Shabbat Parashat Vayikra 5783

P'ninat Mishpat: Was There a Sale to Renege on? – part IV

Case: The plaintiff (=pl), a real estate investor, negotiated with the defendant (=def) about apartments to be built in a building under Tama 38 (strengthening and expansion of buildings). They agreed (on some level) that pl would buy three apartments for 3 million NIS. The two then signed a handwritten document titled “Summary of Loan + Purchase Agreement of Apartments.” Later, they agreed that pl would buy a fourth apartment for 600,000 NIS. Under the guidance of a lawyer (=lyr), who discussed the legal challenges, they reached an agreement of principles. Later pl signed an agreement to lend 1.5 million NIS each to a company that def owns and to a company which def owns in partnership with another person (=prtn). Lyr testified that the reason the payment was presented as a loan, with interest and guarantees, rather than a purchase, was due to tax issues. Eventually it was supposed to have led to purchase contracts and erasure of the interest. The sides progressed close to a final agreement and payment. However, after some disagreements, and a couple of months later, def returned the “loan money” with an additional sum for interest, as written in the original agreement. Pl claims that the money given in relation to the loan agreement was purchase money. Pl brought several proofs from documents that indicate that there was really a sale, not a loan, and that their agreement is no less than a zichron devarim (memorandum of understanding). Pl wants to go through with the purchase of the four apartments. If that cannot be done, he demands a fine of 10% as written in the agreement of principles. Def argues that there were only advanced negotiations about the purchase, and the loan was just one stage in the process. He raised different indications (including that the agreement of principles is unsigned) that the sale had not been finalized. Def also claims that prtn approved only the loan agreement. Prtn did not agree for beit din to adjudicate. 

Ruling: [We have seen that while there are reasons not to enforce the sale, there is room for the sanction of mechusar amana.]

The Perisha (Choshen Mishpat 326:2) rules that grounds for moral complaints against a litigant should find expression in compromise, and the Beit Din Hagadol has recommended this. Our beit din is authorized to do so through our arbitration agreement.

One can argue that since def does not have the power to go through with the sale due to prtn, he cannot be sanctioned for his refusal. We reject this because def led the negotiations with pl in a deceitful matter, and he showed no effort in trying to get prtn to go through with the deal. This lack of trustworthiness is at the heart of mechusar amana.

According to the agreement of principles, the fine for breach of contract is 310,000 NIS. Because in this case, there was no legal breach but only a moral one, based on compromise, we obligate a third (103,333 NIS), from which we subtract the 29,000 NIS already paid in the form of “interest” on the loan. Therefore, def must pay pl 74,333 NIS.   

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