P'ninat Mishpat: End of Tenure of Development Company – part I | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The defendants (=def), an association of people who want homes built in a project, hired the plaintiffs (=pl) to serve as their development company to handle the building of dozens of apartments. After years of work and progress made in the project’s actual building, disagreements arose, and def fired pl after paying them partially. Pl, who claim to have finished 82% of the work, are suing for 1,300,543 NIS, which they claim is still owed to them. Def, who claim that pl completed only 42%, do not believe the contract between them is binding, and are countersuing for 6,715,342 NIS for damages pl caused during their involvement. [We will deal with some of the elements of this dispute (the full ruling covers 75 pages) in installments.]

Ruling: Guarantors of the sides: The nature of an entity such as def is that as the apartments become ready for occupancy, the association gives over rights and obligations to the owners of each unit, and the association "loses" its assets to its members. Therefore, pl demanded, due to an expected lengthy adjudication, guarantees of payment if pl will win awards. Def countered that the owners of pl should be made guarantors if pl as a business is not able to pay the counterclaims; beit din helped the sides negotiate a mechanism to address these concerns.

Validity of the signed agreement: Def claim that the written agreement is invalid for a few reasons: 1. There are indications that it was predated; 2. Only def’s first chairman of the board (= FCB) signed it, whereas def’s charter requires two signatories; 3. FCB is a friend of members of pl and therefore was not supposed to deal with matters between pl and def because of conflict of interest. Pl responds that there is nothing wrong with that friendship, which helped the project proceed quickly and harmoniously. Pl also point out that def were required to have a written agreement with a development company, and this is the only one they have.

It is true that def’s charter requires two signatories for valid agreements. The Law of Companies says that while an agreement that is against the goals of the company is void, an agreement whose weakness is lack of authorization can be approved after the fact by those with authority within the company. In this case, def used its affiliation with pl to fulfill obligations, including fulfilling the obligations of the tender. The actions of def thus confirmed pl’s status, and since there was no other agreement between the sides and def paid several installments to pl based on it, def effectively confirmed the agreement. Furthermore, since on a whole slew of contracts, FCB signed by himself, according to def’s argument, none of them would be valid, which is an unviable position. Furthermore, when FCB was replaced, his successor made no attempt to void the agreement and/or change it. Therefore, the agreement as it exists is valid.

We will continue next time with other elements of the dispute.