Legal Updates

When two parties to a contract act in bad faith they may bear joint responsibility for damage due to its breach

May 3, 2022

Two parties signed a settlement agreement regarding the sale of an apartment in dispute, but each acted to undermine the sale so that finally the apartment was sold at a price lower than the appraisal price.

The Court held that the two parties are jointly liable for the damage, as the two had acted in bad faith in the consummation of the settlement agreement. Israeli law demands that contracts be performed in an acceptable manner and in good faith. An act in bad faith is equivalent to a breach of contract. However, when both parties act in bad faith, liability for the damage can be shared. Here, one party acted behind the back of the other in a manner that resulted in the sale of the apartment at a price lower than the value of the appraisal but the other also acted in bad faith by refraining from promoting the sale of the apartment for 4 months and thus, the liability for the damage should be divided between the parties.