Conducting negotiations in good faith and canceling an agreement due to a defect in its conclusion - the legal framework
- The duty of good faith in negotiations is enshrined in section 12 of the Contracts Law (General Part), 5733-1973 (hereinafter - the Contracts Law), and this establishes an obligation on the parties to the negotiations to act in good faith, when the said duty is reinforced when it comes to the relationship between an employee and an employer (Labor Appeal (National) 7758-10-11 Israel Police - Marei Bahjat (01.01.14); Labor Appeal 189/03 Girit in Tax Appeal - Aviv, PDA 39 (728).
- The party to the agreement has the right to cancel the agreement entered into with it in cases where there was a defect in its conclusion, such as a mistake or deception, as detailed in sections 14 and 15 of the Contracts Law. As to the cause of deception relevant to our case, it was held as follows:
- A person who entered into a contract due to a mistake that is the result of deception by the other party or another on his behalf, is entitled to cancel the contract; in this regard, "deception" - including the failure to disclose facts that according to law, custom or circumstances, the other party should have disclosed.
- Section 14(a) of the Contracts Law provides for the matter of "error" - "whether in fact or in law, except for an error that is only in the feasibility of the transaction".
- As to the manner in which the agreement is terminated and its outcome, Sections 20 and 21 stipulate:
- The cancellation of the contract shall be by the contractor's notice to the other party within a reasonable time after he has become aware of the reason for the cancellation, and in the case of coercion, within a reasonable time after he has become aware that the coercion has ceased.
- Once the contract is cancelled, each party must return to the other party what it received under the contract, and if the restitution was impossible or unreasonable, pay him the value of what he received.
- Deception that constitutes a defect that qualifies for the cancellation of an agreement may arise due to a misrepresentation or failure to disclose material facts that apply before the conclusion of the agreement, when a double causal connection must be proven between the mistake and the engagement in the contract, as well as between the deception and the error. Thus, the claimant of deception must prove that the mistake caused by the non-disclosure was what motivated him to enter into the contract, and that if he had known what was not revealed to him, he would not have entered into the contract. Hence, when the deception does not affect the state of mind of the contractor in the agreement, the element of causal connection between the deception and the mistake is not fulfilled and no cause of cancellation arises for deception (Civil Appeal 5328/21 Zuhdi Abu Raqiyya v. Izzat Handkelo (03.01.23)).
From the general to the individual -
- After examining the arguments of the parties and reviewing the evidence and all the material in the court file, we reached the conclusion that the plaintiff was unable to prove a cause of action justifying the cancellation of the employment agreement entered into between the parties. The plaintiff did not meet the burden of proof and did not show that the defendant conducted negotiations in bad faith or that he was misled by the defendant , as detailed below.
- First of all, we note that the cancellation letter states that the defendant conducted negotiations in bad faith while misleading the plaintiff regarding the receipt of the options and their rate, and it was written as follows:
"9. During the negotiations and as part of the initial drafts, Dr. Bodeker clarified that he would agree to work for the company for a period of up to 18 months, on condition that he would receive options from Day 1. You agreed to this, in retrospect it turns out only from the mouth to the outside, but you requested that Dr. Bodeker's right to options not be mentioned in the employment agreement, but would be arranged, as it were, in a separate agreement that would be signed "within a month, within two months".