One signed a memorandum of understanding in which he undertook to sell its farm at a reduced price and an agreed liquidated damages of ILS 200,000 in the event of its breach. After a few days, the seller realized that the document was intended to deceive the tax authorities and canceled the transaction.
The Court rejected the claim to oblige the seller to pay the agreed liquidated damages due to lack of legal validity of the transaction. A contract designed to defraud the tax authorities is a contract that is opposed to public policy and is void due to illegality. Here, the seller was rushed to sign the memorandum and then there was an attempt to get him to sign an illegal agreement designed to defraud the tax authorities in such a way that the consideration stated in the agreement would be reduced and part of it would be "off the books." The seller realized that he was misled and signed an illegal memorandum, therefore he backed out of the transaction and gave back the advance payment he received to the purchaser. Therefore, in such a case there is no place to give the memorandum the features of a duly made undertaking that is not tainted by illegality and therefore it is void, including the agreed liquidated damages clause stipulated in it.