This is the first of a series of articles meant to educate the layman on certain legal realities which touch the daily lives of most Israeli residents at some time or another.
Many people are unaware of how checks work in Israel.
Unlike American law, Israeli law views a signed check as prime facie evidence of a debt. A creditor may simply deposit a bounced or cancelled check in the Misrad Hotza'ah Lapoel, which is part of the court system, and thereby begin collection procedures without a trial beforehand (more on this in an upcoming article).
Let us examine two common scenarios.
Scenario Number One
Mrs. Cohen has run up a substantial debt in the local grocery store. After a month's time, the store owner asks her to pay up. She whips out her trusty ol' checkbook and dashes off a postdated check for 1000 shekels without filling in any name. The check is made out for the day on which she receives her National Insurance (Bituach Leumi) stipend for her 8 children, bli ayin hora, and she knows that her bank will pay the check even if there is an overdraft, which there usually is.
Mrs. Cohen is a busy lady for many good reasons, and did not major in accounting. Her husband is learning, boruch Hashem, and she manages the household expenses as well as many other jobs in the home -- and outside of the home -- too. She is very capable, but on the 20th of the month, 8 other checks totaling well over 3000 shekels come tumbling into her bank account for payment -- where there was already a 2000 shekel overdraft from previous debts. Her credit for overdraft with the bank allows up to 5000 shekels before checks are returned. She usually is on top of things -- but this month it was a little hectic. Bounce! Bounce! Bounce! Three of the eight checks were returned.
Meanwhile, the grocer had done what all grocers do with checks they receive from their customers. He passed it on to Tnuva. Now the grocer gets flak from Tnuva and he owes them an extra charge of 50 shekels for Mrs. Cohen's check that bounced, which he will charge to Mrs. Cohen. Mr. Grocer gets Mrs. Cohen on the phone and notifies her of the bounced check, demanding immediate payment, preferably in cash.
Mrs. Cohen assures Mr. Grocer she will take care of everything, but the money situation is a little tight just right now. Her husband needed new eyeglasses. Yossi's tutor just asked to be paid after 8 weeks of tutoring. And her mother-in-law -- you just wouldn't believe it; a little thing turned into such a big thing and she just had a minor operation in New York -- well you know how it is, we called nearly every day, so now the Bezek bill just came in. Three other checks also bounced and she just can't catch up yet. If only Mr. Grocer would let her pay it back "in about 2 weeks," as this would give her time to arrange a quick gemach loan.
Mr. Grocer does have a heart and decides not to pressure her just now. Two weeks fly by and the grocer doesn't call back. Mrs. Cohen is unable to pull together enough money to cover her debts. She keeps a low profile and tries to avoid buying in that grocer until she can put a meaningful sum down on the debt. She intends to pay. Time flies, and two months later, Mrs. Cohen gets a warning letter from an attorney representing Tnuva. The check will be put into collection if she doesn't immediately pay the full amount with an additional 250 shekels for legal fees. What are her rights?
Scenario Number Two
Mrs. Levy is about to enter her apartment building. It is six weeks before Pesach. A man is walking down the street carrying a paint brush. His clothes show obvious paint stains from a recent job. As he passes by, he asks her if she needs work done in her home. He just painted for Mrs. Plony. Well, it's been quite a while, she thinks to herself, and it would be very nice to have a fresh paint job in the living room and the upstairs bathroom where the ceiling paint has been chipping off. And Mrs. Plony is a good reference. So, Mr. Painter comes in to have a good look around.
After telling her how he cannot believe the condition of the walls and ceilings in the apartment, he says that he would consider doing the work but he couldn't take less than 4000 shekels for such a job. When she complains that another painter offered her 2000 for the same work, he immediately drops his price to 2000 shekels, but without painting any radiators. A date is set and he asks for a 500 shekel advance "to buy materials." She writes him a postdated check and fills in the name that he gives her. Giving him a second look, she decides to place two parallel lines over his name on the check.
He scribbles his estimate on a piece of paper along with his cellphone number, noting that he received 500 shekels for the purchase of materials. He signs and leaves: never to be seen nor heard from again. The check she gave him is quickly turned over to a check cashing business. Mr. Painter gets his money, and the check cashing business deposits Mrs. Levy's check in their very active account. Mrs. Levy cancels the check when Mr. Painter fails to show up and never turns on his cellphone.
Four weeks later, she receives a registered letter from Attorney Toughy, representing a check cashing company that she has never heard of. He demands immediate payment of the 500 shekel check, plus 250 shekels for his fee. At the bottom of the letter, there is an excerpt from an Israeli law stating that she could be imprisoned or given a large fine for failure to honor her check. What should Mrs. Levy do?
Answer and Discussion
In both situations, Mrs. Cohen and Mrs. Levy must pay for the checks. They had better do it soon or else the checks will be placed for collection in the Misrad Hotza'ah Lapoel. Once a file is opened there, things can get quite nightmarish
One can always find exceptions to rules, but the general rule in Israel is that except for outright theft, any check in the hands of an innocent third party is enforceable. It is considered to be like a court judgment, and the signer of the check or endorsee is guilty until proven innocent. There is no obligation on the part of Tnuva to investigate Mr. Grocer's motives before they take his check. Similarly, the check cashing firm has no obligation whatsoever to investigate why Mr. Painter is passing on a check.
It does not matter that the grocer didn't press her to pay immediately.
It does not matter that Mrs. Levy put two parallel lines above the name of the so-called painter.
It does not matter that Mr. Painter is a dishonest person as far as the check is concerned.
Clearly, Mr. Painter would lose if he personally tried to enforce collection of the check. However, a third party can enforce payment of the check.
Mrs. Levy definitely has a legal claim against Mr. Painter, if she can find him. Remember, however, we don't know if the name he gave her was real.
The two parallel lines that Mrs. Levy placed over the painter's name did not limit transfer of the check. Two parallel lines over the name of the payee means that this check must be deposited in order to receive its value. Without those two lines, the payee or third party endorsee may approach the bank and withdraw the cash value of the check directly from the bank.
In the case of the grocer, since Mrs. Cohen had already received the value of what she was paying for, she doesn't care if the check is passed on. In a real situation, Mrs. Cohen should have asked for her check back in order to replace it. Mrs. Cohen is well advised to immediately contact Tnuva's attorney and deal with the problem responsibly. Some attorneys respond well to a straightforward approach and will even forgive a portion of their legal fees in return for prompt payment, or else will work out a comfortable repayment schedule.
In the second scenario, Mrs. Levy had not yet received the value of what she paid for and should have insisted on writing a check with the words lamutav bilvad(for the beneficiary only) clearly written on the face of the check above the name of the payee.
This is the only way to prevent the check from being passed on. Whenever value is not yet received, it is advisable to write clearly on the face of the check in lamutav bilvad in Hebrew.
Unfortunately, there are many stories like this and the public must be knowledgeable to avoid unnecessary aggravation and hardship over collection practices.