Civil Appeal 6275/23 Jack Raymond Jacobs vs. Moshe Amar - part 6

Failure to pay the balance of the consideration on time - a fundamental breach of the agreement

19. As stated, the purchasers claim that their failure to pay the balance of the consideration on the date set in the agreement does not constitute a fundamental breach of it, both in terms of the language of the agreement and in terms of the nature of the breach. However, this argument was raised for the first time in the framework of the present appeal, and was not argued at all before the trial court - and this reason is sufficient to reject it (Civil Appeal 879/92 Source of Issues and Rights in the Tax Appeal v.  Rosman, IsrSC 50(1) 774, 789 (1996); Civil Appeal 6032/19 Khoury v.  Estate of the late Khoury, paragraph 21 [Nevo] (March 23, 2022)).  Even on the merits, I am of the opinion that there is no substance to this argument.  I'll explain.
20. Section 6 of the Contracts Law (Remedies for Breach of Contract), 5731-1970 (hereinafter: the Medicines Law), which defines what constitutes a "fundamental breach", states as follows:

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 causes fundamental breaches without distinction between them, is invalid unless it was reasonable at the time the contract was made.

According to the preamble of the section, a violation will be considered a "fundamental violation" in one of two options: Fundamental violation Probably.  - A cow that can be assumed "That a reasonable person would not have entered into that contract if he had foreseen the breach and its consequences״; andFundamental violation Agreed - A breach that the parties have agreed between them in the contract that it will be considered thorough, and in this matter they are given almost complete freedom, provided that the agreement is not "Bulk" and unreasonable at the time of concluding the contract, as stated at the end of the section.  In my opinion, as I will show below, in the present case, the failure to pay the balance of the consideration on time constitutes a fundamental breach of the agreement.

21. The focus of our discussion is clause 18 of the agreement, which states: "The undertakings of the parties in clauses 2, 3 and 6 of this agreement will be considered fundamental undertakings, but a delay of up to 7 days in the performance of any of the obligations under this agreement will not be considered a breach of this agreement" (emphasis added). For our purposes, clause 6 of the agreement is also relevant, which deals with the dates of payment for the purchase of the apartment (and in particular clause 6(c) of the agreement, which deals with the balance of the consideration, taking into account what is stated in clause 6(a) of the appendix, which subordinates the date of payment to the date of receipt of Form 4).  In accordance with these provisions, the obligation with respect to the payment dates is a "fundamental undertaking", but a delay of one week in the said payment will not constitute any breach of the agreement.
22. The main argument of the purchasers is that clause 18 of the agreement defines the undertaking to pay the balance of the consideration on time as a "fundamental undertaking" - but it does not stipulate that its breach will constitute a "fundamental breach". Moreover, the purchasers refer to a number of different clauses in the agreement, which according to them also support the claim that this is not a fundamental breach.  I cannot accept this line of argument.
23. Indeed, clause 18 of the agreement does not state, in Rachel, your little daughter, that failure to pay the balance of the consideration on time constitutes a "fundamental breach" (as opposed to clause 7 of the appendix); however, it states that the obligation itself is a "fundamental obligation", and you are forced to say that the purpose of this determination is to clarify that the breach of such an obligation constitutes a "fundamental breach" (this is the case, in particular, given that the agreed compensation clause is also Clause 17(a) of the agreement refers to a "fundamental breach" of the sale agreement). It should be clarified that there is no need for the agreement to use the explicit term "fundamental breach", or other formulations that appear in section 6 of the Medicines Law, in order for a breach of a certain contractual obligation to be considered a fundamental breach of the agreement.  Thus, in other Municipality Applications 71/75 Margaliot v.  Abarbanel, IsrSC 29(2) 652 (1975) (hereinafter: the Margaliot case), it was held that a breach of a clause in the contract stating that the payment dates are one of the "elements of the contract", constitutes a fundamental and agreed breach of that contract (ibid., at p.  655).  Against this background, his scholars and Adar clarify that "the parties can designate a provision in the contract as 'main,' 'central,' 'thorough,' and so on.  Normally, this will be sufficient to lead to the conclusion that a breach of that provision is a fundamental breach" (Gabriela Shalev and Yehuda Adar, Contract Law - Remedies 579 (2009) (hereinafter: Shalev and Adar)).  See also: Daniel Friedman and Nili Cohen Contracts  4 321 (2011) (hereinafter: Friedman and Cohen); and Civil Appeal 4646/90 Bar Chen v.  Shimon, IsrSC 46(5) 798 (1992) (in which the dates of payment were defined as a "fundamental condition"); Civil Case (Haifa District) 765/80 Muhammad v.  Bolus Brothers, IsrSC 5745(3) 429, 434-435 (1985) (the Honorable Judge Michael Ben-Yair); Miscellaneous Applications Civil (Jerusalem District) 5411/04 Urban Development Balls in a Tax Appeal v.  Mercantile Discount Bank Ltd., para.  19 [Nevo] (June 20, 2004) (the Honorable Judge Moshe Ravid)).  This is certainly true in relation to a breach of a "fundamental undertaking" - which is a fundamental breach - and I have not found any justification for thinking otherwise.
24. Moreover, clause 18 of the agreement defines as "fundamental undertakings" three different undertakings: the seller's undertaking to transfer his rights in the apartment to the purchasers and to register them in their names (clause 2 of the agreement); the seller's undertaking relating to the date of delivery of possession of the apartment (clause 3 of the agreement); and the buyers' undertaking relating to the payment of the consideration (clause 6 of the agreement). These are a limited number of obligations, some of which are imposed on the seller and some on the purchasers, and there is no dispute about the importance of each of them to the contractual arrangement as a whole.  Therefore, it can be assumed that the purpose of the clause is to clarify that these are the most important undertakings in the agreement (and at the very least, particularly important undertakings from the perspective of the parties).  As a result, and given the clear business logic underlying this section, it is not possible to reach any other conclusion than that a breach of a fundamental obligation is a fundamental (agreed) breach.
25. As stated, the purchasers do not dispute this basic assumption regarding the importance of the obligations appearing in clause 18 of the agreement, but argue, on the other hand, that it is illogical that every slight breach of the In the matter Payment dates will constitute a fundamental breach of the agreement. However, it is important to remember that when we are dealing with a fundamental violation Agreed We are not required to examine whether there is an objective justification for defining it as fundamental - unless it is determined that it is a blanket stipulation, in which case its reasonableness must be examined (Civil Appeal 7403/11 Beshma Investments & Financing inTax Appeal v.  Niago, paragraph 1 of the judge's opinion Yitzhak Amit [Nevo] (August 13, 2013) (hereinafter: Interest in Maybe)).  Therefore, it is incumbent upon us to adhere to what the parties have defined as agreed fundamental breaches, in accordance with the contractual freedom given to them to define what is important to them (Friedman & Cohen, at p.  320).  In any event, in our case, these are liabilities that even objectively appear to be material to the transaction, since they deal with the transfer of the rights in the apartment, the delivery of possession thereof and the payment for its purchase - and there is logic in defining them, in advance, as fundamental breaches (without expressing a position on the question of whether any breach of these undertakings, and in particular of payment dates, will constitute a fundamental breach ).  Specifically, later in the clause, the parties clarified that a slight delay of up to 7 days in the performance of obligations under the agreement (including the main obligations) "shall not be deemed to be any breach of this Agreement".  Hence, the parties explicitly regulated that not every slight breach of the buyer's undertaking regarding the payment dates (or of the seller's obligations regarding the delivery of possession and transfer of ownership of the apartment) justifies the sanctions for a "fundamental breach".
26. The purchasers further claim that it is not for nothing that a fundamental breach of an undertaking was not defined in the agreement as a fundamental breach, and as evidence, the appendix explicitly states in relation to any breach that it is a "fundamental breach". From this the purchasers learn that when the parties wanted to define a breach as fundamental, they did so explicitly.  I am of the opinion that in view of the entirety of the above, this argument does not tip the scales in favor of accepting the interpretation proposed by the purchasers.  Indeed, the choice of the parties to a contract to define in a certain part of the contract as a fundamental breach, in this language, may affect the consequences of their choice to adopt a different language in relation to the breach enshrined in another part of the contract.  Still, this is one of many indications of their intentions, and in the circumstances of the case, it is not sufficient to change my conclusion.  This is especially so, given that one wording is included in the main contract, which is clearly a standard contract wording that was adapted to the needs of the parties (this matter is evident from the fact that the seller is referred to in the agreement as "the sellers", even though it is singular), while the other wording is included in the appendix, which is a special addendum that regulates aspects unique to the transaction in question, which are not included in the standard contract.  In this situation, a complete discrepancy in the wording, even if undesirable, is a common phenomenon, even when it comes to a commercial contract, drafted by lawyers.

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27. 0 The purchasers further refer to clause 8 of the agreement, which states that a delay in payment exceeding seven days will be subject to a fine of 1% per month, and argues that if any violation of payment dates amounts to a "fundamental breach", then there is no justification for the existence of this clause. The problem is that clause 8 of the agreement also establishes the following restriction - "Without derogating from any other remedy available to the sellers".  Thus, a reading of clause 8 of the agreement in its entirety shows that such delay in payment will incur a fine of 1% per month, but this arrangement does not prejudice other remedies available to the seller (he is the only victim of non-payment on time) - such as the right to cancel the contract (and it is precise, even in the absence of the aforementioned exception, a deep-rooted rule in our case law is that the victim of a breach of contract has the right to choose the remedy he wishes from among the range of possible remedies available to him).  Subject to the limitations of the law.  See, for example: Civil Appeal Authority 1099/21 Hermetic Loyalty (1975) inTax Appeal v.  Extra Development & Initiation Ltd., paragraph 27 [Nevo] (November 17, 2021) (hereinafter: The Hermetic Matter)).  In summary, failure to pay on time constitutes a fundamental breach, which grants the right of cancellation by law; However, in cases in which the right of cancellation is not exercised, since the choice in this context is given to the injured party (the seller), a mechanism for the payment of a fine has been determined.
28. Thus, the failure of the purchasers to pay the balance of the consideration on time constitutes a fundamental and agreed breach of the agreement.

Clause of Fundamental Violations of Sweeping Agreed Agreements

29. Before we proceed, and in the context of the above necessity, I would like to briefly address the end of section 6 of the Medicines Law, according to which "a sweeping clause in a contract that infringes fundamental breaches without distinction between them, is invalid unless it was reasonable at the time the contract was concluded." Simply put, the end of section 6 of the Medicines Law imposes a limitation in relation to the ability of the parties to the contract to determine which breaches will be considered fundamental, according to which it is not possible to establish in the contract a stipulation that turns a series of breaches into fundamental breaches. Such a stipulation is defined as a sweeping stipulation, and therefore it is invalid - unless it was reasonable at the time the contract was concluded (see, Min Many: Civil Appeal 158/80 Shalom v.  Mota, IsrSC 36(4) 793, 805 (1982) (hereinafter: the Shalom case); Civil Appeal 2106/91 Mazor v.  Vahidi, IsrSC 47(5) 788, 795 (1993) (hereinafter: the Mazor case); the case of Shema, at paragraph 9; see also Civil Case (Jerusalem District) 26553-09-13 Assets of Origin in a Tax Appeal v.  Co-op Israel - Supermarket Chain Ltd., para.  14 [Nevo] (October 10, 2018) (the Honorable Judge Eli Abarbanel), in which the parties defined in one stipulation many violations as fundamental, including a violation of a section dealing with drugs due to a violation, and it was determined that it was sweeping (an appeal filed against the judgment was deleted at the request of the parties in the framework of civil appeal 8354/18)).  It should be noted that even if it is determined in relation to a stipulation that it is sweeping and that it was unreasonable at the time of the conclusion of the contract, the breaches mentioned therein may still be considered thorough, in and of themselves, both in accordance with the first alternative that appears in the preamble of section 6 of the Medicines Law - a probable fundamental breach; and in cases where the thoroughness of the breach was agreed upon in the framework of another stipulation in the agreement (see Shalom , at pp.  807-808).  In this context, the case law also held that even if a sweeping stipulation does not have the power to make violations thorough, it may have effect for other purposes (see, for example: Civil Appeal 121/84 Bar-Akiva-Mozes v.    Iodine.  Home.  Door.  (A.I.B.D.) Ltd., IsrSC 38(4) 673 (1985); Friedman and Cohen, at pp.  323-324).
30. The interesting question that arises in relation to the aforesaid is what makes a contractual stipulation that defines what are the agreed fundamental breaches (hereinafter: the Agreed Fundamental Breaches Clause) into a "sweeping stipulation" for the purposes of section 6 of the Medicines Law? The difficulty relates to the determination of the boundary line, in circumstances in which the stipulation binds some, but not all, of the breaches of the contract as fundamental breaches (as was done in the present case).
31. Many years ago, case law expressed the position that two different breaches that were grouped under one roof in a contract were sufficient for the same stipulation to be considered sweeping (see: Shalom Case, at p. 806; Friedman and Cohen, at pp.  322-323).  In accordance with this approach, which establishes a technical test of its nature for identifying a stipulation as sweeping, whenever a stipulation that commits thorough breaches enumerates a number of different matters, even only two, "in one breath, side by side, without reservations and explanations" - it is a sweeping stipulation, and it will be given validity only if it was reasonable at the time the contract was concluded (Shalom case, at p.  See also: Mazor case, at  795).  Accordingly, in order to define a number of breaches as fundamental, and even all contractual breaches as fundamental, it is necessary to separate and determine them under separate clauses (Shalom case, at p.  806).
32. I do not believe that the technical test is indeed a proper test for classifying a stipulation as sweeping. From a linguistic point of view, I believe that the two parts of the sentence In the section 6 The Medicines Law should be read as a term and its definition, i.e., what is "Sweeping stipulation in the agreement"? It's "who commits violations to fundamental violations without distinction between them." This reading also corresponds to the accepted meaning of the term "Bulk".  And if this is the case from a linguistic point of view, then the test for being a sweeping stipulation is the lack of distinction between the various violations ("Indiscriminate between them" Converted to"Violations", and not "For Fundamental Violations"), i.e., over-inclusion in the definition of the thoroughness of the infringement from a substantive point of view, and not necessarily from a formal-technical point of view.  In other words, the lack of distinction is not between the "fundamental breaches", in the sense that they were all determined by the same provision as fundamental, but between the various "breaches" of the agreement, since minor breaches as serious breaches were defined in the stipulation as "fundamental breaches", without any attempt being made to distinguish between them (to the position that it is appropriate to adopt a substantive test Regarding, see Shalev and Adar, at pp.  582-583, which note that "The degree of attention that the parties to the contract have apparently invested in examining the question of thoroughness, rather than a technical-formal test that negates a priori (subject to a substantive examination of reasonableness) the validity of any agreement attributing thoroughness to more than one breach").  Specifically, according to this test, the key question is whether the parties have given consideration to the existing distinctions between various possible breaches of the contract, including between different possible breaches of the same provision.

NoteIn the legal literature, the question arose whether a technical split of the arrangement with respect to agreed fundamental breaches into a number of contractual provisions, each of which relates to a different breach of the agreement, and defines it as a "fundamental breach", will lead to the fact that it will not be possible to classify them as a "sweeping stipulation" in the matter Section 6 of the Medicines Law (see Friedman & Cohen, at p.  322 the respondents in the affirmative; Shalev and Adar, at pp.  582-583 of the respondents in the negative).  My position on this matter is an intermediate position: on the one hand, such a split requires, in my opinion, to examine each of the aforementioned contractual provisions as a stipulation of agreed fundamental breaches that stands on its own, and to examine whether it is sweeping according to the substantive test presented above; On the other hand, the aforesaid split does not preclude a determination that some or all of these contractual provisions are sweeping in themselves.

33. It should be said from now on, the stipulation of agreed fundamental breaches will be considered sweeping only if it emerges from the fact that the parties have bound together various breaches, without making distinctions between those that according to them should be classified as serious (and therefore justify, in the view of the parties, the determination that this is a fundamental breach), and those that according to their view should be classified as minor (and therefore do not justify this determination in their view).
34. Applying the aforementioned test to the present case will teach that the provision of clause 18 of the agreement is not a "sweeping agreed breach clause", since it makes at least two important distinctions between different types of breaches: first, a stipulation distinguishes between the various obligations set forth in the agreement, and distinguishes the term "fundamental breach" only for three obligations: the transfer of the rights in the apartment; the delivery of possession of the apartment; and the payment for its purchase. We are therefore dealing with a limited number of undertakings, which, as I noted above, there is no dispute as to the importance of each of them to the contractual arrangement as a whole.  Later on, the provision distinguishes between minor delays (of up to seven days) and significant delays (of more than that), and clarifies that slight delays will not be considered a violation at all, and will certainly not constitute a "fundamental violation".  Hence, the provision of clause 18 of the agreement cannot be regarded as a "sweeping stipulation", since it is clear that the parties did not sweepingly establish a uniform law for every case of non-performance of any of the agreement's obligations, but rather created a proper and informed hierarchy: a delay in fulfilling an obligation that does not exceed 7 days does not constitute a breach at all; a delay of more than 7 days in fulfilling an obligation that is not listed in the clause does not constitute an agreed fundamental breach (when it is still to be examined whether it constitutes a non-fundamental or probable fundamental violation); A delay of more than 7 days in fulfilling the obligation listed in this section is a fundamental breach of the agreement.  Such an informed determination is given full force by contract law (and this without examining its reasonableness at the time of entering into the contract, as is required in relation to the provision of sweeping agreed fundamental breaches under the end of section 6 of the Medicines Law).

The Obligation to Act in Good Faith in the Use of the Force to Cancel a Contract

35. Let us now proceed to examine the second main argument of the purchasers, according to which the exercise of the right of cancellation by the seller constitutes, in the present case, a lack of good faith in the use of a contractual right. Let us begin by presenting the law with respect to the implementation of the duty to act in good faith in the context of exercising the right to cancel the contract following a fundamental breach.  After the aforesaid legal background is presented, we will proceed to examine in light of the question of whether the seller should be attributed bad faith in the exercise of the power of cancellation, taking into account the circumstances of the case at hand.
36. The starting point for the discussion is found in section 7 of the Medicines Law, which regulates the right to cancel a contract due to its breach:
37. (a) The injured party is entitled to cancel the contract if the breach of the contract was fundamental.

(b) If the breach of the contract is not fundamental, the injured party is entitled to cancel the contract after he first gave the breach an extension of its existence, and the contract is not fulfilled within a reasonable time after the extension is granted, unless in the circumstances of the case the cancellation of the contract was unjust; No argument will be heard that the cancellation of the contract is unjust unless the breach objects to the cancellation within a reasonable time after the notice of cancellation is served.