Legal Updates

An option agreement between sophisticated parties will be construed by its wording

April 20, 2023

A company chairman of the board of directors received options, conditioned on him recruiting a buyer for the company operations. Later, an amendment to the agreement was executed in which the condition was linked only to the new benefits that were granted to him in addition to the first agreement.

The Court held that the first option does not depend on recruiting a buyer for the company's operations. The starting point when interpreting a contract is its wording. However, in circumstances where the wording is not unambiguous, the parties’ will and external circumstances shall be reviewed. Further, it shall be reviewed whether the contract is between unsophisticated private parties, where the contract is deemed an “open one” and greater weight shall be given to the parties’ will, or between sophisticated parties, when the contract is deemed “a closed one” and the wording of the contract shall be granted a decisive role in its interpretation. Therefore, the very fact that the second option agreement, which title indicates that it is an amendment to the first once, referred to the bringing of a buyer as a condition for the additional benefits only, indicates that the options under the first agreement are not conditional.