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Published online by Cambridge University Press: 16 February 2016
Rescission is one of the most important activities in the law of contract. The right or the possibility to rescind is no less important than the right to specific performance or damages. Indeed, in many cases, when specific performance is either undesired or impossible, and no harm entitling damages has been caused, it will be the major right.
Despite this importance, Israeli contract laws have left many questions regarding rescission open (e.g. the character of the rescission, its range, contents and results regarding both contracting parties and third parties). The silence of the Israeli legislature in these matters is typical of Israeli civil law legislation in which major areas of law are condensed into a few laconic provisions. This attitude leaves much room for construction of the statute and for judicial legislation.
1 See Yadin, , Contracts (Remedies for Breach of Contract) Law, 5731–1970 in Tedeschi, G. (ed.) Commentary on the Laws Relating to Contracts (1st ed., 1970) 12Google Scholar and (2nd ed., 1979) 12.
2 Cheshire, and Fifoot, , The Law of Contract (Furmston, 10th ed., 1981) 534–536Google Scholar; and see also Yadin, supra n. 1 at n. 8 (1st ed.,) and n. 5 (2nd ed.). Prof. Yadin attacks the English attitude which uses many terms for “rescission”, e.g., to repudiate, to dissolve, to rescind, to terminate, to avoid, and praises the Israeli attitude to the issue. We feel that the disadvantages of such laconic legislation are greater than the advantages. See Deutch, S., “Book Review” (1978) 8 Mishpatim 354, 366Google Scholar.
3 27 L.S.I. 117, hereafter “General Law”.
4 25 L.S.I. 11, hereafter “Remedies Law”.
5 E.g., a contract made for appearance sake—sec. 13; a conditional contract—sec. 27; an invalid contract—sec. 30. In these cases the contract is void and not voidable and this has implications for the results of the rescission. Sec. 31 also gives the courts wide discretion regarding invalid contracts.
6 Like constraint and frustration in sec. 18 of the Remedies Law. There the rights of the parties are not necessarily affected by rescission or non-rescission, and the court has a wide discretion to fix the scope of restitution.
7 Secs. 14–18 of the General Law.
8 Ibid., at sec. 20.
9 Ibid., at sec. 21.
10 Secs. 6 and 7 of the Remedies Law.
11 Ibid., at sec. 8.
12 Ibid., at sec. 9.
13 Bank HaPoalim v. Garburg (1978) 32 (i) P.D. 253; Beni Pipkovitz Ltd. v. Avni Yitzhak & Partners Ltd. (1981) 35 (iii) P.D. 169; Ness v. Golda (1982) 36 (i) P.D. 204.
14 Zeltner, Z., Law of Contract of the State of Israel (Avuka, 1974) 218Google Scholar; D. Friedmann's comprehensive and important article “Rights of the Owner Against a Third Party in Modern Israeli Legislation” (1975) 4 Iyunei Mishpat 245Google Scholar; Guri, R., “The Error in the Instruction of Error” (1975) 29 HdPraklit 447, 452Google Scholar; Barak, A. “The Independence of the New Civil Codification and Risks and Prospects” (1976) 7 Mishpatim 15, 23 and 32Google Scholar; Shalev, G., Defects in the Formation of Contract in Tedeschi, G. (ed.), Commentary on Laws Relating to ContractsGoogle Scholar; Shalev, G., “Defects in the Formation of Contract” (1981) 11 Mishpatim 464–466Google Scholar.
15 Yadin, U., “G. Shalev: Defects in the Formation of Contract” (1982) 12 Mishpatim 629, [632–633Google Scholar. See also Yadin, U., “Acquisition by a Defective Contract” in Sefer Sussman (1984) 193Google Scholar.
16 33 L.S.I. 44.
17 Published by Bursi, 1982 (hereinafter Friedmann, Unjust Enrichment). The book is over 700 pages long.
18 See infra the discussion in chap. VI on the applicability of the defences of unjust enrichment on contractual restitution.
19 International Encyclopedia of Comparative Law, vol. VII, chap. 16, (Tubingen 1976), § 181Google Scholar, p. 143. (hereinafter Encyclopedia).
20 Cf. Deutch, S., “Economic Duress in Contract Law” (1982) 2 Bar-Ilan Law Studies 1, 24–25Google Scholar, dealing with the question to which legal system should we turn for inspiration on the question of extortion.
21 See Weisman, J., “The Relevance of the American Experience to Legal Education in Israel” (1982) 12 Mishpatim 425, 429–430Google Scholar on the importance of comparative law.
22 See Friedmann, supra n. 14.
23 See Zeltner, supra n. 14.
24 See “Economic Duress”, supra n. 20 at 2-5.
25 34 L.S.I. 181.
25a See supra n. 20 at 4, n. 32.
26 See supra n. 20 at 3-5 and 24-25.
27 See Dobbs, D., The Law of Remedies (West, 1973) 226Google Scholar (hereinafter Dobbs, Remedies) who complains that on the topic of unjust enrichment there is a general principle and specific instructions but guidelines are lacking.
28 The various legal attitudes are described in Encyclopedia, supra n. 19 at 140-145.
29 Beni Pipkovitz, supra n. 13 at 177-179.
30 See Encyclopedia, supra n. 19, § 179 and nn. 1204, 1205.
31 Ibid., at n. 1211.
32 ibid., at n. 1212.
33 See supra, text at nn. 13-15. According to Prof. Yadin's view, the questions of the property nature of rescission will have no implications on the rights of a third party, and in any case one is free of all the conflicts of the other legal systems.
34 Encyclopedia, text following n. 1212.
35 Ibid., at n. 1213.
36 U.C.C. § 2–602(2)(a).
37 For liberal construction of the term exercise of ownership, see E. Minsel v. El Rancho Mobile Home Center Inc., 32 Mich. App. 10; 188 N.W. 2d 9 (1971); Clark v. Zaid, Inc. 363 Md. 127; 282 A. 2d 483 (1971).
38 U.C.C. § 2–401 (4).
39 Zeltner, supra n. 14 at 429–430.
40 Kretzmer, D., “Judicial Discretion and the Consequences of Discharge of a Contract upon Breach” (1978) 8 Mishpatim 138, 149Google Scholar and n. 44. In his view, restoration derives from sec. 9 of the Remedies Law which follows “in this case, continental legal systems”. See also R. Guri, supra n. 14.
41 Bank HaPoalim v. Garburg, n. 13 supra.
42 Yadin, supra n. 1 at 52 (1st ed.), and at 67 (2nd ed.).
43 25 L.S. I. 32.
44 Shalev, G., “Remedies on Anticipatory Repudiation” (1973) 8 Is. L.R. 123, 132Google Scholar. Here Prof. Shalev stated that rescission operates only prospectively and does not void the legal relations but only ceases them.
45 (1981) 35 (iii) P.D. 533, 539–540 (hereinafter Calanit HaSharon).
46 See Shalev, G., “Defects in the Formation of Contract” (1981) 11 Mishpatim 439, 463Google Scholar and n. 68.
47 Supra n. 45 at 540. It is interesting to note that in his article, supra n. 14 at 29, Barak J. expressed the opinion that rescission due to defect in formation acts retrospectively, while in termination due to breach it operates prospectively only.
48 Shalev, supra n. 46 at 463–464, explains that the same is true on rescission due to defect in formation. See also Shalev, Defects in Formation of Contract, supra n. 14 at 141 and 143 in which she writes that the right to rescind due to defect in formation must be exercised in good faith, whether directly due to sec. 39 or according to sec. 61 (b) which imposes the contract law also on noncontractual obligations.
49 Cf. Weisman, J., The Land Law 5429–1969: A Critical Analysis (Hebrew University, 1979) at 21Google Scholar: criticism of excessive discretion.
50 Shalev, G., “Third Party Beneficiary: A Comparative Analysis” (1976) 11 Is. L.R. 315, 331Google Scholar. See also her earlier article “Breach and Rescission of Contract” (1970) 2 Mishpatim 652Google Scholar.
51 Prof. Friedmann, too, (in his book Unjust Enrichment, sec. 483) discusses the clear distinction between the two: “Rescission due to defect in will is retrospective while rescission due to breach is from the moment of rescission (or at the earliest the time of breach) onwards (p. 445). In n. 156 to sec. 381 he adopts the Bank Hapoalim v. Garburg attitude for rescission due to defect, and the Calanit HaSharon v. Hurwitz attitude for rescission due to breach. See sec. 499.
52 On the place of resolve in contract formation in Israeli Law see Deutch, S., “Resolve and the Intention to Create Legal Relations in Jewish, English and Israeli Contract Laws” (1979–1980) 6–7 Shnaton HaMishpat Halvri 71, 97–104Google Scholar.
53 See Deutch, S., “Undertaking Obligations in Jewish Law” (1972) 3 Dinei Israel 211–221Google Scholar in which we explained that in Jewish Law the cancellation of a transaction due to defect in formation of the contract derives from a defect in the resolve of a party. We feel that the position is the same in Israeli Law which devotes a central position to the demand of resolve.
54 In English Law it is obvious that when a contract is rescinded due to false representation, the contract is voidable. See Cheshire & Fifoot, supra n. 2 at 254 – that one sees the contract “terminated ab initio as if it had never existed” and thus one must restore the parties to their position before formation of the contract in state quo ante which requires restitutio in integrum. In Jewish Law, too, it seems that rescission is retrospective. See Deutch, supra n. 53 at 211–212 and Warhaftig, S., Contract Laws in Jewish Law (Jerusalem, 1974) 104–113Google Scholar.
55 See Friedmann, , Unjust Enrichment, secs. 483, 499Google Scholar.
56 A similar distinction exists in English Law, see Cheshire & Fifoot, supra n. 2 at 254, in which it is explained that in a defect formation like misrepresentation the contract is void ab initio. On the other hand, rescission due to breach, only operates prospectively (ibid., at 535). In Jewish Law there seem to be two views on rescission due to breach. According to Rosh (Rabbi Asher) it seems that even rescission due to breach acts ex tunc, whereas Ran (Rabbi Nachman) views it as ex nunc. See S. Warhaftig, supra n. 54 at 369, 376.
57 One should clarify the fact that the rescission of a contract due to a defect in its formation does not in itself, give rise to a right to compensation from the Remedies Law, since there was no “breach” as meant by sec. 9 of the Remedies Law. This was held in Vapone v. Ogash (1982) 36 (ii) P.D. 215. And see G. Shalev, supra n. 46 at 448–449 and n. 29, and see also Friedmann, , Unjust Enrichment, sec. 499Google Scholar.
58 See Yadin, supra n. 1 at 67 (2nd ed.) and also Friedmann, , Unjust Enrichment, sec. 483Google Scholar.
59 See dicta of Barak J. in Calanit HaSharon v. Hurwitz, supra n. 45 and see also Yadin, supra n. 1 at 67 (2nd ed.) and also n. 2 ibid. Yadin brings examples of other conditions which may continue despite rescission, e.g. prohibition of competition, etc.
60 Retrospective rescission due to defect does not necessarily mean unavailability of damages for breach during the period before rescission. See G. Shalev, Defects in Formation of Contract, supra n. 14 at 172–173. One must differentiate between compensation for the actual damage in the period before rescission and liquidated compensation which arises from certain contractual provisions which continue to exist even after rescission due to breach. An interesting, if rare, question is what will happen to a provision for liquidated compensation in the case of defect in formation; e.g., that the misleading party will pay the misled party IS100,000. We feel that here one can see a special contract which is valid due to the agreement of the parties, and it thus has nothing in common with a provision for liquidated compensation. This provision should be viewed as an independent contract for payment of ISI00,000 whose existence is dependent on a suspensory condition—one of the parties being misled. Such a provision is rare, but not impossible.
61 See Friedmann, , Unjust Enrichment, sec. 484 and n. 5.Google Scholar
61a Tedeschi, G. has recently published an article “Business Secrets” (1983) 35 HaPraklit 5, at 20–22Google Scholar, in which he discussed the question of contractual v. extra-contractual rights in a breach of trust in keeping business secrets according to sec. 39 of the General Law. He expresses the view that contractual rights include both the actual contract and the statutory provisions applicable to the contract—a similar view appears infra.
62 See the discussion of these questions in Zeltner, supra n. 14 at 42–44, and see n. 88 infra.
63 Sale Law, 5728–1968 (22 L.S.I. 107) sec. 9.
64 Ibid., at sec. 10.
65 E.g., the sections dealing with performance of the contract in Chap. 5 of the General Law, sec. 42–early performances; sec. 45–medium performance, and other sections. Or see the duty to repair a thing hired in sec. 7 of the Hire and Loan Law, 5731–1971 (25 L.S.I. 152) or similar provisions in each of the Contract Laws.
65a On sec. 39 of the General Law see Yehoshua v. Yashar (1979) 33 (ii) P.D. 103, and on performance in a reasonable time see Sharf and Avni Investment and Building Co. Ltd. v. Hurwitz (1980) 34 (i) P.D. 410. See also infra n. 85.
66 Chap. 6 of the General Law, which deals with several debtors and creditors never once mentions the term “contract”. Would anyone imagine that the obligations included in it are contractual just because of the fact that these provisions are set down in the General Law?
66a Sec text at nn. 90–91.
67 See Restatement on Contract 2nd (1979) §211Google Scholar, and see the discussion of an earlier version of the section in Deutch, , Unfair Contracts: The Doctrine of Unconscionability (Lexington Books, 1977) 222–225Google Scholar. This view is also accepted in Israel today: see Levis v. Rubinstein (1979) 93 (ii) P.M. 510 which made valid a contract which was not only unread but also unreadable. See also the court's criticism.
68 The generally accepted view today is that the provisions of the Contract Laws are dispositive. In the specific Contract Laws (e.g., Sale, Gift, etc.) there are explicit provisions but it is also the accepted approach for the Remedies Law. See Ness v. Golda, supra n. 13 at 210. In that case, Barak J.'s dicta in Tarablous (n. 83 infra) was cited as if restitution is cogent, but no trace of this opinion can be located in the Tarablous decision.
69 E.g., date of performance, time etc.
69a In many cases these will be the details necessary for giving a memorandum binding legal force or the minimal details needed to fulfil the requirement of writing in sec. 8 of the Land Law. Many judgments have been given on the subject and many articles have been written on it. We will note only three out of the dozens of cases: Kapulsky v. Ganei Golan Ltd. (1974) 28 (ii) P.D. 291; Rabinai v. Man Shaked Co. (1979) 33 (ii) P.D. 281; Rubinstein & Co. v. Levis (1980) 34 (iv) P.D. 591. Similarly we will note only two of the articles published on the topic: Deutsch, M.. “Completion of Details of a Land Contract” (1979) 7 Iyunai Mishpat 240Google Scholar; Friedmann, D., “Sec. 8 of the Land Law: The Need for a Change in Attitude” (1980) 33 HaPraklit 4Google Scholar.
69b See the definition of a contractual stipulation in sec. 1 of the Standard Contracts Law, 5724–1964 (18 L.S.I. 57).
70 In sec. 483 of his book Unjust Enrichment, Friedmann suggests the adoption of the distinction between primary and secondary obligations which follows the leading case of Photo Production Ltd. v. Securicor Transport Ltd. [1980] 2 W.L.R. 283 (H.L.). Secondary obligations are ones such as arbitration provisions, liquidated damages and exemption clauses. This distinction gives validity to exemption clauses in a discharged contract and justifies compensation at the value of performance. The rescission ends only the primary obligations and the future ones, but does not end the secondary ones like restitution and compensation.
71 See Guri, supra n. 14 at 451, and see G. Shalev, supra n. 14 at 142.
72 Golan v. Farkash (1980) 34 (i) P.D. 813.
73 Ibid., at 821.
74 Ibid., at 823. See also Berman v. Yair (1981) 35 (i) P.D. 701, 709–710 on methods of employing considerations of justice in rescinding a contract for a non-fundamental breach.
75 Cf. Beersheba Public Transport Services v. National Labour Tribunal (1981) 35 (i) P.D. 828, 836 and see also Interdeko v. Marketing and Distribution Co. Ltd. (1982) 99 (ii) P.M. 31.
76 Yadin, supra n. 1 at 67 (2nd ed.).
77 Rescission has other results which are not dealt with in this article, e.g., the right to compensation without proof of damage according to sec. 11 (a) of the Remedies Law.
78 Sec. 2 of the Remedies Law states that upon breach the injured party is entitled to rescind the contract and he has a right to compensation either together with, or as an alternative to, this right. Upon termination, the right to restitution arises (sec. 9(a)).
79 As opposed to German Law which says that on rescission after breach one may no longer receive compensation for the positive interest which is prevented, and the only thing which may be obtained is restitution of the negative damage—see Encyclopedia, p. 55. This result is similar to termination on defect which gives rise only to restitution and negative compensation according to sec. 12(b) of the General Law.
80 See Cheshire & Fifoot, supra n. 2 at 534, the injured party may choose between compensation and restitution.
81 U.C.C. §2–711 (1), and see, generally, Encyclopedia, §63.
82 See Agaki v. Cohen (1976) 30 (ii) P.D. 64.
83 (1979) 33 (i) P.D. 199– hereinafter Tarablous.
84 Ibid., at 204.
85 Ibid., at 206–207. Asher J. explains that since the duty of restitution is fixed by statute, this obligation stems from the law. It appears that his dictum was not quite accurate, since obligations fixed by the General Law become part of the transaction unless the parties otherwise stipulate. See Beersheba Public Transport Services v. National Labour Tribunal, supra n. 75 at 836. A statutory obligation is one which does not stem from a contract, such as an obligation for maintenance or one in tort. See Tedeschi, G., The Law of Civil Wrongs (Magnes Press, 2nd ed., 1976) at 12–13Google Scholar and see supra n. 62.
86 Supra n. 45. Cohn J. did not explicitly disagree with Barak J. but brought other reasons for restitution, including linkage as well, ibid., at 536–538.
87 Ibid., at 541, based on Tarablous, supra n. 83.
88 Ibid., at 539. This view was adopted in Dor HaZahav Ltd. v. Lipkin (1982) 2 P.M. 298, 306.
89 Ibid., at 540–541, as opposed to Cohn J's view supra n. 83.
90 Friedmann, , Unjust Enrichment, secs. 46, 51, 52Google Scholar. In n. 128, Friedmann mentions Prof. Yadin's conflicting view. See also sec. 498 on the difference between the object of restitution and that of compensation.
91 Kretzmer, supra n. 40 at 151 also deals with the distinction between compensation and restitution. He points out the difference between restitution, which aims to restore the previous situation and compensation which comes to put the injured party into the position in which he would have been were the contract performed. See supra text at nn. 78–81 that there is no conflict between the two in Israeli law, and see also Friedmann, , Unjust Enrichment, sec. 499Google Scholar, n. 13 who sees no difference between them.
92 See G. Shalev, Defects in the Formation of Contract, supra n. 14, at sec. 305, n. 2. In her view, restitution is an extra-contractual obligation based on statutory law. Although in the text of the article she deals with restitution due to defect in formation, in the above footnote she clearly deals with breach, supporting Barak J.'s dicta.
93 Supra, text following n. 61.
94 Zeltner, supra n. 14 feels that without sec. 9(a) of the Remedies Law we would see the duty of restitution as extra-contractual, but after enactment of the section it became a contractual obligation, with implications on sureties, etc. This view is largely based on German Law (ibid., at 430–431). While we support this view, which is also the majority view in Tarablous (n. 83 supra), one must beware of basing oneself on German law in this question since there the breaching party's fault is a pre-condition to rescission, see Encyclopedia, §157. This requirement was abolished in Israeli law by the cancellation of the Ottoman Civil Procedure Law dealing with remedies. See the introduction to the proposed Contract (Remedies for Breach of Contract) Law, 5729–1969, H.H. 398 and sec. 23 of the Remedies Law.
94a German Law, too, sees restitution as a contractual right even if it is based on considerations of unjust enrichment. See Encyclopedia, end of §181.
94b See Gilmore, G., The Death of Contract (Ohio, 1974)Google Scholar.
94c See MacNiel, , “Whither Contracts” (1969) 21 J. of Leg. Ed. 403Google Scholar; Kaufman, , “The Resurrection of Contract”, (1977) 17 Washburn L.J. 38Google Scholar.
95 Yadin, supra n. 1 at 67 (2nd ed.) states that even after rescission, the results of the breach, restitution and compensation gain their nature according to the provisions of the contract. On pp. 87–88 he expands the explanation of the relationship between the rights to restitution and to damages. First, both are legal rights unbounded by discretion of courts, as opposed to specific performance or rescission for a non-fundamental breach. Secondly, neither is bound to a specific time limit until the period of limitation has expired. Thirdly, their value may be set off. Fourthly, the doctrine of reduction of damages may hold for both.
96 See supra chap. II, sec. B and especially n. 75.
97 While this argument has some weight it is not conclusive since the right to rescind after breach belongs to the injured party. One might be able to distinguish and say that the injured party's right to restitution is contractual but the breacher's right to restitution can only be extra-contractual since he has no right to rescind. However, from sec. 9 it appears that in restoring the asset or its value there is no distinction between the injured party's right and that of the breacher, and the advantage given to the injured party is his choice of receiving the asset or its value. Therefore, if we regard the injured party's right as contractual, we must view the breacher's right as contractual too.
98 See supra, text at nn. 51, 55–61.
99 The novelty in the view expressed by this section is in the distinction between breach and defect in formation, since there is general agreement that a defect in formation is an extra-contractual right. Zeltner and Yadin only express their opinion as to the nature of restitution following breach and do not discuss the nature of restitution following defect (see nn. 94 and 95, supra). Tarablous, too, only deals with restitution following breach. On the other hand, Friedmann and Shalev express the view that restitution following breach is an extra-legal right.
100 See supra, text at nn. 52–54, 57–60.
101 See supra, text between nn. 69–71.
102 It is clear that the remedy of damages in sec. 12(b) which compensates for lack of good faith in negotiations before the formation of the contract must not be regarded as a contractual right, but it is nevertheless written in the General Law.
102a 25 L.S.L. 32 and see Zeltner, Z., Law of Contract, General Part, vol. III (Avuka, 1970)Google Scholar who already raised this question considering the proposed Law. In his view, use also includes the enjoyment which the buyer gets from the asset, since rescission operates retrospectively. We support this result, but from other arguments.
103 See Kretzmer, supra n. 40 at 144–146 and Encyclopedia, supra n. 19 at 142–145.
104 See Cheshire and Fifoot, supra n. 2 at 534–536; Treitl, , The Law of Contract (5th ed., 1979) 640–642Google Scholar.
105 See Corbin on Contracts, vol. 5, §1107–1109, 1114–5Google Scholar; Williston, , A Treatise on the Law of Contracts, (3rd ed.) vol. XII, §1454–55Google Scholar.
106 German Civil Code, sec. 346.
107 Kretzmer, supra n. 40 at 147–153.
108 Yadin, supra n. 1 at 90 (2nd ed.) didn't change his view even after seeing Kretzmer's opinion: “let us not forget that we are talking of restitution, not damages nor unjust enrichment”.
109 Kretzmer, supra n. 40 at 148–151 examines three possibilities of restitution: 1) only the injured party received something and is obliged to restore; 2) only the breaching party received something and is obliged to restore; 3) both parties are obliged to restore. In all three cases he reaches the conclusion that value of use must also be restored.
110 Ibid., at 151–153.
111 In the past the attitude to this question was not so clear. In Kollitsky v. Guy (1977) 31 (ii) P.D. 707 the injured party was ordered to restore dollars he received in the transaction. Interest was limited to the date the action was entered and onwards. It is possible that restitution in dollars was seen as real restitution and a more convenient method of linkage than index-linkage. It is also possible that the very order of restitution from the injured party was a novelty and the court did not wish to expand it. Cf. K.B.A. v Ashdod Investment (1978) 32 (ii) P.D. 57, 62.
111a See Howard v. Miyara (1981) 35 (ii) P.D. 505 at 513 on the obligation of linked restitution, whether restitution is according to sec. 9 or sec. 21 (Shamgar J.). Ben-Porat J. reached the same conclusion on the grounds of “Illegality”—ibid., at 516.
112 Cf. Friedmann, Unjust Enrichment, supra n. 17 at secs. 504 and 506 and nn. 22, 27–28.
113 We feel that much weight must be given to the “independence” (from English law) clauses of the contract laws. Cf. Berkowitz v. Klimmer (1982) 36 (iv) P.D. 57 in which Barak J. held that analogy may be used even before the enactment of the Foundations of Law, because of the “independence” provisions in the contract laws.
114 See Berkowitz v Klimmer, that when termination is due to a suspensory condition, there will be no hesitation in compelling restitution for use since the contract is rescinded retrospectively. See also Friedmann, , Unjust Enrichment, sec. 505Google Scholar.
115 Supra n. 45.
116 Ibid., at 538.
117 Ibid., at 542.
118 Binyan v. Binyan (1980) 34 (ii) P.D. 541.
119 Alhanani v. Rafaeli (1981) 35 (i) P.D. 701.
120 This doctrine was employed in “Shilo” v. Kimchi (1979) 92 (i) P.M. 119, 124. There the court decided that following rescission due to extortion (sec. 18 of the General Law) money received must be returned, linked to the consumer price index. See also Sassy v. Kikaon (1982) 36 (i) P.D. 762, a similar case where moneys were calculated together with linkage (at 764).
121 Cited in supra n. 45 and see text at nn. 116, 117.
122 Calanit HaSharon, supra n. 45 at 543.
123 Ibid., at 538.
124 See also Friedmann, , Unjust Enrichment, sec. 516Google Scholar.
125 Ibid., at sec. 505.
126 Berkowitz v. Klimmer, supra n. 113.
127 I do not understand the need for the analogy to secs. 9 and 21 of the contract laws. A resolutory condition appears in sec. 27, and in the same chapter sec. 31 states that “(i) the provisions of …. sec. 21 shall apply mutatis mutandi to the avoidance of a contract under this chapter” (emphasis added). Thus sec. 21 should be applied to a resolutory condition directly.
128 Supra n. 113 at 67.
129 Ibid., at 68–69. The fact of the case were as follows: A mother gave a gift to her daughter to purchase an apartment, on condition she too would live there. After a certain period she had to leave and the question was whether she was entitled to money and if so whether she was obliged to restore the value of the use of the accommodation.
130 E.g., in a recent case, Berkowitz v. Klimmer, supra n. 113 at 67–68 per Barak J.
131 The leading cases are: Rabinai v. Man Shaked Co. Ltd. supra n. 69a; Ritberg v. Nissim (1980) 34 (iii) P.D. 314; Levi v. Itzkovitz (1981) 35 (ii) P.D. 636; Novitz v. Leibowitz (1982) 36 (i) P.D. 537; Shmueli v. Levit (1982) 36(ii) P.D. 45; Lalush v. Malamud (1982) 36 (iv) P.D. 387.
132 Gross, Y., “The Shock of Inflation: The Linkage of the Systeins of Obligations in Israel” (1980) 33 HaPraklit 53Google Scholar; Friedmann, D., “Revaluation, Damages and Considerations of Unjust Enrichment” (1981) 34 HaPraklit 88Google Scholar; Horek, M., “Revaluation of Price in a Contract” (1981) 8 Iyunei Mishpat 88Google Scholar.
133 One must distinguish between linkage as revaluation in specific performance and linkage as compensation for breach (as in e.g., Berman v. Yair, supra n. 74, in which the breacher was ordered to pay the sum linked because the money was not paid on time).
134 The main reason in Rabinai, supra n. 69a, and see also Gross, supra n. 132 at 70; Friedmann supra n. 132 at 92 and Horek, supra n. 132 at 126.
135 Friedmann, supra n. 132 at 92.
136 Ibid., at 94; see also Ben-Porat J. in Ritberg, supra n. 131.
137 See Rabinai, supra n. 69a—linkage from the contractual payment date onwards (28/1/72); in Ritberg, supra n. 131 at 332–333—interest only for the period after the contractual payment date. Similarly in Levi v. Itzkovitz, Novitz v. Leibowitz and the other cases cited supra n. 131. See also Friedmann, supra n. 132 at 90–91.
138 In Ritberg, supra n. 131, yearly interest of 30% was imposed as revaluation. Friedmann, supra n. 132 at 99 suggests 70% linkage as reasonable. Several judges followed this course in later cases. In Shmueli v. Levit, supra n. 131 at 56, IL80,0000 were revalued out of IL110,000—about 70%. In Lalush v Malamud, supra n. 131 at 392—linkage of 70% of the building price index. In other cases in which partial revaluation was ordered, particular note was taken of the circumstances of the case. In Levi v. Itzkovitz 30% interest monthly on most of the amount. See also Novitz v. Leibowitz, supra n. 131.
139 Elon J., in Ritberg, supra n. 131 at 333; Cohn J. in Levi v. Itzkovitz, supra n. 131 at 642; Barak J. in Novitz v. Leibowitz, supra n. 131 at 552; Netanyahu J. in Shmueli v. Levit, supra n. 131 at 56; Shilo J. in Lalush v. Malamud, supra n. 131 at 391–392.
140 In case of breach, compensation according to sec. 10 of the Remedies Law. In case of defect in formation, one will sometimes be able to sue for compensation according to sec. 12(b) of the General Law, and sometimes even for negligent misrepresentation.
141 See infra, chap. IV, sec. 5(b).
142 Supra n. 45.
143 Ibid., at 542.
144 K.B.A. v. Ashdod Investment, supra n. 111. For a different view see Alhanani v. Rafaeli, supra n. 119 in which Kahan J. explains that nominal restitution will be unreasonable and therefore the money returned should be linked. Cohn J. gave the same explanation in Calanit HaSharon.
145 See supra chap. III(A).
146 The same is true in the Sale (International Sale of Goods) Law 5731–1971 (25 L.S.I. 32, art. 81(1)). See Calanit HaSharon at 545.
147 Calanit HaSharon at 546.
148 Cf. Zeltner, supra n. 14 at 430, n. 63. He suggested the opposite view—that various dates should be fixed for the estimation of the value with the guiding principle being that the injured party will restore less.
149 Calanit HaSharon, at 546.
150 Ibid., at 547. Preferring the subjective test should have lead to the case being returned to the court of first instance for facts to be found. These rules were later adopted in Berkowitz v. Klimmer, supra n. 113.
151 Prof. Friedmann raised a similar question in Unjust Enrichment, sec. 75 and see sec. 76 and n. 42, ibid.
152 In Levi v. Itzkovitz, supra n. 131 at 644, Ben-Porat J. adds that it is difficult to preserve the real value of money in the short term. Short term investments are speculative and purchase of foreign currency involves a loss.
153 On the similarity between restitution and compensation see supra n. 95.
154 On the rigidity of the remedy of compensation see Yadin, supra n. 1, at 104 (2nd ed.).
155 Cf. Friedmann, , Unjust Enrichment, secs. 519, 520Google Scholar.
156 One can argue that this is not damage caused by the breacher. If this line of argument is accepted, then the injured party will not receive as compensation the difference between real restitution and the limited actual use. In this case it will be more advantageous to him to sue for compensation without termination and restitution, especially if the asset had been in his hands for a long time and no use had been made of it.
157 For a different approach, see Dobbs, , Remedies at 261–262Google Scholar. In his view objective or subjective restitution, according to the parties behaviour, should be ordered. This, however, is the American view which does not apply in this country. See similar considerations in American law where money was invested in a machine which, since it remained unfinished, was not worth a penny. Dobbs, ibid., at 265–269. We feel that the correct solution here would be an action for damages.
158 Obviously one must beware of double compensation. See also Dobbs, ibid., at 171–172.
159 Dobbs, ibid., at 223.
160 Friedmann, , Unjust Enrichment, secs. 389–399Google Scholar. See also sec. 498 which deals with additional possibilities whether own consideration or opposing consideration.
161 The approach that restitution is occasionally preferable to compensation is explained in § 63–64 of Encyclopedia, dealing with Anglo-American law.
162 In this case the labour and the costs involved in it will be part of the contractual transaction. But if there was an investment in land not as part of the contractual transaction one may be able to resort to the Unjust Enrichment Law. The asset will be restored to the opposing party under contractual restitution who will then have received a benefit from another person without any right to it, and he will have to restore it according to sec. 1 of the Law. Here it is possible that he will be ordered to restore the value of the labour and materials. This question exceeds the bounds of our discussion and was mentioned here to explain that contractual restitution is sometimes mixed with restitution based on unjust enrichment and therefore that restitution will be governed by the Law of Unjust Enrichment.
163 Of course, if the breach was not fundamental as defined by sec. 6, the court will have to weigh the disproportion between the actual expenses of the party entitled to restitution and the restitution he will receive. This will serve as one more consideration against giving permission to rescind for a non-fundamental breach as defined by sec. 7(b) of the Remedies Law.
164 I.e., the employment of the remedy in good faith and accepted manner as sec. 39 instructs regarding employment of any contractual right.
165 See the two volumes of Restatement on Restitution (1932).
166 Of the many works in this field we will mention Palmer, , The Law of Restitution (1978) vols. 1–4Google Scholar. For comparison, we preferred to use Dobbs, Remedies, since it is shorter and deals with all contractual remedies and not just restitution. See also Dobbs, , Remedies at 226Google Scholar criticizing both the plethora of details in this question and the lack of guidelines.
167 while there is no view explicitly in favour of accepting American ideas on restitution, in actual fact many of the questions and the varied solutions suggested in Friedmann's book Unjust Enrichment are American solutions, especially those dealing with the amount of restitution, secs. 389–399 and see ibid., nn. 5, 13, 18, 24 and 26 which explicitly cite the American law. Although these solutions are reasonable in unjust enrichment, we doubt if they are relevant in restitution in contract, due to the dissimilarity of the two systems.
168 A similar criticism of the attitude of the Supreme Court on the provision for Mistake in sec. 14 of the General Law. See Tedeschi, , “‘Subjective’ Mistake and Chance of Law” (1980) 1 Bar-Ilan Law Studies 58Google Scholar.
169 See sec. 157 in the Restatement on Restitution: “…to pay such additional amount as compensation for the use of the subject matter as will be just for both parties in view of the fault, if any, of either or both of them”. See also, Dobbs, , Remedies, 741–742Google Scholar.
170 As in the questions of mistake and postponement of performance (sees. 14(b), 43(b) of the General Law), specific performance and rescission (secs. 3(4), 7(b) of the Remedies Law).
171 See dictum of Barak J. in Hendels v. Kupat Am Bank (1981) 35 (ii) P.D. 785, that one may compare between legal systems only when they are based on “common basic assumptions”. See also Deutch, supra n. 20 at 30–32.
172 For example: 1) in American law, there is a distinction between the rates of restitution of the breacher and injured party (Restatement on Contracts (1932) § 357(i)) a distinction which is hard to find in Israeli law; 2) in Israeli law restitution only comes after rescission whereas in American law restitution is an independent remedy (Dobbs, , Remedies, 222, 793Google Scholar); 3) in American law a party may choose between compensation and restitution (Dobbs, ibid., at 791) and there is no strong connection between restitution and rescission (ibid., at 222, 791). According to the Remedies Law, restitution is a duty arising from rescission.
173 Sec. 23 of the Remedies Law cancelled secs. 106–111 of the Ottoman Civil Procedure Law. The sections which gave weight to the fault of the breacher in fixing the damages were sees. 109 and 110. For further explanation, see introduction to the proposed law of Contract (Remedies for Breach of Contract) Law, 5729–1969, H.H. 396.
174 Rescission for non-fundamental breach is possible only when rescission is just (sec. 7(b)). Specific performance is also dependent on not being unjust in the circumstances.
175 The different approach of the Israeli legislator regarding the place of guilt in fixing damages compared to the Ottoman approach, received attention in Encyclopedia, in the chapter dealing with contractual remedies—§79.
176 Cf. Mimoni v. Perlman (1982) 36 (ii) P.D. 314 in which the court held that linkage differentials in revaluation are not a prize for the action or behaviour of a party and they must thus not be withheld due to dislike or disapproval of the actions of a party or his position during the hearings.
177 Zeltner, supra n. 14 at 430.
178 Yadin, supra n. 1 at 72 (1st ed.).
179 Ibid., at 92 (2nd ed.).
180 Unjust Enrichment, sec. 517.
181 One may learn about the transfer of risk to the party who does not fulfil his obligations in the contract from other laws. See sec. 22 of the Sale Law, 5728–1968 and sec. 6 of the Contract for Services Law 5734–1974 (28 L.S.I. 115).
182 Margaliot v. Abarbanel (1975) 29 (ii) P.D. 652.
183 Ibid., at 659–660.
184 Friedmann, in Unjust Enrichment, sec. 517, n. 63 cites this case with approval, but doubts whether the duty of good faith will allow disregarding the interests of the entitled party in a period of galloping inflation.
185 Supra n. 131.
186 Ibid., at 335–336.
187 See chap. III B, supra.
188 Supra n. 131.
189 Supra n. 138 and accompanying text.
190 For a full discussion of these arguments see chap. III B, supra.
191 (1982) 36 (ii) P.D. 561.
192 The majority held that specific performance should not be ordered and therefore the question of revaluation did not arise.
193 Ibid., at 571.
194 Friedmann, supra n. 132 accepts the view of Ben-Porat J. that it is hard to order full revaluation when a party refuses to accept the money. One of his suggestions is to deposit the money in the court funds, a suggestion mentioned in the case by analogy to Court and Enforcement Rules (Return of Deposits and Fines) 5741–1981, K.T. 1240. See also Friedmann, , Unjust Enrichment, secs. 517, 518Google Scholar at n. 64A.
195 Cf. Zeltner, supra n. 14 at 233 who concludes that the fruits of the period of delay, e.g., interest on money, need not be handed over to the other party. However, see the explanation to sec. 45(b) in the Proposed Law of Contract (General Part) 5730–1970 from which it appears that if the obliged party continued to enjoy the asset or the moneys he will continue to be liable for payments. We will reach a similar conclusion from the principles of good faith and unjust enrichment.
196 See chap. IIIA, supra.
197 We are convinced that an analogy to the duty of minimized damage in sec. 14 of the Remedies Law will show the duty of making a reasonable effort to preserve the value of the money.
198 Chap. II, supra.
199 Chap. IIIB, supra.
200 See supra, text at n. 144.
201 As held in the following cases: Alhanani v. Rafaeli, supra, n. 119; Shilo v. Kimchi, supra n. 120; Berkowitz v. Klimmer, supra n. 126.
202 One must also remember that full linkage and legal interest are still less than any finance arranged through a bank.
203 See Dobbs, , Remedies 223Google Scholar and description of the case supra, text at nn. 159–161.
204 When a party to a contract is greatly “enriched” by use of an asset, and this is much greater than the market value, one should check whether this is enrichment from the asset or whether he achieved it himself, and is thus not a result of enrichment from another person's assets. For discussion and examples on this subject, see Friedmann, , Unjust Enrichment, sec. 390 onwardsGoogle Scholar.
205 See supra, text at nn. 164–176.
206 See supra, chap. IV, sec, 5.
207 Ibid.
208 Cf. Friedmann, , Unjust Enrichment, sec. 517Google Scholar.
209 See Beersheba Public Transport Services, supra n. 75 at 838.
210 E.g., known mistake, fraudulent misrepresentation, extortion, etc.
211 Supra, chap. IV, sec. 5 from n. 182 onwards.
212 Supra n. 131.
213 Supra n. 191. See also Adrai v. Gdalyahu (1982) 36 (iv) P.D. 281 at 287 that when a party has offered money and the other has refused “they can complain only of themselves. What's more, the balance of the payment has been deposited for a long time according to the Magistrate's Court order, and there was nothing to prevent the vendors from receiving this money instead of remaining steadfast in their refusal to perform the transaction.” One may also note that in actual fact, counsel for the buyers agreed to add payment of the linkage of the balance. See ibid., at 295.
214 Sec. 3 deals with the question of the deduction of the expenses of the restoring party. We have already explained that the expenses are part of the calculation of the subjective enrichment of the restoring party without having to turn to the Law of Unjust Enrichment.
215 Tedeschi, G., “Performance by a Third Party and Restitution” (1980) 10 Mishpatim 17, 35–37Google Scholar; Mazuz, M., “Circumstances under which Restitution is Unjust” (1980) 10 Mishpatim 487, 530–534Google Scholar; G. Shalev, supra, n. 14 at sec. 307.
216 Friedmann, , Unjust Enrichment, at 42–30Google Scholar.
217 Tedeschi, supra n. 215 at 35.
218 G. Shalev, supra n. 14, text at n. 10.
219 Mazuz, supra n. 215 at 530.
220 Ibid.
221 Ibid., at 532.
222 Ibid., at 532.
223 Ibid., at 533. He goes on to criticize the rigidity of restitution in sec. 21, see infra text at n. 239.
224 Friedmann, , Unjust Enrichment, sec. 38Google Scholar.
225 Ibid., at n. 87.
226 Ibid., at n. 89.
227 Ibid., at sec. 46.
228 Ibid., at sec. 47.
229 The same is true of sec. 3 of the Unjust Enrichment Law, ibid., at sec. 49. These arguments also appear in Friedmann's, article. “Foundations of the Law of Unjust Enrichment in Modern Israeli Legislation” (1981) 8 Iyunei Mishpat 22, 43–54Google Scholar and n. 103.
230 G. Shalev expresses the view that the Unjust Enrichment Law is not a contract law in “The State as a Party to a Uniform Contract” (1982) 12 Mishpatim 595, 603 in n. 40Google Scholar.
231 See a similar view in G. Shalev, Defects in the Formation of Contract, supra n. 14 in sec. 75 which rejected the suggestion that the frustration section would be the answer to common mistake for similar reasons.
232 The previous law held the same. See HaShachar Co. v. The Trust Company (Hevra LeNeemanut) (1966) 21 (ii) P.D. 61, 67 per Landau J.
233 A list of these situations in Friedmann, , Unjust Enrichment, sec. 521Google Scholar and his answers, secs. 522, 533.
234 Ibid., at sec. 391.
235 Supra chap. IV, secs. 2 and 3.
236 Supra chap. V.
237 Friedmann, , Unjust Enrichment, secs. 528, 529Google Scholar and see in detail Friedmann, D. and Zaltzman, N., “Market Overt and its Influence on Buyer-Seller Relationships” (1976) 5 Iyunei Mishpat 122, 130–134Google Scholar.
238 (1975) 29 (ii) P.D. 610. In the above article this rule is criticized and see in pages 135–136 a solution to this problem without having to turn to sec. 2 of the Unjust Enrichment Law which had, of course, not yet been enacted.
239 See Mazuz, supra n. 215 at 533.
