Shabbat Parashat Acharei Mot Kedoshim 5783

P'ninat Mishpat: Who Breached the Contract? – part II

Case: The plaintiff (=pl), the owner of a chain of eateries, made a franchise agreement with the defendants (=def) to open a branch in a region in Israel. Def received, among other things, use of the chain’s trademarks, experience, and pl’s commitment to rent a place to open the branch and receive a license, and pl and def were each to own 50% of the branch. Def were to pay 300,000 NIS under a payment plan, including 125,000 NIS, some directly and most into an escrow, soon after signing. The contract stated that any side that would breach the contract would have to pay 150,000 NIS. Def did not make the initial payments. Each side is suing based on the breach of contract clause – pl, because def did not pay, and def, because pl did not rent a place for the branch. [We will deal with various claims in installments.] A few months after the agreement, pl warned def of consequences of non-payment. Although def claimed that pl exempted them from paying the initial payments and agreed to the total payment being only 275,000 NIS, pl says that he agreed only to a delay of a few days. Def also claimed that regarding the 25,000 NIS, pl did not complain, which proves the claim of waiving it to be correct. Regarding the 100,000 NIS, def did give a check for the sum to def’s lawyer to hold soon after the warning.

Ruling: In order to substantiate a claim of relinquishing rights that have been promised in a contract, one needs to bring proof, and def did not do so regarding the 25,000 NIS payment. It is particularly difficult to make such a claim regarding a payment that was supposed to have been made with the signing of the contract. Furthermore, the contract states that any change in the provisions of the contract must be done in writing and be signed. It is not even true that pl did not complain about the lack of payment, as the letter of warning, which was written not that long after the agreement, mentioned it.

The second payment, for which a check was given to def’s lawyer, is not considered payment. On technical grounds, a different sum was written in the numerical slot and the line in which it is written in words, so that it was an unusuable check. More fundamentally, giving a check and telling the lawyer not to cash it yet is not equivalent to putting in escrow, as the former can be done even when there are insufficient funds in def’s bank accounts, and therefore is not a good guarantee. Thus, def breached the contract concerning the payments.

Regarding the counterclaim of breach in that pl did not rent a place for def’s branch, pl claims that he was not required to do so until def paid. The contract implies that the initial payments are to be done before the rental. Pl’s claim that the initial payments are not just to demonstrate the franchisee’s seriousness but to enable the beginning of the expenditures appears correct. Therefore, we accept pl’s claim that he was not in violation of the contract when he did not rent a place.

We will continue with further elements of the ruling next time.

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