Can They Change Agreements in the Middle?

Case: The plaintiff (=pl) is an importer who wanted to sell masks in Spain and came to an agreement with the defendant (=def), a company in the medical supply field in Spain, that pl would do the importing under the auspices of def. According to their contract, def was not to be active in the process, but would give its name, and payment from Spanish companies would go through their accounts; def would receive 10% of the revenue. After sales began, def pulled out of the agreement and returned deposits to companies that ordered masks (pl succeeded in maintaining the deals with the help of a different company = com B), except the largest deal (660,000 Euro). Def agreed to go through with that deal under a new contract according to which def receives 50% of the sales profits. After the sale went through, pl is suing for the difference between the two agreements (100,000 Euros), claiming that he was coerced into the new agreement out of concern that otherwise, his largest sale might fall through. Def counters that it was justified in backing out of the deal because Spanish customs rejected the import request because the Chinese manufacturer had provided forged European quality certification, causing concern of litigation and refusal of buyers to pay. Def also claims that presently they need to be more involved in the process, which according to the original agreement they were not required to be.

Ruling: While def claimed that the agreement was one of renting their name and infrastructure, beit din views it as a franchise relationship. Since this is a common business relationship in our days, such agreements are binding based on convention (see Eretz Hemdah ruling 74070). The kinyan on this arrangement took effect no later than when def received the first down payment on pl’s behalf. This works even though the payment came from a third party, since the money was paid on pl’s behalf (see Shulchan Aruch, Choshen Mishpat 190:4).

Nevertheless, def had the right to back out of the deal due to mekach taut (agreement based on a false premise), as they were not aware that the certification was forged (due to the acute medical crisis, Spain lowered their certification demands, but only after the agreement was discarded). That situation opened all involved to serious liabilities. Such dangers are grounds for breaking agreements (see Shulchan Aruch, CM 196:36). Although this does not apply to flaws that the "buyer" can easily check out, there is no reason to think that def would know this in advance (pl did not know either).

Once def had the right to back out and did, it is no longer considered that def forced pl into the new agreement, rather the new situation did (see Shulchan Aruch, CM 205:12). Furthermore, it was pl who pursued a new agreement, and if pl wanted to (despite the perceived risk), they still had the opportunity to extend their arrangement with com B to this deal as well.

Therefore, pl is not entitled to the additional money that he would have received based on the first agreement.