As a rule, the good faith test set forth in sections 12 and 39 of the Contracts Law is interpreted in case law as an objective test, i.e., as one that reflects the appropriate moral standard (HCJ 59/80 Beer-Sheva Public Transportation Services Ltd. v. The National Labor Court in Jerusalem, IsrSC 35(1) 828, 835 (1980); CA 2643/97 Ganz v. British and Colonial Company Ltd., IsrSC 57(2) 385, 400-401 (2003)).
However, as an exception to this rule, it was ruled that when it comes to the possibility of imposing personal liability on an organ or officer of a company for conducting pre-contractual negotiations in bad faith, the standard that will be applied will be subjective. In this context, it was held that "imposing personal liability on the manager is not sufficient to show that the norm of good faith - which dictates the level of objective conduct - has been violated, but it must be shown that the manager is personally (subjective) guilty of acts or omissions that constitute the commission of a tort or a breach of a legal duty" (CA 10385/02 Machnes v. Regent Investments Ltd., IsrSC 58(2) 53, 58 (2003); See also CA 313/08 Nashashibi v. Rinrawi, paragraphs 43-44 (August 1, 2010); CA 3807/12 Ashdod City Center K.A. Ltd. v. Shimon, paragraph 62 (January 22, 2015) (hereinafter: the Ashdod City Center case); Matter A. Barazani, at paragraph 17).
This ruling is based on policy considerations: first, it stems from the existence of a legal personality for the company on whose behalf the negotiations were conducted, which is separate from that of the person conducting the negotiations for it. The purpose of the halakha is to preserve as much as possible the separation between these two legal entities. Beyond that, the aforementioned rule is based on the freedom of the contractual creditor to choose with whom he engages in the contract, as part of the freedom of engagement on which contract law is based. When a party enters into a contract with a company, it can be said that his expectation is that, as a rule, when the day comes, the company will be the daughter of his quarrel with regard to his contractual relationship and not one organization or another. When a negotiating party wishes to "skip" over the incorporation veil, it can demand that the organ be added as a party to the contract; or to request a guarantee from that organ for the fulfillment of the contract and its obligations.