The Right to Back Out of a Sale – part I | Various Rabbis | Beit Midrash

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The plaintiffs (=pl) wanted to buy one of the apartments that the defendant (=def) was building for 650,000 shekels. Pl gave def 15,000 shekels as d’mei retzinut (earnest payment) and the sides signed a memorandum stating that if def did not go through with the deal, the money would be returned; if pl would back out, def would keep the money. Subsequently, pl invested money into the apartment, paying def for building changes they requested. Two years after the original agreement, def told pl that he would not sell them the apartment, blaming pl’s behavior and lack of cooperation. Pl sued def for breach of contract, a sum of 440,000 shekels, arguing that not only had his investment in the apartment been lost, but that while waiting for the apartment to be ready, home prices went up nationally dramatically. The matter was taken to a different beit din (some of the ruling will be discussed below), but the sides agreed that Eretz Hemdah should review it in a binding appeal process according to Eretz Hemdah’s appeal rules (we overrule rulings only for mistakes in Halacha or clear mistakes in facts of the case).

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Based on ruling 76105 of the Eretz Hemdah-Gazit Rabbinical Courts

Case: The plaintiffs (=pl) wanted to buy one of the apartments that the defendant (=def) was building for 650,000 shekels. Pl gave def 15,000 shekels as d’mei retzinut (earnest payment) and the sides signed a memorandum stating that if def did not go through with the deal, the money would be returned; if pl would back out, def would keep the money. Subsequently, pl invested money into the apartment, paying def for building changes they requested. Two years after the original agreement, def told pl that he would not sell them the apartment, blaming pl’s behavior and lack of cooperation. Pl sued def for breach of contract, a sum of 440,000 shekels, arguing that not only had his investment in the apartment been lost, but that while waiting for the apartment to be ready, home prices went up nationally dramatically. The matter was taken to a different beit din (some of the ruling will be discussed below), but the sides agreed that Eretz Hemdah should review it in a binding appeal process according to Eretz Hemdah’s appeal rules (we overrule rulings only for mistakes in Halacha or clear mistakes in facts of the case).

P'ninat Mishpat (802)

Various Rabbis

509 - Muncipal Dues in a Yishuv

510 - The Right to Back Out of a Sale – part I

511 - The Right to Back Out of a Sale – part II

Ruling: Def blamed pl for causing the end of the intended sale. He complained that pl secretly recorded some of their conversations and otherwise made him feel suspicious of their behavior, refused to pay the cost of the apartment quickly upon request, and refused to reach a compromise. We reject def’s approach, as did the first beit din. If one can back out of an agreement due to unsubstantiated suspicions, no agreement holds water. One can also not blame someone buying real estate for not being able to come up with a large sum of money on short notice; financing a home purchase is a long process. Finally, a compromise is by its nature beyond the letter of the law, and one cannot be blamed for wanting to receive his legal rights.

The first beit din obligated def to pay 75,000 shekels, in addition to returning the 15,000 shekels, as a penalty for breach of contract. They argued that, while the sale was not complete, def was subject to a mi shepara (a semi-curse for backing out of a serious moral obligation when a sale was almost complete but not yet binding). This is not a simple matter considering that the signed memorandum allows the seller (def) to back out with only the requirement to return the d’mei retzinut.

It is true that the K’tzot Hachoshen and the Gra say that there can be a mi shepara even in a case in which it is known to the sides that it is possible to back out. However, this case is different, in that the memorandum clearly sets up a situation in which there are unequal conditions for backing out, as pl would lose money, whereas def would only have to return money received. This, together with the fact that a relatively small down payment was made, indicate that the payment was no more than d’mei retzinut. In other words, the potential buyer was willing to put up money to show that his potential interest in buying deserves to be treated seriously. This does not, though, preclude the seller’s right to cancel the deal, if a further stage of agreement is not entered.

We will continue next week.

P'ninat Mishpat