Calculating Late Penalty According to Contract or Law – part I | Various Rabbis | Beit Midrash

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P'ninat Mishpat

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The plaintiff (=pl) bought property from a building company (=def), which was supposed to complete construction to by 20.06.2014. After negotiations, the contract included a penalty of 2,800 shekels a month against def for lateness, starting from two months after the target date. Pl received the apartment more than 18 months late. According to a new law, a buyer is compensated for more than 60 days of lateness (retroactively from the beginning) according to the following schedule – 150% of the apartment’s rental value for the first 8 months; 125% of the value after that. Buyers cannot waive their legal rights. Pl claims that the apartment’s value is 4,200 shekels and claims 105,275 shekels. Def claims the payment should be drastically reduced on two general grounds. Since the contract included an arbitration agreement to beit din, halacha, which recognizes the sides’ agreement, rather than the law, should be binding. Therefore: 1. The monthly rate is 2,800. 2. Payments start only after two months. 3. The contract gives a two month extension for the buyer’s requesting building change, which pl made. Furthermore, the following delays, which were beyond def’s control, push off the target date: 4. (Arab) workers could not come to the site during the fighting in the summer of 2014. 5. The water authority illegitimately delayed connecting the water supply, which delayed by months receipt of a Tofes 4, needed for legal occupancy. 6. The fire department improperly delayed approval for several weeks. 7. Pl refused to receive control of the apartment for two months after it was ready.

(based on ruling 75030 of the Eretz Hemdah-Gazit Rabbinical Courts)

Case: The plaintiff (=pl) bought property from a building company (=def), which was supposed to complete construction to by 20.06.2014. After negotiations, the contract included a penalty of 2,800 shekels a month against def for lateness, starting from two months after the target date. Pl received the apartment more than 18 months late. According to a new law, a buyer is compensated for more than 60 days of lateness (retroactively from the beginning) according to the following schedule – 150% of the apartment’s rental value for the first 8 months; 125% of the value after that. Buyers cannot waive their legal rights. Pl claims that the apartment’s value is 4,200 shekels and claims 105,275 shekels. Def claims the payment should be drastically reduced on two general grounds. Since the contract included an arbitration agreement to beit din, halacha, which recognizes the sides’ agreement, rather than the law, should be binding. Therefore: 1. The monthly rate is 2,800. 2. Payments start only after two months. 3. The contract gives a two month extension for the buyer’s requesting building change, which pl made. Furthermore, the following delays, which were beyond def’s control, push off the target date: 4. (Arab) workers could not come to the site during the fighting in the summer of 2014. 5. The water authority illegitimately delayed connecting the water supply, which delayed by months receipt of a Tofes 4, needed for legal occupancy. 6. The fire department improperly delayed approval for several weeks. 7. Pl refused to receive control of the apartment for two months after it was ready.

Ruling: We start with a discussion on whether to follow the contract or the law. The written policy of our beit din is to accept the law of the land when it is one that if brought before us, we would accept it. One factor that helps us want to accept a law is when it has a basis in a Torah principle. Another is when logic dictates that it improves society. Areas in which we are less likely to accept the laws are when they set down general rules of justice, for which we prefer the Torah’s justice. In cases where the reason to accept the law is that it represents standard practice, the existence of a contract overrides standard practice.

P'ninat Mishpat (774)

Various Rabbis

417 - Independent-Minded Architect – part II

418 - Calculating Late Penalty According to Contract or Law – part I

419 - Calculating Late Penalty According to Contract or Law – part II

There is a machloket among contemporary dayanim on the validity of a law’s provision that the sides cannot waive it. Ateret Devora (CM II:48) proves from the halacha that the members of a city can enforce rates for employment (Tosefta, Bava Metzia 11:23) that laws work even when the sides agree to something else. In this case, the drafters of the law correctly realized that building companies will force provisions upon buyers in set contracts written in their own favor. Therefore, if they did not make these provisions irrevocable, the law would be rendered useless by the companies’ lawyers. Additionally, they reasoned that the builder has the experience to set the time schedule in a way that he will not lose unreasonably. Therefore, we accept the Law of Sales (Homes).
Next time, we will look at and apply the law’s provisions to this case.

P'ninat Mishpat