On the Four Species and good faith during negotiations

On the Four Species and good faith during negotiations

Yair Aloni, Adv.
September 22, 2021

One of the most prominent of the Tishrei Jewish holidays is the Sukkot holiday, in which the Four Species are celebrated: the Etrog (citron) - which has a taste and a smell; the Lulav (palm branch) – with a taste (dates), but odorless; the Hadas (myrtle) - with a pleasant smell, but without the taste; and the Arava (willow) - which has neither taste nor smell. Pursuant to the Midrash, the combination of the four species during the blessing is a parable to the nation of Israel who despite being different from each other, are as one. When it comes to commercial negotiations, it is advisable to know which of the "species" we are dealing with and what actions are recommended to be taken in order to reduce the risk of legal accidents or worse, long and costly legal disputes.

The "Etrog" - is a one that conducts negotiations in a skilled and professional manner. Often, it well acquainted with the field and has a proven track record in managing many transactions and is known as reliable, honest and law-abiding. This party will usually be cautious of providing unreliable or inaccurate information and aware of the legal implications. However, Israel Courts have recognized "contributory fault". For example, the Supreme Court held in February, 2021, that a bidder in a tender is not exempt from conducting independent review of the contract and consult with experts, especially when it comes to a contractual-commercial relationship involving a transaction worth tens of millions. In that case, the compensation was reduced by dozens of percents as a result.

The "Lulav" - a skilled and knowledgeable party, but may turn out to be 'over-sophisticated' and use his knowledge to manipulate and even drag the counterparty into illegal acts. For example, this party may persuade the counterparty to make false statements for misrepresenting and misleading a third party or to create an apparent contract with a covert different contractual arrangement. For example, specifying lower price in an apartment sale agreement in order to evade taxes has been recognized by the Courts as an illegal contract and may result in intervention by the authorities and in particular, the Court which has wide discretion to determine the fate of the contract.

The "Hadas" - a party with a handful of good intentions, but without any knowledge of law or facts. This party may be enthusiastic and strive for a quick closing while cutting corners and without examining all aspects of the transaction. Thus, for example, a broker may urge the purchaser to make a quick transaction or sign a binding termsheet before thoroughly reviewing the status of the rights in the apartment or all tax considerations or regulation applicable to complex transactions (such as the need to obtain competition authority approval). Legal accidents often occur when a termsheet signed before the economics of the transaction was reviewed and was later recognized as binding (when in retrospect, the transaction turned out to be of no economic case), or, as in a case heard in the Jerusalem Court in August, 2021, a termsheet was not recognized as binding but a party was ordered to compensate the other for bad faith negotiation due to non-disclosure of material details. Proper legal assistance may prevent such legal accidents.

The "Arava" - a party without knowledge and without good intents. Such parties should be avoided as much as possible and in any case it is recommended not to ignore "signs" (such as: abrupt sale, unreasonable price, signing a contract in an unusual place, etc.), as in a case heard in Tel Aviv in April, 2013, in which a document for the sale of an apartment was signed in haste near a parked car and then it turned out that the one who signed it did not own any of the rights.

While reckless conduct may result in legal accidents, an experienced lawyer will be able to read the situation and conduct negotiations with the various “species” taking into account the various scenarios with advance preparation. As there is no second first impression, it is vital to consult a lawyer who specializes in the field as early as possible. Such a lawyer will make the right impression on the other party and will also be able to identify the conduct of the other party from the very first stages.