An entrepreneurial company contracted a gallery to sell rights in the property it owns and to establish a joint project in it. Due to dispute that arose between the parties a settlement was formed, under which, inter alia, it was agreed that there is no objection to the recording of a cautionary note in favor of the gallery, provided that it does not jeopardize the rights of other rights holders. Later the gallery acted against the promotion of the project, and therefore the entrepreneurial company objected to the recording of a cautionary note in favor of the gallery.
The Supreme Court held that the gallery should not be allowed to record a cautionary note in its favor due to the concern that the gallery will exploit it to foil the construction of the project. The recording of a cautionary note in the Land Registry in respect of an undertaking to enter into a transaction may be made by agreement between the parties or even without consent if the conditions prescribed by law are met. Parties to a business contract may limit the right to record a cautionary note. Here, the right to record the cautionary note is limited by the settlement agreement so that that the gallery may not jeopardize the right of the other rights holders in the land. Where defects were found in the manner in which a person chose to conduct his affairs in the past, it can be assumed that the conduct may repeat itself in his future conduct, whether due to a person's personality or due to the set of incentives that motivate him. Here, one can learn from the gallery's conduct in the past about the probability that it will try to jeopardize in the future the rights of other rights holders to receive bank financing to set up the project, and therefore the gallery should not be allowed to record a cautionary note.