Legal Updates

Enforcement of an agreement may not be made in a manner other than the objective interpretation of the signed document

February 3, 2021

A memorandum of understanding was signed between a purchaser and a seller in which it was recorded that a "3-room apartment" was purchased, while at that stage the "apartment" actually comprised two shops and a storage that still needed to be changed in the Land Registry to one residential unit. The seller did not disclose this fact to the purchaser. The purchaser sought to enforce the agreement in such a way that instead of a 3-room apartment, the apartment would be registered as two residential units, as may be done (only this involves costs) under the zoning rules in the area.

The Court dismissed the enforcement claim because an agreement could not be enforced in a manner other than agreed. Good faith in negotiations is examined objectively and misrepresentation does not include an element of "misrepresentation intent". When the seller did not disclose to the purchaser the fact that the unit had not yet been registered as a residential unit she committed misrepresentation and conduct in bad faith. Lack of good faith in negotiations generally gives the victim the right to compensation. Most often it is a matter of reliance compensation (compensation for the damage caused due to his reliance on the representations) but sometimes also a right to expectation compensation (compensation for the situation had the agreement been complied with). In very special and rare cases, it is also possible to demand enforcement of the agreement, when by virtue of the action in bad faith, it is deemed as if the actions that the lack of good faith prevented from being carried out, had been carried out. Such enforcement will only be possible when the agreements reached by the parties met the requirement of agreement and specificity and substantial part of the consideration was paid, or the party was willing to pay, when the party acting in bad faith prevented the signing of a formal agreement. Here, although the seller acted in bad faith, the purchaser sought to enforce the agreement in a way different from the objective interpretation of text recorded in the signed memorandum of understandings and therefore the claim was rejected.