See also: CA 2235/18 Neot Chen Engineering and Development Ltd. v. Edmond Lazarov [Nevo] (April 7, 2019), para. 5.
- Therefore, the defendant's argument that this is an obligation to try to reject is lawful, since this is not anchored in the language of the second agreement, and even contradicts its language, from which it clearly emerges that it is a matter of obligation of consequence.
Is the sweeping stipulation in the sale agreement void?
- The defendant argues that the second agreement includes a sweeping stipulation according to which any breach of the sale agreement is a fundamental breach that entitles to agreed compensation at the same rate, and therefore it is void according to the provisions of section 6 of the Contracts Law (Remedies for Breach of Contract), 5731-1970. True, clause 13 of the second agreement states that all the terms of the agreement are fundamental terms, and clause 14 stipulates that a breach of any of the terms of the agreement (with the exception of clause 6 of the agreement, which regulates the payment of taxes, fees and other mandatory payments imposed on the property) will entitle the other party to receive the agreed compensation.
- Section 6 of the Contracts Law (Remedies for Breach of Contract) states:
"Definition
- For the purposes of this Article, "fundamental breach" - a breach in respect of which it can be assumed that a reasonable person would not have entered into that contract if he had foreseen the breach and its consequences, or a breach that was agreed upon in the contract that would be considered fundamental; A sweeping clause in a contract that inflicts breaches into fundamental breaches without distinction between them, is invalid unless it was reasonable at the time the contract was concluded.
- Although section 6 of the Medicines Law states that a sweeping stipulation that makes any violation fundamental without any distinction is null and void, the case law states that section 6 of the Medicines Law does not apply to a sweeping stipulation for agreed damages, and that in such a case the provision of section 15 of the Drugs Law applies, which grants the court discretion in reducing the agreed compensation [see: CA 707/78 Yedid Yosef v. Shmuel Kaniel, 35(4) 796, at pp. 800a-2 (1981); CA 532/83 Yehuda Sinai Investments Ltd. v. Israel and Yehudit Fischel, M(4) 319, at pp. 327 D-E (1986); CA 1/84 Barda Natan v. Shimon and Rosa Stroud, 42(1) 661, 668-669 (1988); CA 126/84 David Yitzhaki v. Moshe Shor, 38(3) 620, at p. 626 (1984)]. Therefore, it is clear that the compensation clause agreed upon in the second agreement is valid, but it must be examined whether it is right to intervene in it.
Reduction of Agreed Compensation
- As stated above, it emerged from the evidence that the defendant breached the contract because he did not fulfill his obligation to register the rights in the property in his name within the agreed date, and therefore the plaintiffs ostensibly had the right to receive the agreed compensation. The plaintiffs petition for the full amount of the agreed compensation, which stands in the sum of ILS 150,000. This amount constitutes 28.30% of the consideration paid for the property (ILS 530,000). On the other hand, the defendant argues that the amount of the agreed compensation should be reduced on the grounds that this sum is "manifestly unreasonable" (paragraph 28 of the defendant's summaries). The defendant argued that there is no reasonable relationship between the agreed compensation and the damage that could have been foreseen at the time of the conclusion of the contract as a probable result of the breach.
- Agreed damages are part of the right of the parties "to design for themselves the legal remedy arrangement that will apply in the event of a breach of contract" (Shalev Vader, at p. 487). The essence of agreed compensation is the essence of "compensation" in the sense that the plaintiff is not obligated to prove damage. It compensates for damage that is a presumed result of the breach of contract. The parties are seen as having "agreed in advance on the extent of the damage, to be seen as if the injured party had proven it" [CA 795/86 Ludait Construction Company Ltd. Shirliv Investments Ltd., 41(3) 645, at pp. 651 A-B (1987)].
- The court has the authority to reduce agreed compensation in accordance with section 15(a) of the Drugs Law, which reads :
"Agreed compensation
- (a) If the parties have agreed in advance on the amount of compensation (hereinafter - agreed damages), the compensation will be as agreed, without proof of damage; However, the court may reduce them if it finds that the damages were determined without any reasonable proportion to the damage that could have been foreseen at the time of the conclusion of the contract as a probable result of the breach."
- Intervention in an agreed compensation stipulation, according to section 15(a) of the Drugs Law, is a two-stage proceeding:
"When it comes to examining the claim of a party to the contract that it is appropriate to reduce the amount of the agreed compensation set forth therein, the court is faced with two questions: first, is the court authorized in the circumstances of the concrete case to intervene in the compensation stipulation and reduce it? Second, assuming that this power is indeed vested in the court, to what extent should the court reduce the compensation?" (Shalev and Adar, at p. 495)