P'ninat Mishpat: Normalizing an Agreement that Becomes Absurd | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The defendants (=def) decided to open a new location for selling arba’a minim (armn) and made a written agreement with the plaintiffs (=pl), who supply armn for several locations, to stand behind them, for three seasons of sales. While def would run the sales operation, pl committed to supplying as many sets as necessary and not charge def for unsold armn sets. They used a graduated system for sharing profits. If the sales are up to 30K NIS (K=1,000 NIS), pl gets 75% and def gets 25%. If sales are between 30K-50K, the split is 70/30, from the first shekel. Above 50K, for every 2K, def’s percentage goes up by 1%, from the first shekel. Neither side expected sales beyond 50K. In the first year, there was no dispute about distributing the 54K in sales. In the second year, with sales of 112K (!), def gave pl 44K according to a 61% share for def (up from a minimum of 25%!). Pl complain that at this rate (with profits reduced even for the first tens of K,) they lose money for every additional set sold, which is illogical, and incentivizes pl to not provide more armn sets. Pl want to cap the increase in def’s share at 40%. Def say that agreements are to be kept as written, which was done to incentivize mass sales and that pl committed in the contract to provide as many sets as needed.

Ruling: [Much of the p’ask din deals with detailed calculations of profits according to different approaches. Our look will be from "above the numbers."]

P'ninat Mishpat (809)

Beit Din Eretz Hemda - Gazit

799 - P'ninat Mishpat: Amounts and Conditions of Payment to an Architect – part IV

800 - P'ninat Mishpat: Normalizing an Agreement that Becomes Absurd

801 - P'ninat Mishpat: End of Tenure of Development Company – part I

Pl’s attempt to fit adjustments into the language of the contract are unsuccessful. On the other hand, def’s thesis that the language of the agreement is to be followed no matter how absurd its provisions end up being under unexpected circumstances, is logically and halachically wrong. Rabbeinu Yerucham (23:10, accepted by the Shulchan Aruch, Choshen Mishpat 61:16) posits that when there is a contradiction between the sides’ intentions and the written word, intention is the determinant.

The system put in place is logical approximately up to sales of 70K, at which point the split is 60/40 for pl. This also fits with the fact that the plan they discussed had pl providing 350 sets with the expectation of an average price of 200 NIS per set. While there was an expectation that not all of them would be sold, it was contemplated that they would be.

The three dayanim had three different calculations of workable percentages – 40% for def, 41%, and 44%. Among the notable factors that were raised in their opinions is the widely applicable rule that the one who wants to extract money (in this case, pl) must provide proof, so that the least generous plausible arrangement for pl has an advantage. This is amplified by the fact that the written agreement supports def’s, which is especially significant because def wrote it. Since it is impossible to figure out exactly what the most equitable reasonable arrangement is and since hiring professional experts wastes money, compromise is appropriate.

The majority opinion obligated def to give 59% to pl, so that def must add 22,080 NIS to what they already paid.

P'ninat Mishpat