Case Number
CFH 8447/15
Date Decided
9-11-2017
Decision Type
Appellate
Document Type
Full Opinion
Abstract
[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.]
Background: This case is a further hearing of the Court's judgment in LCA 8301/13 Tal Trading Corp v. Bank Leumi Le-Israel Ltd. (November 24, 2015) (hereinafter: the Appeal Judgment), which overruled a longstanding precedent in the law of bills of exchange established in CA 333/61 Guisky v. Meir, IsrSC 16 595 (1962) (hereinafter: the Guisky Precedent).
The Guisky Precedent determined that not only a holder in due course, but also a holder for value could defeat a claim of total failure of consideration raised by the drawer of a check, provided that the bill had been negotiated to that holder prior to the failure of consideration.
The Court's main reason for reaching that conclusion was grounded in property law. The Court's ruling emphasized that there was no stipulation that prohibited negotiating the check, and since the delivery date had not yet arrived when the check was negotiated and endorsed, no defect occurred at that point in time in the title held by the check's endorser, and the endorsee consequently received flawless title, entitling him to be paid for the check once he had provided value for it. In this context, the Court added and underscored the importance of the bill as a money equivalent, as well as the law merchant, noting that taking a bill in the knowledge that it was given to the transferor on the basis of a yet-to-be-fulfilled contract does not lack good faith.
Since it was rendered in 1962, the Guisky Precedent has been the object of substantial criticism, both in the rulings of the Court and in the legal literature. However, because the issue decided by the Guisky Precedent has never since come up directly before the Court, the Court sufficed with attaching a "cautionary note" to the precedent without expressly overruling it (CA 1560/90 Zitiat v. First International Bank of Israel Ltd., IsrSC 48(4) 498, 527 (1994) (hereinafter: the Zitiat case).
In the Appeal Judgment, Justice Hendel pointed out that reservations about the Guisky Precedent brought about “a state of confusion in the rulings of the trial courts. Some of them interpreted the reservations about the Precedent to mean that it had lost some of its validity, while others continued to apply it to the letter”. For the first time in over fifty years since the Guisky Precedent was decided, the present case presented an opportunity for the Court to revisit the issue of total failure of consideration and the right to payment of the holder for value.
Facts: The dispute in the Appeal Judgment revolved around the Respondent, Tal Trading Corp. (hereinafter: the Respondent), which had concluded an agreement with the Zvi Or Diamonds Company (1981) Ltd. (hereinafter: Zvi Or) for the purchase of diamonds. The Respondent paid Zvi Or for the diamonds by postdated checks, one of which, for $205,000, was at issue. The check was drawn by the Respondent to the order of "Zvi Or Diamonds Company Ltd." and dated December 27, 2008. On September 1, 2008, that is, prior to the check's due date, the payee, Zvi Or, passed the check on to the petitioning bank (hereinafter: the Petitioning Bank)—in which it held a current loan account—as security for repayment of its debts. At the time when the check was transferred to the Petitioning Bank, Zvi Or's account was overdrawn. In the meantime, Zvi Or experienced financial difficulties and failed to deliver the diamonds to the Respondent. Following this total failure of consideration, the Respondent issued the drawee bank a stop payment order. The Petitioning Bank submitted the check for execution, while the Respondent filed an objection to the execution of the check. On June 18, 2012, the Magistrates Court in Tel Aviv rejected the objection, but found that the check was irregular on its face since the endorsement did not match the name of the payee, and the Petitioning Bank did not, therefore, acquire holder-in-due-course status with regard to the check. Nonetheless, as a "holder for value", the Petitioning Bank did have the right to be paid for the check by the Respondent under the Guisky Precedent, because the check had been negotiated to the Petitioning Bank before Zvi Or breached its underlying transaction with the Respondent, causing total failure of consideration. The Respondent’s appeal to the District Court was denied. In its ruling, the District Court noted that the Guisky Precedent stands, and that the Supreme Court is the competent authority to overrule it.
The Respondent was granted leave to appeal to the Supreme Court. The appeal was heard by a three-judge panel (Justices Hendel, Sohlberg and Shoham). The Court overruled the Guisky Precedent and granted the appeal.
In the Appeal Judgment (per Justice Hendel, Justice Shoham concurring, Justice Sohlberg dissenting), the Court noted that when holdership in due course is denied, the bill holder—even if he is a holder for value—is subject to defenses under the law of obligations and property law. As long as the bill holder does not meet the conditions for holdership in due course as per sec. 28 of the Ordinance, the linkage between the bill and the underlying transaction is maintained, alongside the independent bill-based ground for claim created when the bill is drawn. This means that even in a bill-based claim, the bill-based grounds for claim continue to be attended by the general principles taken from property law and obligation law, according to which, in transferring property or assigning a right, the transferor or assignor cannot convey more than it has to the transferee or assignee. In this context, the Court embraced the principal critique levelled at the Guisky Precedent, as articulated by (then) Deputy President A. Barak in the Zitiat case.
The President granted a request for a further hearing, and referred the petition to a seven-judge panel.
Held: The Court affirmed the judgment in LCA 8301/13 Tal Trading Corp v. Bank Leumi Le-Israel Ltd., expressing its concurrence with the majority opinion of Justice N. Hendel in the Appeal Judgment.
Keywords
Property
