Legal Updates

Unnecessary, literal interpretation in performance of a contract will entitle the harmed party compensation even if it breached the contract regardless thereof

February 6, 2024

A seller in an option agreement for the purchase of real estate insisted on the lack of a literal commitment, on its part, to cooperate with the potential buyer.

The Court accepted the potential buyer's contention that the seller had consummated the agreement in bad faith. While the principle of good faith in the consummation of contracts does not require one to behave altruistically while disregarding one's personal interests, it does require consideration of the other party’s interest and cooperating with it in order to fulfill the purpose of the contract. Breach of the principle of good faith may occur when a party insists, in bad faith, on literal interpretation of the language of the contract and does not take into account the reasonable expectations of the other party, in particular when such literal interpretation is not necessary and has the potential to thwart the fulfillment of the contract. Here, the seller refused the potential buyer's request to receive additional data regarding the property requested by him for the purpose of recruiting additional investors. This, despite the fact that the data was in her hands and out of a specific refusal not to fulfill obligations that are not imposed on her according to the agreement. Therefore, and even though the potential buyer did not fulfill his main obligation in the agreement, the seller is to compensate him.