Caselaw

Civil Appeal 4628/93 State of Israel v. Apropim Housing and Development (1991) Ltd. IsrSC 49(2) 265 - part 36

June 4, 1995
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46) 53, 63).  The interpretive command that a contract be interpreted according to the principle of good faith has several implications.  As we will see (paragraph 18 below), the purpose of the contract is also its objective purpose.  This is determined, inter alia, according to the principle of good faith.  Therefore, the assumption is, for example, equality between the parties.  The principle of good faith also serves as a lever for filling a deficiency in the contract (see paragraph 33 below).  For our purposes, another interpretive aspect is important: the interpretation of a contract in good faith means giving meaning to a contract that is consistent with the common intention of both parties.  Prof. Shalev noted this, noting:

"In Israel, we derive this rule from the general principle of good faith...  First and foremost of these rules is that the work of interpretation is intended to clarify the true intention of the parties to the contract.  Tracing this intention, while freeing itself from the burden of literal interpretation, is consistent with the principle of good faith" (G. Shalev, Contract Law (Din, 2nd edition, 1994) 316).

In a similar vein, President Shamgar noted that:

"'The work of interpretation is intended to ascertain the true intention of the parties to the contract.  Tracing this intention, while freeing itself from the burden of literal interpretation, is consistent with the principle of good faith" (Civil Appeal 1395/91 [23], at p. 800).

But how can this exegetical rule be reconciled with the perception – which lies at the foundation of the theory of the two stages – that where the language of the contract is clear, the intention is also clear, and according to which the contract will be interpreted?  Certainly, the rule of good faith does not mean that "the intention of the parties" – which must be fulfilled – is only the intention that arises from the language of the contract.  On the contrary: the entire purpose of the rule of good faith is to prevent one of the parties to the contract from claiming a meaning that may derive from its language (the "literal interpretation"), and which is inconsistent with its (subjective) intention known to the other party.  Indeed, internal harmony within the framework of contract law requires the creation of tools that are intertwined between the principle of good faith and the laws of interpretation.  Such a combination is inconsistent with the two-stage theory.

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