Civil Appeal 8611/06 Bank Hapoalim Ltd. v. Michal Martin

Justice M.  Naor:

We have before us an appeal against the judgment of the Tel Aviv-Jaffa District Court (the Honorable Vice President D.  Pilpel) inCivil Case 2374/04 [Published in Nevo] dated August 17, 2006, whereby the Respondent's claim against Bank Hapoalim in a tax appeal was accepted (hereinafter: The Bank or The Appellant).  The District Court declared that a mortgage deed created by the respondent and her husband for the benefit of the bank will not be considered a document signed by the respondent and cannot be used against it, due to a breach of the duty of good faith and the duty of disclosure that apply to the bank in its relations with the respondent.  Against this determination, and the conclusions derived from it, the Bank appeals and its request is that this Court intervene in the judgment and order the cancellation of the declaratory relief given in favor of the Respondent.  The focus of the discussion is the question of the scope of the duty of disclosure that applies to a bank that gives a mortgage, in the relationship between the bank and the mortgagee, and the implications of this duty in the circumstances of the present case.  We tried to get the parties to an agreement, but they informed us that it didn't work.  I will suggest to my colleague, all as will be detailed, to accept the appeal in part, only with respect to a previous mortgage that was imposed on the apartment that the appellant bank repaid to another bank, Union Bank, after taking the mortgage.

Previous Facts and Legal Proceedings

1. The Respondent and Mr. Yehuda Martin (hereinafter: The husband) are the owners of equal parts of a residential real estate property, located in Ra'anana and known as Block No. 6583 in Plot 493 (hereinafter: Property or The Real Estate).  Until October 2000, the real estate was mortgaged in the first lien in favor of Union Bank of Israel in a tax appeal (hereinafter: Union Bank), in order to secure all of the debts and obligations of the Respondent and her husband to Union Bank, in the amount of approximately $119,000.  On August 21, 1994, the Respondent and her husband opened a checking account No.  9574 with the Appellant (hereinafter: The joint account).  On September 13, 1994, the husband opened an account in his nameInvestigation whose number is 8160 in the appellant's possession (hereinafter: The calculation of the charity).  In order to secure the debts of the couple in the joint account, as well as to secure the debts that the husband created in the private account, the husband provided for the appellant various collateral, in accordance with the need that arose from time to time.  Thus, for example, on December 5, 1994, the husband mortgaged in favor of the appellant a property in Zahala that he owned; And on September 19, 1995, the husband further pledged for the appellant a real estate property in Ramat Gan, which he also owned.  In the late 1990s, a dispute broke out between the couple and this led to proceedings between them both in the Family Court and before an arbitrator appointed with the consent of the two.  On January 13, 2000, the husband sold the property in Zahala that he owned, in order to cover part of the mandatory balances that were in the account of the Chachala.  In respect of the balance of the debt remaining in the account of ILS 490,000, the bank provided the husband with a loan of the same amount.  In order to secure that loan, on September 19, 1995, the real estate property in Ramat Gan was mortgaged (a property that was, as recalled, owned by the owner).
2. On October 4, 2000, the Respondent and her husband signed a mortgage deed of the second degree, with no limitation in amount, regarding the property in Ra'anana, the residence of the couple and their children, which is the property that is the subject of this action (hereinafter: The Mortgage Deed). According to what is written in it, the mortgage deed was prepared "to ensure full and accurate payment of all sums due and/or will reach the bank from the borrower and/or the mortgagee in connection with the provision of banking services", as part of the The calculation of the charity.  As stated above, the property is registered in equal parts in the name of the respondent and its owner.  On October 10, 2000, i.e., after the signing of the mortgage deed, the bank placed a loan in the sum of ILS 585,000 at the disposal of the account.Investigation (Approximately $119,000 at the exchange rate at the time the loan was taken).  According to a factual determination by the District Court, this loan was transferred to Union Bank in order to cover a loan that was in an account managed by the Respondent and her husband at Union Bank.  As mentioned, this loan was secured by a mortgage that was registered on the residential property in Ra'anana.  In fact, the transfer of the money to Union Bank made it possible to cancel the mortgage that was registered on the property in favor of Union Bank, and in its place the couple created a mortgage in favor of the appellant, in respect of that property (on October 4, 2000).  The Respondent disputes this matter and claims that the mortgage at Union Bank was repaid using funds that the couple had in the United States.  However, as we shall see below, regardless of the question of what the respondent actually knew, the appellant transferred money to Union Bank, and it was this transfer that enabled the repayment of the mortgage that the couple had there.
3. When the credit in the account was not repaid, on June 4, 2001, the bank opened a writ of execution case against the respondent and her husband (No. 26-05132-01-8), with the aim of realizing the mortgage in his favor on the property in Ra'anana.  At this point, a bitter dispute had already been settled between the couple and their matter had reached the judicial courts.  It was not clarified whether the couple were still married or whether during the time that had elapsed the marital relationship was dissolved, and in any case this is not a figure necessary for the purpose of deciding the present dispute, since the only relevant front is that between the Respondent and the Bank.  The District Court was not dragged into legal matters that were discussed at the time before the Family Court - matters related to the separation process between the spouses, and thus the procedural framework was delimited for us as well.  In any event, while the husband did not object to the realization of the mortgage, the respondent hastened to take proceedings against the bank in order to nullify the validity of the mortgage in respect of her, while denying the meaning of her signature on the mortgage deed.  I will now discuss the sequence of proceedings regarding the mortgage - complicated proceedings that took place in all the courts.  As will be clarified below, the proceedings that preceded the judgment that is the subject of the appeal are also important.
4. On January 7, 2002, the decision of the head of the Execution Office in the city of Herzliya was rendered, according to which the respondent's request to suspend the mortgage realization proceedings was rejected. In the decision, it was noted that in favor of theInvestigation We have secured both the property in Ra'anana and the husband's property in Ramat Gan; and that the couple has other assets.  It was further noted that the respondent's counsel petitioned to suspend the realization proceedings in this case in order to enable him to sell the other assets in order to cover the debt.  The head of the Execution Office wrote that she did not share the Respondent's counsel's belief regarding the possibility of repaying the debt, even though it is advisable to give him a certain amount of time to examine the matter, subject to the preservation of the bank's rights.  Therefore, it was determined that the bank would be able to continue the receivership proceedings, but if half of the debt was transferred to the bank by the respondent's counsel within three months, the realization proceedings would be suspended.  Half of the debt was not repaid, as is well known, it did not happen: and in the end, the matter went to court.
5. On March 11, 2002, the Respondent filed an action in the Magistrate's Court in Tel Aviv-Jaffa against the Bank, and in Gedera petitioned for declaratory relief according to which the mortgage deed to which it was signed was "essentially null and void", on the grounds that the Bank had breached its obligations by virtue of the law and/or by virtue of agreements with the Respondent. Alternatively, the Magistrate's Court was asked to order a deduction from the Respondent's debt to Bank Hapoalim A total of $550,000, plus bank interest and linkage identical to the terms of the loans that the husband took from the bank, and for which the bank initiated collection proceedings to realize the mortgage.  Simultaneously with the filing of the claim to the Magistrate's Court, the Respondent also filed an urgent application for a temporary injunction (or alternatively, for an ex parte stay of execution).  The Respondent claimed that her husband sought to smuggle assets and create fictitious debts, and that he had performed a "sting maneuver", by leaving the country unexpectedly and without any prior warning, and another claim is that the bank cooperated with the husband and the "abuse" of her and her children, and that it was this cooperation that led, according to her, to the opening of the execution proceedings.  The Respondent further raised allegations regarding the bank's negligence, lack of good faith and deception on its part, and claimed that these led to her signing the mortgage deed.  The Respondent claimed that these were debts belonging to her husband; because she was never involved in what was happening in the couple's bank accounts, and certainly not in the accounts that were registered in the husband's name alone; and that she signed the mortgage deed because she thought she was applying to increase the credit in their joint account with the appellant, as her husband had told her.  In other words, the respondent repudiated her signature on the mortgage deed, claiming that she did not even know that she was signing a mortgage deed according to which the property was mortgaged to the bank in Ra'anana.  On March 26, 2002, a hearing was held in the Magistrate's Court (before the Honorable Vice-President D.  Keret-Meir) in which the parties agreed that the Respondent would be granted an extension to deposit the sum of ILS 500,000 in the hands of the Appellant; and that the hearing in the main case will be held according to the documents and affidavits in the file, with each party entitled to submit an additional affidavit of main witness close to the hearing.  This agreement was given the force of a decision, and as a result, additional affidavits were submitted, several evidentiary hearings were held, and upon their conclusion, the parties submitted summaries.  דובר
6. On May 20, 2002, the Magistrate's Court heard the husband's request to join as a respondent to the claim filed by the respondent against the bank. The husband claimed that "he is interested in joining the request in order to prevent the issuance of an injunction against Bank Hapoalim and in order to clarify his position regarding the need to realize the mortgage," and noted that "he insists on the immediate sale of the house in order to prevent the inability to repay the debt to Bank Hapoalim." The bank agreed to the request, while the respondent conditioned the husband's joining on a number of conditions.  Ultimately, it was determined that the husband was entitled to be a party to the respondent's motion against the bank, since as a joint owner with the respondent in the property that is the subject of the application, he has a direct interest in the outcome of the hearing.  The court clarified that the purpose of the attachment is to enable the husband to argue regarding his proprietary rights in the property and regarding the need to realize the mortgage in respect of the debt to the bank, and ruled that the husband will be prevented from raising claims regarding the family dispute that is being conducted in the Family Court or before the arbitrator.  In an affidavit submitted by him to the Magistrate's Court, the husband claimed that this was not his personal debt at all, but rather loans taken for the purpose of financing the purchase of the couple's residence, by transferring the loan amount to Union Bank, for the purpose of repaying the mortgage that was on the property in favor of Union Bank, and by converting it into a mortgage in favor of the appellant.
7. On September 12, 2002, the Magistrate's Court issued a decision ordering the rejection of the application for a temporary injunction and permitting the resumption of the execution proceedings against the respondent. In the framework of this decision, a number of rulings arose in the application for a temporary injunction Ostensibly and inter alia: the respondent's claim that she signed the mortgage deed to secure the debt in the joint account only and without being aware that it was a mortgage deed was rejected; The Respondent's claim that it did not know at all about the status of the joint account was rejected; The respondent's argument that she did not read the inscription "mortgage deed" on the mortgage agreement was rejected; It was determined that the respondent signed the mortgage deed to secure all the couple's debts that were in effect at the time of the signing and also to secure future debts, and that the signing was made in the presence of an attorney who explained to the respondent the nature of the transaction; It was determined that the money from the second loan taken from the appellant (in the sum of ILS 585,000) was used to repay a loan in the amount of approximately $119,000 owed by the respondent and her husband to Union Bank, and the respondent's claim that she did not know about the repayment of the debt to Union Bank, which was the mortgage holder of the property before the appellant, was rejected; In addition, the court rejected the respondent's claim regarding collusion between the bank and the husband and ruled that the claim of conspiracy was raised merely without any evidentiary basis.  The Magistrate's Court further made prima facie findings regarding the reliability of the parties, while insisting on the Respondent's unreliability in its eyes, in view of certain contradictions between its versions.  Finally, it was held that the respondent did not point to a prima facie right justifying the granting of the requested relief, and that the balance of convenience considerations were inconsistent with the issuance of a temporary order against the realization of the mortgage by the bank.  It should also be noted that the claim of lack of substantive authority raised by the bank was rejected by the court, which ruled that it was in a claim against a monetary charge in an amount within the jurisdiction of the Magistrate's Court.  Subsequently, on October 28, 2002, the Magistrate's Court rejected a motion to stay the execution of the decision of September 12, 2002, permitting, as aforesaid, the resumption of the execution proceedings.  דובר
8. The respondent filed an application for leave to appeal against this decision to the Tel Aviv-Jaffa District Court, in which it requested a stay of execution proceedings against it. On December 5, 2002, the District Court (the Honorable Judge A.  Kobo) rejected the request for a stay of execution.  On December 22, 2002, the Respondent filed with this Court an application for leave to appeal the District Court's decision, and also petitioned in Gedera for a stay of execution on the mortgage realization proceedings.  In its decision of March 5, 2003, this court (my colleague Vice-President E.  Rivlin) granted the request, while noting the great damage that may be caused to the respondent as a result of the realization of her only residential apartment, before the claim was decided on its merits.  Following this decision, the Respondent's application for leave to appeal to the District Court in respect of the Magistrate's Court's decision regarding the interim relief was dismissed by consent, and the hearing of the main action continued before the Magistrate's Court.  On September 21, 2003, the Magistrate's Court (the Honorable Judge R.  Ronen) ordered the husband to be deleted from the proceeding that was conducted before him, so that the claim resumed between the original parties - the respondent and the bank.  However, at a certain point, following a notice on behalf of the parties regarding an agreed procedural arrangement that they had reached (dated September 27, 2004) and in view of their claim regarding the Magistrate's Court's lack of jurisdiction to hear the claim, it was decided to transfer the case for hearing before the Tel Aviv-Jaffa District Court (decision of September 28, 2004, the Honorable Justice M.  Yifrach).  As stated, the appeal was filed against the judgment finally handed down by the District Court (the Honorable Judge D.  Pelpel).

The judgment that is the subject of the appeal

9. After reviewing the pleadings and hearing the arguments of the parties, the District Court ruled that the dispute revolved around three interrelated questions: First, whether the respondent knew what she was signing when she signed the mortgage deed; Second, whether the bank's representatives explained to the respondent the nature of her signature; Third, what is the result of an explanation as to the nature of the signature, or the absence of such an explanation.
10. As for the question The first, the District Court noted that according to the respondent's version, her husband explained to her that she was signing documents for the purpose of enlarging Credit in the joint account at the bank, and only later did she find out that it was a mortgage note. It was also noted that the Respondent's signature on the mortgage deed was done in front of Attorney Gerardo Tulchinski, who explained to the Respondent the essence of the mortgage transaction to which it signs.  The parties' versions of what happened to Attorney Tulchinsky were divided.  The District Court ruled that the Respondent knew that she was signing a mortgage deed for several reasons: the Respondent had no problems reading Hebrew; On the document it is written that in a "mortgage deed"; Attorney Tulchinsky, who is a stranger and has no interest in the case, explained to the respondent the nature of the transaction and its content; and the Respondent's version in the matter דוברThe increase in credit in the joint account was not found in the evidence.  However, the court further ruled that it was not proven that the respondent "knew exactly for what purpose the note was signed".  This is in view of the fact that the husband used to transfer funds from one account to another and that a lawyer Tulchinsky was an outside lawyer who did not work for the bankand therefore he was unable to explain to the Respondent whether the credit was taken as part of the joint account or another account, or for what purpose דוברSpecifically, the mortgage was taken.  The District Court noted the change in the Respondent's version regarding her claim that she did not know that she was signing a mortgage deed and the problematic nature of this change.  At first, the respondent claimed that she thought that "דוברBy securing her and her husband's credit in the joint account" and later the respondent testified that there was no need for such a procedure, because "The balance there [in the joint account - M.N.] was usually positive".  However, the court ruled that the question of whether The respondent knew what she was signing would not decide the hearing, and that "on the other hand, the bank's conduct will also be weighed in light of the various laws that require it to explain to the giver a number of things before signing." The District Court noted that the respondent did not manage the family's financial affairs and noted that from the testimony of the manager of the branch in which the account was managed, It emerged that all the time the bank was in contact with the husband, and not with the respondent.  Thus, both with regard to the joint account and with respect to Additional accounts of the husband in the same branch.  The District Court insisted on a bank's duty to act in the best interest of its customer and then turned to discuss the second question.
11. As for the question The second, the court examined the question of whether, when taking the mortgage, the bank detailed to the respondent the amount of the debt that was in theInvestigation As of the date of signing the mortgage deed. As you may recall, this account was registered in the husband's name.  Mr. Aviel Guttheit, the manager of the bank's branch, testified that the bank did not inform the respondent of the credit given to her husband in the framework of the mortgage account, neither before nor after the signing of the mortgage deed, because it was "his personal account with [the] mortgaged property in his name".  In other words, according to the testimony of the branch manager, the respondent was not told by a source on behalf of the bank that at the time the mortgage was taken out there was in theInvestigation A debt of ILS 490,000 and they did not update her regarding the taking of the second loan, a few days after the signing of the mortgage deed, in the amount of ILS 585,000.  The District Court added that it was also not clear from the statements of the branch manager whether he had informed the respondent that execution proceedings had been opened against her in respect of the mortgage.  Due to non-repayment of debts In the calculation of the Chachad.  The court ruled that in the situation that was created "The right hand signed the mortgage deed, and the left hand had to go into his pocket and spend the sum of ILS 490,000 almost immediately, otherwise the mortgage would be realized; When the bank does not inform the signatory of the debt situation that already exists, which is also the same as future debts, the mortgage comes to guarantee".
12. The court ruled that by virtue of Banking Law (Customer Service), 5741-1981 (hereinafter: Banking Law (Customer Service)) The bank is obligated to provide the customer with all "the correct information for the purpose of perfecting the collateral transaction". The District Court clarified that in its opinion, this law also applies to a mortgage borrower, both because it is equivalent to a guarantor, who is protected by the law (according to the Section 17A of this law), and on the basis of a purposive interpretation.  It was further determined that a similar duty in scope is created by virtue of the provisions of the Article 12 of the Contracts Law (General Part), 5733-1973, which deals with the duty of good faith.  In the words of the District Court:

"If the customer is required to provide collateral, this immediately creates liabilities on the part of the banker, both by virtue of the Banking Law (service to the customer), and by virtue of section 12 of the Contracts (General Part) Law, 5733-1973, towards the customer (when a customer under the Banking Law includes a guarantor) and towards the guarantor independently.  In this regard, the law of giving collateral is the same as the law of a guarantor, because by means of a collateral that he gives, he is in fact a guarantor for the payment of a certain debt."