The examination of this responsibility of the managers lies in the contract and in the addendum to it. These documents embody a contractual engagement between the company and the appellants. They do not involve the assumption of a contractual obligation by the managers, and in fact the appellants do not claim otherwise. The rule in this situation is that the managers are not liable to the appellants for breaches of the contract entered into between them and the company: there is a separation between the legal personality of the company and its managers, and the managers are not liable to a third party who entered into an agreement with the company (see Pennington). 173At p(1987, Oxford) directo rs' personal liabilityon the logic underlying this fundamental principle was discussed by President Shamgar in Civil Appeal 407/89 Zuk Or in Tax Appeal v. Car Security Ltd., (IsrSC 45(5) 661, 698-699):
"The company's contractual creditor can choose between a contractual engagement with the company only, or a contractual engagement with the company and its controlling shareholders. Stipulating an engagement with the company on a personal obligation of its directors - a primary or secondary charge (proprietary or personal collateral - guarantee) means the transfer of the burden of the company's insolvency risk from the creditor to the controlling shareholders (or officers, organs of the company or any other person). The contractual creditor is entitled to enter into an engagement with the company only or with the company and its controlling shareholders (or any other entity in the company). It stands to reason that an engagement with the company alone will be priced at the price of the engagement ('premium' for the risk of insolvency...".
Hence, it is not possible to impose liability on the managers for the breach of the agreement between the company and the appellants. The same is true with regard to non-disclosure of the fact that the mortgage was registered in favor of a third party: as stated, a breach of the duty to act in good faith in the performance of contractual obligations is tantamount to a breach of contract, and as such it imposes liability on the company, which is the party to the contract, and not on the officers.