Machsanei Hashmal v. Bank Mizrahi: the bank will pay NIS 4.5 million over closing a credit line

Background and facts: closing the credit line of Machsanei Hashmal

The details here are based on two reports on Walla Finance from May 2010. The full text of the judgments was not found openly online, and the case number does not appear in the reports.

According to the reports, in 1991 the Machsanei Hashmal company exceeded by NIS 270,000 the credit line approved for it at Bank Mizrahi. In March 1992 the bank sent notice of the immediate closure of the line, due to non-compliance with the credit agreement. This was after the branch manager had approved the overdraft.

The parties' arguments

According to the company, the information on the closure of the line spread among its suppliers, and they tried to take goods out of its warehouses. To prevent this it was forced to file a winding-up petition. On appeal the bank argued that the District Court erred when it found it liable, and ignored the company's direct responsibility for its collapse.

The District Court judgment: the bank is responsible for the collapse

According to the reports, Judge Baron of the Tel Aviv District Court held that "Bank Mizrahi was responsible for the collapse of the Machsanei Hashmal company and for its liquidation". This was because it decided, without warning, on the immediate closure of the credit line. The judge held that the bank should have weighed the damage to the company from an immediate closure against the damage that less drastic measures would have caused the bank. The bank was ordered to pay compensation of NIS 11 million, about NIS 23 million in 2010 values.

What the Supreme Court held in Bank Mizrahi's appeal

In August 2009 Supreme Court Justice Ayala Procaccia ordered a stay of execution of the judgment pending the appeal, and held that the appeal's chances were not negligible.

On May 16, 2010 the Supreme Court set aside the District Court's judgment. Justices Miriam Naor, Hanan Melcer and Yitzhak Amit ruled by way of compromise and without reasons that the bank will pay the company NIS 4.5 million within 30 days. According to the bank's counsel, the parties agreed on the Supreme Court's recommendation that the sum would be set between NIS 3 million and NIS 10 million. The Supreme Court did not decide the questions of principle on a bank's duties toward a customer who enjoys a credit line.

What it means for Mizrahi Tefahot customers

The District Court's judgment was set aside, and so its findings are not binding precedent. However, the proceeding ended with a payment of NIS 4.5 million. A business customer whose credit line is closed can ask the bank for the decision in writing and its reasons. Another judgment on reducing credit and restricting an account appears on the page Dishonored cheques: Bank Mizrahi ordered to compensate.

Sources

• Walla Finance: Supreme Court sets aside the judgment in the Machsanei Hashmal case
• Walla Finance: Follow-up report on the judgment, May 18, 2010

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

The full text was not found openly online

How to cite

Civil Appeal (Supreme Court) Machsanei Hashmal v. Bank Mizrahi, number not stated, Supreme Court (appeal from the Tel Aviv District Court), 16.05.2010. Source: Net HaMishpat (Israeli courts database), case Civil Appeal (Supreme Court) Machsanei Hashmal v. Bank Mizrahi, number not stated.