Keren Hayesod entered into an agreement with a company under which the company purchased rights in a real estate project. Subsequently to the execution of the agreement and before the sale transaction was finalized, one of the company's shareholders recorded a cautionary note in favor of his family in a manner that prevented the company from finalizing the transaction.
The Court held that the apartment belonged to the company and not to the shareholder's family. Israeli Real Estate Law stipulates that a person who acquired a right in a regulated real estate against consideration and in good faith reliance on the Land Registry, will be deemed the one who acquired the rights even if the recording is incorrect and was made after such rights were promised to another. Here, the shareholder, as such, was aware of the company's rights under the agreement between the company and Keren Hayesod and the funds paid under it and exploited such knowledge to purchase rights in the asset, in a manner that makes the recording of the cautionary note such that was made without good bad faith and renders the cautionary note invalid. Therefore, the company’s right prevails and it is entitled to the rights in the asset.