The Binding Nature of the Tentative Agreement – part I | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The defendant (=def) wanted to sell a house, which he expanded without a building permit. The plaintiff (=pl) agreed in principle to buy it for 3.6 mil. NIS, if def succeeded in legalizing the expansion, a process he had begun. They decided to sign a zichron devarim (letter of intent), but pl rejected the text drafted by def’s lawyer (=zd1) because it was too obligating; pl drew up a weaker one (=zd2), which the sides signed, along with a formal handshake. Pl gave def a check for 10,000 NIS to draw only if and when the deal would come to fruition. After nine months of failure to receive a building permit, the two discussed going through with the sale "as is," but def demanded 4 mil. NIS, due to hikes in market costs. Pl expects def to go through with the sale for the original 3.6 mil. NIS, whereas def argues that the agreement did not bind him to a certain price. Pl demands that if the sale is not enforceable, def should compensate him for damages pl incurred waiting.

Ruling: Contemporary poskim agree that a zichron devarim binds one to go through with a sale (see Mishpetei Eretz IV, p. 119), and it appears that zd1 was a standard one. However, pl refused to sign zd1 because it was too binding. The Shulchan Aruch (Choshen Mishpat 61:15-16) teaches that a contract’s meaning can be determined with the help of a careful look at its language and by indications of what the sides to the agreement were thinking. Regarding language, zd2, while called a zichron devarim, uses language of "good faith" to proceed with the proposed transaction without mentioning monetary obligations. Furthermore, regarding the price, it says that "ekronit" (in principle), it will be 3.6 mil. NIS. This extra language is hard to explain unless it means that things (e.g., passage of time/change in price) can affect it, and the Knesset Hagedola (CM, HBY 61:57) says that we can learn things from extra language.
Regarding intention, in an email after def raised the matter of a price increase, pl wrote to def that since the matter was one of good will, it is up to def to decide what he will do. While pl says he changed his mind about a forgiving approach when a lawyer told him the zichron devarim is binding, the email still is a very strong indication of what pl had been thinking when he wrote and signed it.
Pl did present an email from def in which def referred to the zichron devarim as binding, but this is not impactful for two reasons. For one, that was written in regard to zd1, which was written to be binding, but pl did not accept it. Additionally, when there are contradictory admissions, we keep the status quo. In this case, that means that we cannot use the zichron devarim to obligate def (Shulchan Aruch, CM 245:5 and Netivot Hamishpat ad loc.). Status quo should also be employed regarding any lack of clarity in a document (Shulchan Aruch, CM 42). Therefore, the zichron devarim does not provide pl with the ability to enforce the sale.
We will explore next time other reasons for def to keep his commitment to the old price.