Legal Updates

One can not claim liquidated damages under a draft agreement that was not duly signed and does not constitute a binding agreement

December 6, 2020

As part of negotiations for the purchase of a residence home, drafts of a sale agreement were exchanged between the parties. The purchasers withdrew from negotiations that had been going on for over five months due to personal considerations but the sellers contended that a binding agreement had already been formed and demanded the liquidated compensation set in the draft sale agreement.
The Court held that the negotiations between the parties did not result in a binding agreement and therefore the party that retired from the negotiation could not be required to pay liquidated damages. A "draft sale agreement" may, under certain circumstance be deemed a binding contract, but in order for such a document to be considered a binding contract it must meet two cumulative conditions: first, the document must indicate the parties' intention to enter into a binding contract; Second - the document must include material details of the transaction. Here, the termination of the negotiation was made in good faith and due to personal and legitimate reasons. In the wording of the draft agreement there was a clear indication that the parties to the agreement were required to sign the contract as a condition of its entry into effect and therefore, in the absence of signature, the agreement cannot be regarded binding and one may not claim liquidated damages due to its breach.