Legal Updates

Agreement because of business considerations to payment lower than agreed due to pressure of the ‎other side is not economic coercion

June 8, 2017

An Israeli company was in contact with an American company that deals with venture lending, in which in addition to interest and commissions, options in the borrowing company are also received, so that the Israeli company will link customers to the American in exchange for participation in revenues. In the first deal, the Israeli agreed to a low commission due to the American's demand. The parties exchanged drafts but no agreement was signed and after a time the America terminated the relationship. The Israel demanded the balance of the commission in respect of the transaction and compensation for the termination of the relationship.

The Court rejected the claim and held that it had jurisdiction over the case because the parties contemplated a relationship related to the Israeli market. In this case, an agreement was not reached although an agreement can be entered into even without the parties signing a document but a legal agreement is a set of terms and conditions and in this case even if the parties were on accord as to some of the terms it was subject to agreement on the other conditions and one may not pull out just several terms of the draft Agreement and grant only them a binding effect. The Court rejected the contention that consent to lower fees in the transaction for which an amount was paid was the result of economic coercion because the operation of an economic threat may be coercive, but when a party waives rights due to business considerations and because of its desire to maintain good relations with the other side, this negates the argument of coercion.  There is no doubt that the Israeli company invested considerable resources in advancing the common interest of the parties, but the mare investment of resources does not create a right out of thin air and in lack of an enforceable agreement the termination of the relationship is also not a breach entitling compensation.