation. That is totally inconsistent with the notion, that the borrower is under an obligation to repay the loan immediately upon its being granted.

(6) The demand on the part of the bank is an essential element in the formation of a cause of action against the customer.

C. (1) Minority opinion of S. Levin, J.:

In the absence of agreement to the contrary, the cause of action on a debt, repayable on demand, arises immediately on the receipt of the loan by the borrower. The fact that the indebtedness under the loan includes interest does not alter the date on which the cause of action was created. Accordingly, limitation, in the case of a loan repayable on demand, begins to run on the day the loan is granted.

(2) The same applies to a promissory note payable on demand in which, for that purpose, the period of limitation commences with the issue of the note.

(3) The lender and borrower are at liberty to determine between themselves, expressly or impliedly, that the need for a demand is part of the cause of action.

(4) There are instances where the court is prepared to deduce from the circumstances surrounding a particular relationship, that a demand is a necessary part of the cause of action. For example, it is assumed that a collateral undertaking, such as a guarantee or security for a debt, may not be enforced unless preceded by a demand as part of the cause of action. Even then, however, the rule applicable to such cases is subject to the interpretation of the express or implied intention of the parties to the transaction.

(5) With respect to banks, too, the cause of action on a debt payable on demand arises with the creation of the debt.

(6) The English rule of law, whereby limitation of action, in relation to the customer's credit balance begins to run from the date of the demand, and not from the date the credit comes into existence, has become so deeply embedded in our country's jurisprudence, that it ought not to be altered other than by legislation.

Keywords

Contracts -- Interpretation

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