A Seller of rights in a plot (acquired from a receiver) undertook to complete the recording of the rights in his name within 40 days but the recording was affected only after six years. The purchasers demanded the full liquidated damages stipulated in the contract (ILS 150,000), which constituted approximately 28% of the transaction value.
The Court partially granted the claim and held that the obligation to record rights is an "obligation of result" (as opposed to an obligation of best efforts) which was breached. However, the seller is to pay reduced liquidated damages as they were unreasonable in relation to the foreseeable damages. Israeli law grants the Court the authority to reduce liquidated damages if they were set without any reasonable proportion to the damage that could have been foreseen at the time of the contract’s execution. In real estate transactions, the transfer of ownership is generally deemed an obligation of result imposed on the seller. In this case, the Seller assumed a conscious risk by entering into the transaction without the receiver's knowledge and by committing to an expedited registration schedule (40 days) while being aware of existing difficulties with the tax authorities and the municipality. While the seller’s breach entitles the purchaser to liquidated damages, the amount exceeded the standard reasonable range (10%-15%) and was thus reduced to 15% of the contractual consideration.