Background
Under the Israeli Contract Law, an agreement between parties can be made verbally, in writing, and can even be learned by the parties’ behavior. Thus, in the absence of another provision, parties can engage in a simple or complex transaction, negligible or material, almost in any format. The existing contractual engagement and the flexibility in the contractual configuration have a significant shortcoming in the image of the absence of certainty regarding the mere existence of an obligating contract, as well as its contents.
For most people, a real estate transaction has a large economic significance. For most, this is probably the most significant transaction executed during their lives. Therefore, to ensure that such transactions will be made seriously and with the required attention to the transaction’s consequences, the legislator decided to intervene in the parties’ freedom to engage in real estate transactions.
The legislator chose to protect the public to reduce the uncertainty regarding the validity of agreements and the scope of the contractual content that is supposed to reflect the parties’ desire. Additionally, the intervention as stated is meant to reduce overflow of legal tribunals that are already overloaded.
In this article, we shall deal with those cases in which the writing requirement did not take place at all, i.e., no document exists that describes the parties’ agreement regarding the real estate transaction, to differ from those cases in which a written document exists but does not contain the required details scope.
The legal status
The Land Law[1] (hereinafter “the Law“) states that a land transaction, which refers to the type of rights determined in the Law, is concluded only when registered in the Land Register. Thus, a transaction that was not culminated by registration is considered as an undertaking to make a transaction. Under Section 8 of the Law “, an undertaking to make a real estate transaction requires a written document.”
In other words, the legislator preferred the legal certainty over the agreement’s formal freedom. A commitment to enter a real estate transaction stemming from a proposal and acceptance, the transaction must be expressed in writing.
The development of the adjudication
In the past, the courts have strictly adhered on the writing requirement and rejected the possibility of recognizing real estate transactions that did not meet such requirement. Under a consistent adjudication, it was determined that the provision of written real estate contracts is not only an evidential requirement needed only for testifying the existence of a contract between the parties, but rather that it is a material requirement needed to create a contract.
This means in the absence of writing – there is no obligating and enforceable real estate contract.[i][2]
The change in the orientation began about three decades ago using the Good Faith (bona-fide) principle. The Supreme Court determined that the principle of bona-fide determined in Section 12 of the Contract Law can be applied in appropriate cases. By virtue of this principle, in certain appropriate cases, it is possible to overcome the absence of the writing and perfect the undertaking to make a real estate transaction.
In Kalmer versus Guy, deliberations took place regarding a combination transaction that was performed without making it in writing. The seller allowed the buyers in a combination transaction to obtain possession of a plot. The buyers executed the construction over an extended period. The seller consented and cooperated with the buyers to adapt the building of one of the two houses to his requirements. The buyers took possession of one of the homes constructed by them under their design and requirements, without the seller’s objection. All of this, while they clearly testify of an agreement made between the seller and the buyers regarding identified real estate.[3]
It was determined that using the bona-fide principle for making the “writing” requirement more flexible must be done very carefully. Only special and extraordinary cases that raise “an outcry of fairness” may justify the deviation from the writing requirement. The emphases determined in this respect are two: one, has a status change occurred following the contract (the unenforceable or invalid), such as that it has been fulfilled of it was relied on; the second, what is the degree of guilt by the party that renounces the contract’s execution.
For example, when the contract was partially executed, while one party relies on it, it would be negating the bonafide principle if the other party that received the counter-consideration (all or part thereof) can be released of his duty.
The transition from a rigid approach to an approach that balances between a formal requirement and the judicial discretion, the purpose of which is reaching a just result providing weight to the parties’ intention, received additional enforcement in the case of Shem Tov Versus Peretz.[4]
In this case, a buyer paid to a couple of sellers the full consideration for the property, obtain possession of it and acted in it as an owner when he rented the property for rental fees. Later, he found himself facing a creditor holding a lien, and the seller, who in the meantime divorced her husband who constructed the project. It was determined that like the Kalmer case, the absence of a written agreement for the real estate sale was not the end for the buyer, and circumstances exist (such as in the herein case) from which arises the “outcry of fairness” that obligates recognition of the agreement’s validity despite the absence of a written document.
It should be stated that the Supreme Court also noted that the dogma making use of the “outcry of fairness” must not be limited to situations of “an act done” only. The Court clarified that it is necessary to be attentive to the reality of life that every time exposes complex situations requiring an answer, and it is not correct to limit the use of “the outcry of fairness” only in the certain case under consideration. In the Shem Tov affair, the Supreme Court insisted that a “closed list” of instances in which the “outcry of fairness” must not be recognized but detailed the various considerations to be considered when applying it.
In the matter of Levi V. Levi,[5] additional enforcement was provided to the change in the orientation. Two brothers jointly acquired land, and the rights were registered in equal parts. After a few years, one brother purchased the other’s share, and the consideration was in cash, without a written agreement between them. The purchaser even constructed on the land 3 houses for his expanded family’s dwelling, who resided in them for dozens of years. Two months after the seller’s death, a warning notice was registered in favor of his son-in-law due to an alleged loan, and about two years after the death, the seller transferred his share in the land to his daughter.
The Court determined that although dozens of years have passed, and even though there was no written agreement regarding the sale of the brother’s share, this case falls under “the outcry of fairness,” which overcomes the absence of a written agreement, through activating the bonafide principle. The Court’s ruling is supported by the fact that the purchaser and his family acted on the land as owners for dozens of years without the seller’s objection; on the fact that the houses construction financing was done from the purchaser’s financial sources; the seller was not involved in the construction, did not finance the building, and had no interest in the building. At the purchaser’s request, the seller signed the request for a building permit without objection or comments. The seller raised no argument on his part regarding his rights in the land, even though the plaintiffs acted on the land as owners and even never demanded dispossession or payment of usage fees for dozens of years until the purchaser’s death.
Under those circumstances, it was determined that the “outcry of fairness” has special force, and under the bonafide principle, it justifies providing the transaction a legal validity, despite the absence of a written document[6]
On the other hand, in the case of So and so V. So and so,[7] a reservation was expressed regarding over-usage or broadening of the case that fall under “the outcry of fairness.” It was determined that the conduct of parties avoiding the reporting of a transaction to the Tax Authorities might constitute consideration for blocking “the outcry of fairness.” It was also ruled that the mere fact that a contract made between family members does not exempt them from the writing requirements under Section 8 of the Real Estate Law. In that case, because the parties were persons of means and business experience, who avoided making an agreement as required by law, among other things, to avoid tax payment, the case does not fall under the cases in which “the outcry of fairness” and therefore cannot be applied.
Summary
The basis for the writing requirement was intended to protect the principle of certainty in law and on the public to avoid making transactions having serious significance hastily and without due thought. The tendency in the Court ruling is to soften the writing requirement in cases where extreme injustice might be caused; the decency obligates recognizing the transaction, although an agreement as stated was absent. The instances in which the formal defect will be permitted through the bonafide principle are not frequent, and notwithstanding the softening tendency, the writing requirement still has a central relevance.
It is recommended for those who enter a real estate deal to raise in writing the consents between them to prevent future disputes and mitigate material risks.
[1] The Land Law, 5729 – 1969
[2] C.A. 726/71 Grossman at K.B.K Registered partnership V. The inheritance of the late Yehoshua Biderman, PD 26(2) 781; C.A. 649/73 Kapulski V. Ganei Golan Ltd. 28(2) 291; C.A. 252/78 Baron V. Pendis Tours Ltd. 33(2) 437 (1979)
[3] C.A. 986/93 Kalmer V. Guy PD 50(1) 185
[4] C.A. 8234/09 Lili Shem Tov V. Caduri Peretz PD 64(3) 60
[5] C.F. 52766-01-12 Levi V. Levi
[6] The Levi matters ibid. This ruling was also approved by the Supreme Court on the same case (C.A. 7907/17)
[7] BEM 329/15, So and so V. So and so