Shabbat Parashat Tetzaveh 5783

P'ninat Mishpat: Was There a Sale to Renege on? – part I

Case: The plaintiff (=pl), a real estate investor, negotiated with the defendant (=def) about apartments to be built in a building under Tama 38 (strengthening and expansion of buildings). They agreed (on some level) that pl would buy three apartments for 3 million NIS. The two then signed a handwritten document titled “Summary of Loan + Purchase Agreement of Apartments.” Later, they agreed that pl would buy a fourth apartment for 600,000 NIS. Under the guidance of a lawyer (=lyr), who discussed the legal challenges, they reached an agreement of principles. Later pl signed an agreement to lend 1.5 million NIS each to a company that def owns and to a company which def owns in partnership with another person (=prtn). Lyr testified that the reason the payment was presented as a loan, with interest and guarantees, rather than a purchase, was due to tax issues. Eventually it was supposed to have led to purchase contracts and erasure of the interest. The sides progressed close to a final agreement and payment. However, after some disagreements, and a couple of months later, def returned the “loan money” with an additional sum for interest, as written in the original agreement. Pl claims that the money given in relation to the loan agreement was purchase money. Pl brought several proofs from documents that indicate that there was really a sale, not a loan, and that their agreement is no less than a zichron devarim (memorandum of understanding). Pl wants to go through with the purchase of the four apartments. If that cannot be done, he demands a fine of 10% as written in the agreement of principles. Def argues that there were only advanced negotiations about the purchase, and the loan was just one stage in the process. He raised different indications (including that the agreement of principles is unsigned) that the sale had not been finalized. Def also claims that prtn approved only the loan agreement. Prtn did not agree for beit din to adjudicate. 

Ruling: Beit din only has the authority to decide in regard to def, not prtn.  

Beit din posits, based on various proofs that were presented, notably the testimony of def’s lawyer, that the loan was a façade for the purchase of the properties. Even if the first agreement is not written as a valid contract of sale, it demonstrates the parties’ full decision to make such a deal. Therefore, the money paid is seen as money of purchase. Def admitted that his partner was kept informed about the stages of the transactions.

In the first agreement, the property’s details, the price, and the terms of payment are all mentioned. On the other hand, the names of the buyer and seller are not mentioned and a language of sale or obligation to sell are not written. Therefore, it is not a halachic sale contract (Shulchan Aruch, Choshen Mishpat 40:1), and it is likely not binding according to the law of the land either. The statement in the contract that it is not final until the lawyer writes an agreement also disqualifies it (see Taz. Even Haezer 50:12).

We will continue next time with the resulting conclusions.

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