Dishonored cheques and a restricted account: Bank Mizrahi ordered to pay USD 327,800 for heavy-handed conduct

Background and facts: credit for construction projects at United Mizrahi Bank

The details here are based on a report on ynet (in cooperation with Psakdin) of July 11, 2012. The report does not state the name of the court or the case number, and the full text of the judgment was not found openly online. According to the report, the judgment was given by Judge Dr. Dafna Avnieli.

The plaintiff was a customer of United Mizrahi Bank, which later merged with Bank Tefahot. According to him, the bank's conduct led to him losing all his property, and his damages reached NIS 4,726,428.

The parties' arguments

The customer argued that he agreed orally with a bank representative that he would receive unlimited credit for construction projects, which would grow as he pledged properties. According to him, when the regional manager was replaced, the new manager informed him that he was exceeding the credit line and that withdrawals and cheques would be approved only against deposits. According to him, although he acted according to the demands, the bank refused to honor cheques and restricted his account, and his business collapsed.

The bank argued that the claim was time-barred. On the merits it argued that the customer exceeded the credit lines and withdrew funds without the ability to repay them. According to the bank, unlimited credit was not agreed, but specific credit against collateral. When the collateral was not provided, it announced the termination of the credit, and the customer continued to withdraw funds.

What the court held on the dishonoring of the cheques

According to the report, the claim was partly allowed. It was held that the claim was time-barred with regard to the agreement with the bank, but not with regard to the cancellation of the credit line and the dishonoring of the cheques, which occurred later.

The court did not accept the version that unlimited credit was promised. However, it held that the customer was given almost unlimited credit, without the bank warning about the overdraft. It also held that the customer was not entitled to continue acting in this way contrary to the bank's demand.

As to the dishonoring of the cheques, it was held that the bank's conduct was inconsistent and dismissive. According to the report, the bank knew that the customer would not be able to meet his obligations to suppliers, contractors and apartment buyers if the cheques were dishonored, and nevertheless did not honor them because of a relatively small overdraft. The dishonoring of the cheques and the restriction of the accounts without warning and without coordination were defined as action in bad faith and not in an accepted manner.

The bank was ordered to pay USD 327,800 for the losses from selling assets hastily and at a low price, and NIS 150,000 for distress and humiliation. It was also ordered to pay costs of NIS 30,000.

What it means for Mizrahi Tefahot customers

According to the report, the court did not recognize the customer's right to unlimited credit, but held that a bank that tolerates overdrafts over time cannot dishonor cheques suddenly and without warning. A business customer whose credit line is reduced can ask the bank for the written notice and the dates. A similar case appears on the page Machsanei Hashmal v. Bank Mizrahi.

Sources

• ynet (in cooperation with Psakdin): United Mizrahi will compensate a customer for heavy-handed conduct, July 11, 2012

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

The full text was not found openly online; details according to a report, not yet verified against the text of the decision

How to cite

Case number not stated in the source, Not stated in the article. Source: Net HaMishpat (Israeli courts database), case Case number not stated in the source.