A cheque bounced — what do you do now?

Service page: Commercial contracts lawyer: drafting, review and enforcement.

A cheque: what is it actually, in legal terms, and why does it matter?

A cheque bounced. The customer does not answer. The money did not arrive. What now? People often file a claim and then discover that they missed something critical on the way. Because a cheque is not just a piece of paper: it is a legal document with clear rules on who is liable, who is protected, and when there is still something to claim. A cheque is a payment order: the drawer (the person who signed it) instructs their bank to pay the payee a certain amount. The legal basis is the Bills of Exchange Ordinance [New Version] (פקודת השטרות [נוסח חדש]), an ordinance that dates from the British Mandate period and whose new version is in force in Israel. It is based on English law, and it regulates every stage in the life of a cheque: writing it, presenting it for payment, transferring it to a third party, and remedies for non-payment.

Alongside the Bills of Exchange Ordinance, the Cheques Without Cover Law, 5741-1981 regulates the consequences for anyone who issues cheques that are not honored. It provides (section 2): if 10 or more cheques were refused in an account within 12 months, and at least 15 days passed between the first refusal and the last, the account is restricted and its owner is a restricted customer, who may not draw cheques on it. A restricted customer who has another account restricted, or whose account is restricted again within three years of the end of the period in which they were a restricted customer, is a seriously restricted customer (section 3), and all their accounts are restricted. This is a situation that paralyzes businesses.

The bank refused to honor the cheque: what now?

When a bank refuses to honor a cheque (to pay it), it must note the reason for the refusal on the back of the cheque: “no cover”, “account closed”, “signature does not match”, “cheque with a stop order” and so on. Under the Bills of Exchange Ordinance, presenting a cheque for payment within a reasonable time (usually 6 months from its date) is a condition for keeping your rights against endorsers. If a cheque was not presented in time, the cause of action against endorsers may be lost (but not against the drawer).

If a bank refused to honor a cheque that had cover, the person who can complain against it is the customer who drew the cheque, toward whom the bank breached its duty to pay; toward the holder, the bank is not liable on the cheque (section 53 of the Bills of Exchange Ordinance), and the holder turns to the drawer.

Canceling a post-dated cheque: when is it allowed and when not?

A post-dated cheque (a cheque dated later than the day it was written) can be canceled by the drawer, but only under limited conditions. The drawer may cancel a post-dated cheque if the reason for canceling it has arisen (for example, the payee breached the agreement for which the cheque was given), and the cheque has not yet reached a holder in due course , meaning a person who acquired the cheque in good faith, for value, without knowing of any defect in it. Because a cheque is almost always given against the background of a transaction, dealing with it starts with the transaction itself, and so legal support with commercial contracts comes before dealing with the cheque.

In practice, canceling a cheque that has already reached a third party who is a holder in due course is not possible. A holder in due course is protected against all the arguments between the drawer and the original payee. So endorsing cheques to third parties may harm the right to cancel. It is important to keep written correspondence with the payee describing the terms on which the cheque was given.

A claim over a cheque without funds: what can be claimed?

Someone who gave a cheque knowing that there was no cover in the account may be considered to have made a false representation or to have acted fraudulently. A holder who received a cheque in good faith and for value may sue the drawer for: the value of the cheque, bank charges for presenting the cheque, business loss if proven, and legal costs.

On the criminal side, the Cheques Without Cover Law creates an offense of drawing a cheque on a restricted account, punishable by two years’ imprisonment or a fine (section 16); drawing a cheque without cover in itself counts toward restricting the account (section 2) and is not an offense under that Law, but in circumstances of fraud it may be an offense under section 415 of the Penal Law, 5737-1977.

What is a holder in due course, and why does it matter to you?

A “holder in due course” is someone who received a cheque in good faith, for real value, before it fell due, and without knowing of any defect in the cheque. A holder in due course enjoys far-reaching protection: they can sue for the value of the cheque even if there was a dispute between the drawer and the original payee, or even if the cheque was given under duress. These are arguments that cannot be raised against a holder in due course.

So in a chain of transfers of a cheque, everyone who acquired the cheque for consideration and in good faith is protected. A person who acquired a business cheque from their employer (for example) and did not know of a dispute between the parties will usually be considered a holder in due course and can sue the drawer directly for the full amount.

How do you file a claim over a dishonored cheque?

The fastest route is an application to enforce the cheque at the Execution Office: under section 81A of the Execution Law, a cheque can be enforced like a court judgment, and the debtor may file, within 30 days of service of the warning, an objection supported by an affidavit; once it has been filed, enforcement is stayed and the matter is transferred to the court (section 81A(c) and (c1)). Alternatively, a claim over a dishonored cheque is filed in the Magistrates’ Court (for amounts up to NIS 2.5 million) or in the Small Claims Court (up to NIS 39,900), if the plaintiff is an individual and the cheque was not endorsed to them (section 60(a) of the Courts Law). The main evidence is the back of the cheque noting the reason for the refusal, together with documents proving the damage caused. You should attach: the original cheque (or a copy of it), the refusal notice from the bank, and documents proving the damage (financial loss, bank charges and so on).

As for when to file: under the Bills of Exchange Ordinance, a cheque must be presented for payment within a reasonable time (6 months from its date). The limitation (prescription) period is set in section 96 of the Bills of Exchange Ordinance: a claim on a cheque against someone who is not an endorser (the drawer) within seven years; against an endorser within two years, from the date on which the cause of action arose. Check the date the cheque was presented for payment according to the specific circumstances.

In 2026, the fee for opening a file to enforce a cheque at the Execution Office, in the regular track, is 1.25% of the amount of the cheque and not less than NIS 189; filing an objection to enforcement of the cheque is exempt from the fee. A cheque that the bank may not pay under the Reduction of the Use of Cash Law, 5778-2018 (חוק לצמצום השימוש במזומן, התשע״ח-2018), meaning a cheque without the payee’s name, or an endorsed cheque for more than NIS 10,000 that does not state the names of the endorser and the endorsee and the endorser’s ID number, or that was endorsed more than once (with the exceptions in the Law), cannot be filed for enforcement as a bill, but only on the terms of the warning for a claim for a fixed sum (section 81A(g) of the Execution Law). Shekel interest from the due date is added to the amount of the cheque in the file, and if no objection was filed, late charges as well; the application for interest is filed together with the application for enforcement, and interest agreed in the bill that is not contrary to law applies instead (section 81A3).

I gave a cheque that bounced: what can I argue in my defense?

The drawer of a dishonored cheque can raise limited defense arguments, depending on who the holder is. Against the original payee (and not a holder in due course), you can argue: failure of consideration (the payee did not perform their contractual obligation); a breach of the terms on which the cheque was given; or a common mistake that led to a wrong amount. Against a holder in due course, you can raise only “real” defenses set in the Bills of Exchange Ordinance: minority, legal capacity, forgery of the drawer’s signature, or a fundamental defect in the cheque itself.

It is important to stress: defenses based on oral understandings with the payee do not stand against a holder in due course. So anyone who gives a cheque for a contractual transaction must document in writing the terms on which the cheque was given, including any restriction on its payment. Early legal advice is essential before canceling a cheque that is already in the hands of a third party.

The bank refused a cheque by mistake: what do you do?

Sometimes a bank rejects a cheque that has full cover, because of a technical fault, an account blocked by mistake, or a mistake in identification. In such a situation, the person mainly harmed is the customer who drew the cheque. A bank that gave notice of an account restriction by mistake must correct the mistake, and the restriction is void (section 9 of the Cheques Without Cover Law); a customer whose account was restricted may ask the Magistrates’ Court to cancel the counting of a cheque that was refused because of a mistake by the bank (section 10). The customer claims the damage caused by an unlawful refusal from the bank.

In such cases, contact the bank immediately in writing and demand an explanation. If the bank does not correct the mistake, you can file a complaint with the Consumer Enquiries and Inspections Unit of the Banking Supervision Department at the Bank of Israel, and at the same time consider a civil claim. Keeping all the documents (account statements, correspondence with the bank, documents on the damage) is critical for proving the claim.