CONTRACT (Heb. חוֹזֶה, ḥozeh), in general law theory a legally binding agreement between two or more parties, in terms of which one party undertakes for the benefit of the other to perform or refrain from a certain act. As such, contract is the main source of the law of *obligations. The scriptural term closest to this meaning is the word berit ("covenant"), although it occurs mainly in the sense of a *covenant of love between man and his neighbor (I Sam. 18:3), or a perpetual covenant between the Almighty and man or the people of Israel (Gen. 9:9; 15:18; Ex. 31:16), as well as a covenant of peace between nations (Gen. 21:32; Judg. 2:2; II Sam. 5:4; Ezek. 30:5; Hos. 12:2). The word ḥozeh also occurs in Scripture, but not in any strict
The absence in Jewish law of a generic term for a concept paralleling that of contract in Roman law is apparently attributable to its preference for a concrete rather than abstract terminology (see *Codification of Law). The Jewish law principles of contract are to be gathered from the various laws of *sale, *lease, *gift, *loan, *suretyship, etc. and from the additional special laws accruing in the course of time.
Creation of Contractual Ties
In ancient Jewish law it was possible for contractual ties to be created in various symbolic ways, such as by "removing and handing over the shoe" (Ruth 4:7; see also TJ, Kid. 1:5, 60c) and by handshake (teki'at kaf, Prov. 6:1; 11:15; 17:18; 22:26; Job 17:3; see also Ezra 10: 19). The view of obligations as being of a concrete (ḥefzi) nature by giving the creditor a *lien over the debtor's assets (see Obligations, Law of) resulted in the fact that the modes of creating contractual obligations came to be the same as those for the creation of ownership rights in property (see Modes of *Acquisition). While Jewish law bases the conclusion of a contract on the gemirut ha-da'at (i.e., final intention or making up of the mind) of the parties to be bound, such intention may only be inferred from a formal and recognized kinyan ("mode of acquisition") executed by one of the parties. Hence, contrary to Roman law which allows for a contract to be concluded by the mere oral assent of the parties, Jewish law does not generally confer legal recognition on an obligation created merely orally (BM 94a; cf. Kid. 1:6; for exceptions to this rule, see below). Accordingly, the breach of a merely oral agreement involves "a breach of faith," carrying only moral sanction (BM 49a, opinion of R. Johanan, and Codes); and the obligation is not legally complete, even where the purchaser has paid the price but failed to observe the mode of acquisition proper to the transaction, and the sanction, if he should retract, is a "religious" one only: "He who punished the generation of the Flood and of the Dispersion will exact payment from one who does not stand by his word" (BM 4:2 and Codes). The reason for the existence of a religious or moral sanction in these circumstances is the underlying religio-moral duty of fulfilling a promise, i.e., an oral undertaking made without the execution of a formal kinyan (Ket. 86a; see also BM 9:7 and Pes. 91a).
Jewish law attaches a great deal of importance to the existence of consideration in the creation of contractual ties, and in this respect shows an interesting similarity to English law (see Gulak, Yesodei, 2 (1922), 40ff.). This requirement finds expression mainly in the fact that the contract is only concluded upon the actual passing of the consideration, such as the borrower's receipt of the loan money, or the performance of an act representing the receipt of the subject matter of the transaction by the purchaser, donee, hirer, or borrower. Even with regard to the creation of a bailment, which gives the bailee no right in the property itself or its fruits, it was laid down that an act of meshikhah (lit. "pulling," see Modes of *Acquisition) of the subject matter established the obligation (BM 99a; see *shomerim). Similarly, a contract of *partnership for profit-making purposes is concluded when each of the partners performs an act of receiving part of the subject matter of the partnership belonging to the other partners – whether in money or chattels (Ket. 10:4) – the rule being: "partners acquire one from the other a common interest in the partnership capital in the same manners that the purchaser acquires [from the seller]" (Maim. Yad, Sheluḥin, 4:1). In the same way, a contract for the hire of a laborer is concluded upon the laborer commencing his work, the work being the contractual consideration (Tosef. BM, 7:1; BM 76b). None of the obligations normally deriving from any of the above-mentioned transactions, such as payment of the price by the purchaser and the seller's responsibility for the subject matter, or payment of the bailment money by the bailor and the obligation of the bailee to take care of the bailment, etc., will be legally binding on any of the parties, except upon their execution of the act of kinyan offering some exchange of consideration.
A number of contractual obligations were originally capable of being established merely orally – these cases being explained on the basis of a "spiritual" consideration. Thus, in the case of a *dowry it was decided that the mutual promises of the parties achieved legal validity upon mere oral agreement ("matters concerning which kinyan is effected by a mere verbal arrangement," Ket. 102b); "owing to the pleasure in forming of a mutual family tie, they finally make up their minds to allow one another the full rights of kinyan." The distribution among the partners of partnership assets by lottery, even though effected orally only, was held to be legally binding for a similar reason (BB 106b). Similarly, the oral establishment of a suretyship obligation was justified because, "on account of the pleasure of being trusted [by the creditor, or court appointing him] he finally makes up his mind to undertake the obligation" (BB 173b, 176b).
The requirement of consideration for the creation of an obligation served to complicate the modes of formation of contractual ties, just as the need for real modes of acquisition complicated the manner of gaining a proprietary right. Beginning with the amoraic period, mention is made of "acquisition by the kerchief" (kinyan sudar) as a method both for the acquisition of a proprietary right and for the establishment of
Obligation by Admission (Hoda'ah) and by Deed
*Admission offered a further means for the creation of an obligation without consideration. Originally admission was an aspect of the procedural law: i.e., a man's admission that he was indebted to another or that a specified object of his belonged to another was enough to establish liability without any further proof, in terms of the rule that "the admission of a litigant is as the evidence of a hundred witnesses" (Kid. 65b). Accordingly, admission created no new obligation but merely confirmed an already existing one. Out of the procedural form of admission, Jewish law developed an admission of a substantive nature capable of creating a new obligation, so that the mere admission of liability for an obligation established its existence without further investigation, even if it was known not to have existed previously (Ket. 101b). In the opinion of most commentators, obligation stemming from admission may be created orally (before witnesses) without any need for a formal kinyan even if it is known by both parties and the witnesses that there was not any debt in existence (Maim. Yad, Mekhirah, 11:15; Sh. Ar., ḤM 40:1). The scholars found a basis for the existence of a unilateral obligation in a suretyship undertaking (see Ket. 101b; Yad and Sh. Ar., loc. cit.; and Siftei Kohen, ḤM 40:1, n.7). Admission, like a formal kinyan, served not only to establish an obligation but was also a method of alienation (hakna'ah) of property (BB 149a); in both events it was required that an oral formula be adopted, making clear the fact of an admission (keẓot ha-ḥoshen, ḤM 40:1). A written undertaking was also recognized by the majority of the commentators as a means of creating an obligation without consideration (Ket. 101b; BB 175b; Yad, Mekhirah 11:15; Sh. Ar., ḤM 40:1).
Obligations in Respect of Something Not Yet in Existence (Davar She-Lo Ba La-Olam)
The tenet of Jewish law that a person cannot transfer title of something not yet in existence or not in his possession (Sheeino bi-reshuto; see Modes of *Acquisition), severely inhibited the development of trade. This problem was already referred to in tannaitic times in the statement: "one who declares, 'whatever I shall inherit from my father is sold to you, whatever my trap shall ensnare is sold to you,' has said nothing" (Tosef., Ned. 6:7); if however he says: "'whatever I shall inherit from my father to-day, whatever my trap shall ensnare to-day,' his statements are binding" (ibid.). Although in both cases the subject matter of the transaction is not yet in existence, the rule in the latter case resulted from a rabbinical enactment aimed at providing the promisor with money for the burial of his dying father, or for his own sustenance on that day (BM 16a–b). Similarly, it may be inferred from the plain meaning of the statement: "whoever sells products to his neighbor believing them to be in his possession, and it is then found that they are not, the other [party] does not have to lose his right" (Tosef. BM 4:1) that the seller is still legally obliged to deliver products to the purchaser, as undertaken (see also TJ, Ter. 6:3, 44b, statement of Abbahu). However, this halakhah was interpreted by the Babylonian amoraim as referring to the tradition of the moral sanction, "He who punished…" (BM 4:2) and not to a legal obligation (BM 63b; see also S. Lieberman, Tosefot Rishonim, 2 (1938), 111–2 on the wording of the Tosefta statement and attitude of the rishonim to it; cf. also BB 69b and Rashbam, ad loc.).
In the amoraic period an exception had already been stipulated to this general rule – something not yet in existence could be charged in a creditor's favor, even though no one could alienate it or transfer title to it; and the debtor could charge in favor of a creditor property which the former might acquire in the future (BB 157a; see *Lien). Out of this proposition there developed, in relation to something not yet in existence, a basic and substantive distinction between proprietary right and a right of obligation. Thus Solomon b. Abraham Adret (Rashba) made clear that a person who undertakes to give his neighbor all that he might earn in the following 30 days and charges all his property (whether existing or to be acquired in the future) to the latter is legally obliged to fulfill his undertaking, since this is not a case of transferring title of something not yet in existence, such as the fruit of the palm-tree, but a personal undertaking to give whatever the palm-tree shall produce during a specified period in the future; and "so far as obligations are concerned… the question of something that is not yet in existence is of no moment… because of the responsibility of the person himself" (Resp., vol. 3, no. 65; Rashba found a basis for the distinction in a man's undertaking to provide maintenance for a certain period which is valid even if he lacks the means for it at the time of the undertaking: Ket. 101b). The halakhah was also decided to the effect that the rule concerning something not yet in existence applied to a disposition couched in the language of sale or gift. If, however, it was couched in the language of obligation (e.g., "be witness that I oblige myself to peloni ["so-and-so"] for such-and-such"), the obligation in question would be effective and binding (Tur. and Sh. Ar., ḤM 60:6), because "the obligation rests on his person and he is in existence" (Sma, ḤM 60:6, n. 18).
Substantive Change in the Nature of Contractual Obligation in Jewish Law
The distinction described above was a convenient way in which the contractual obligation could be used to meet the
This concept was developed further during the same period. A corollary of the "real-right" aspect of an obligation had been the legal conclusion that an undertaking could not be legally created unless the promisor owned property at that time, which would become charged in favor of the promisee. The statements of the amoraim concerning the extension of the lien to include assets which would be acquired subsequent to creation of the debt meant that the lien would take in such assets in addition to those owned by the promisor at the time the debt was created. Arising from this, the tosafists discussed the validity of the then current practice of a bridegroom's written undertaking in favor of his bride, "for a hundred pounds even though he does not have a penny," and they confirmed this practice for the reason that, "the subjection of his person established the debt forthwith" (R. Elijah, Tos. to Ket. 54b; Rosh, ibid.). The result was to shift the emphasis in a contractual obligation to the personal aspect of the undertaking – "even for something he is not liable for and even if he has no assets, since he binds and holds responsible his own person" (Beit Yosef, ḤM 60, no. 15). This doctrine was even more explicitly enunciated by Moses *Sofer in the 18th century (Ḥatam Sofer, nov. Ket. 54b). In this manner the contractual obligation underwent a substantial change, from being essentially real in nature to being essentially personal, with the property aspect subordinate to the personal.
The emphasis on the personal aspect brought in its train a series of additional halakhic rulings concerning contractual obligations. Thus, some of the posekim expressed the opinion that a person could validly give an undertaking in favor of someone not yet in existence – even though he was unable to transfer title in this manner – and hence it was decided, for example, that a stipulation in favor of a person yet unborn was binding "since the stipulator is at any rate in existence" (Yad Malakhi, Kelalei ha-Dinim, no. 127). Similarly, despite the rule that a person could not transfer title to an intangible thing, such as a right of usufruct or of occupation of a dwelling (Sh. Ar., ḤM 212:1 ff.), some posekim expressed the view that a person could validly give an undertaking of this nature (Resp. Naḥal Yiẓḥak, 60:3). The majority of the posekim were of the opinion that a person could validly give an undertaking in regard to an unspecified amount, such as maintenance, to extend even for a period of unspecified duration (Resp. Rashba, pt. 2, no. 89; Hassagot Rabad Mekhirah 11:16; Sh. Ar., ḤM 60:2; 207:21) and in the opinion of several posekim an undertaking could be given either to commit or to refrain from committing a certain act (Resp. Maharashdam, ḤM, no. 370; Resp. Maharsham, pt. 2, no. 18).
Developments in the Formation of Contractual Ties by Way of Custom
As has already been stated, it has been a general principle of Jewish law that mere oral assent is not sufficient to constitute the gemirat ha-da'at of the parties, which is a fundamental requirement for the validity of any transaction involving a proprietary right or contractual obligation and is complete only when expressed in one of the recognized modes of acquisition or accompanied by the existence of some "spiritual" consideration, except for certain exceptions laid down in talmudic law (as in the case where the parties are husband and wife or parent and child, BK 102b and Nov. Rashba, ad loc.; also in other special cases, Bekh. 18b and Tos.; see also Ḥazon Ish, BK no. 21:5).
By means of the legal source of custom (*minhag), Jewish law came to recognize a way of creating orally a legally valid transaction. According to talmudic law, the existence of a trading custom whereby a transaction was concluded by affixing a mark (sitomta) on a barrel of wine was sufficient to render the sale legally complete, despite the absence of a meshikhah – the recognized mode of acquiring movable property (BM 74a). This rule was justified on the grounds that "custom abrogates the law in all matter of mamon" (i.e., monetary matters or the civil law; see *minhag) and therefore "acquisition is made in all manners customary among the merchants" (Rashba, nov. BM, 74a). In the course of the time it was decided, in line with the above principle, that a transaction concluded by way of a handshake or the payment of earnest money (demei kadimah, Piskei Rosh BM 74a) or the delivery of the key to the place of storage of the goods, enjoyed full legal validity if based on a local mercantile custom (Sh. Ar., ḤM 201). From the 13th century on the question was discussed whether a transaction concluded merely orally on the strength of local custom could be afforded full legal validity. *Asher b. Jehiel was of the opinion (Resp. 12:3) that an analogy could be made with the law of sitomta only so far as a custom provided for the performance of some act, like those mentioned above; but mere words alone could not suffice to conclude a transaction. In his opinion a custom of this nature could not override the basic attitude of Jewish law in requiring active formal expression of the gemirat ha-da'at of the parties, and custom could only vary the essential nature of the formal act. An opposing opinion was expressed by *Meir b. Baruch of Rothenburg (and R. Jehiel, quoted in Mordekhai, Shab., sec. 472–3) to the effect that the very existence of a custom to conclude a transaction orally justified the assumption that complete gemirat ha-da'at could also result from the use of words alone. This view was accepted in most of the Codes and confirmed, inter alia, in relation to an undertaking to perform a mitzvah (e.g., at a circumcision ceremony: Resp. Radbaz, pt. 1, no. 278) and to formation of a partnership, it having been decided that,
Freedom of Stipulation
According to ancient halakhah, a condition stipulated by the parties that was contrary to the recognized provisions of the law was invalid: "any condition contrary to what is written in the Torah is void" (BM 7:11) – even in matters of civil law. For this reason a condition that the firstborn (see *Birthright) should not inherit a double portion or that a son should not inherit together with his brother was void (BB 126b and see *Succession; the explanation given for a distinction in regard to matters of succession does not accord with the plain meaning of the Mishnah). This was still the view of Simeon b. Gamaliel (Ket. 9:1) and R. Meir (Ket. 56a) around the middle of the second century. At this time R. Judah expressed the view that only in matters of ritual law (dinei issura; see *Mishpat Ivri) was it forbidden to contract out of the Pentateuchal law, such as a condition exempting a wife from the need to undergo a *levirate marriage on her husband's death. In matters of mamon, however, such as a wife's right to maintenance, a condition would be valid: "this is the rule: any condition contrary to what is written in the Torah is valid if relating to a matter of mamon; if relating to a matter other than mamon, it is void" (Tosef. Kid. 3:7–8, Ket. 56a). This view was also followed by the scholars who stated that the husband's right of succession could properly be varied by contract (Ket. 9:1) and that a bailee could stipulate for a different measure of liability than that provided for in the Torah (BM 7:10).
The amoraim developed the view that regarded matters of ritual law as being in the nature of jus cogens and therefore not subject to contrary stipulation; unlike matters of civil law, which were regarded as being in the nature of jus dispositivum (Ket. 83b–84a; BM 51a–b; TJ, Ket. 9:1, 32d; BB 8:5). The law was decided accordingly in the Codes (Yad, Ishut, 12:7–9; Shemittah, 9:10; Mekhirah, 13:3–4; Sh. Ar., EH 38:5, ḤM 67:9, 227:21). Hence the rule in Jewish law is that in matters falling within the purview of the civil law, the Torah itself prescribed no obligatory rules and therefore "a party may make a waiver [i.e., contract out] since the Torah does not require him to give an undertaking save of his own free will" (Nov. Ramban, BB 126b). A necessary requirement is that the condition be worded in the proper form; e.g., "on condition that you shall have no [complaint of] overreaching [ona'ah] against me" and not, "on condition that there shall not be any overreaching in the deal" (Mak. 3b, Rashi and Tos. ibid., and Codes.)
Matters excluded, as a matter of principle, from being the subject of a stipulation include an agreement to submit to bodily injury or the curtailment of personal liberty. Hence an agreement to cut off another party's hand or put out his eye, even though they might be causing him pain, is void (BK 8:7 and TJ, BK 8:11, 6c; but cf. Tosef. BK 9:32). This applied even in the case of an ordinary beating – concerning which the opinion was expressed that as it did not amount to serious bodily harm no compensation was payable in respect of it (BK 93a; Resp. Ribash, no. 484 and see below Illegal Contracts). Similarly, a condition that the creditor shall have the right to imprison the debtor on his failure to repay the debt is invalid, since the imprisonment of an indigent debtor for non-payment is an infringement of his personal liberty (see *Imprisonment for Debt). In this connection, the scholars disputed the validity of an agreement between husband and wife not to cohabit with one another: the opinion in the Jerusalem Talmud was in favor of it being upheld as valid (BM 7:10, 11c), and this was followed by some of the rishonim (see Oẓar ha-Ge'onim, 8 (1938), 167 (first pagination) and commentary of Rabbenu Hananel, ibid., 45); other rishonim, however (Rashi to Ket. 56a) and the posekim (Yad, Ishut, 6:9–10; Sh. Ar., EH 38:5; 69:6) held such a condition to be invalid since it was a tenai she-ba-guf (i.e., a condition involving bodily suffering).
The scholars further restricted the freedom of stipulation in matters where they saw the need for enforcement and preservation. Thus it was decided that a stipulation between husband and wife that she should forego her ketubbah is void (Ket. 57b and Sh. Ar., EH 69:6). Similarly, a stipulation of the parties that they shall submit to the jurisdiction of a gentile court even in monetary matters was held to be invalid, as it was regarded as tending to undermine Jewish judicial institutions (see Tur, Beit Yosef, and Sh. Ar., ḤM 26). The scholars also expressed different opinions on freedom of stipulation in certain fields of the law such as *suretyship and *succession (Yad, Nahalot 6:1; cf. the sources of Maimonides' statements, which are contradictory to the plain meaning of the talmudic statements, in Meiri to BB 126b). A stipulation contrary to good public order and morals is also void. On this ground Ḥayyim Jair *Bacharach decided that an agreement between local clothiers to refrain from suing each other on a complaint of unfair competition, trespass, etc., was void, since this could only lead to increased strife and disturbance of the public order (Ḥavvat Ya'ir, no. 163).
Different systems reflect a varying approach to the question of illegal contracts, such as one involving the commission of a criminal offense or one made for an illegal purpose. Some European legal systems hold such contracts to be null and void ab initio, whereas English law does not void them initially but prescribes that the courts shall not enforce them or grant the parties any relief, all in terms of the two Roman Law maxims: ex turpi causa non oritur actio and in pari delicto melior est pars possidentis.
Jewish law reveals a materially different approach. Although fulfillment of a contract is not prescribed if this should
This basic approach was also followed in Maimonides' ruling that: "if a person sells or gives on the Sabbath, and certainly on festivals, even though he should be flogged, his act is effective" (Yad, Mekhira 30:7); so too with regard to an obligation contracted on the Sabbath: "if anyone performs a kinyan on the Sabbath, the kinyan is valid and the writing and handing over take place after the Sabbath" (Yad ibid.; Sh. Ar., ḤM 195:11; 235:28). This was held to be the case even with regard to a kinyan involving the desecration of the Sabbath according to Pentateuchal law (BK 70b).
This approach of Jewish law to the question of a contract involving a transgression illustrates its capacity to distinguish between the "legal" and the "religious" aspects of the halakhah, notwithstanding their common source and it is precisely because of the material link between law and morals that Jewish law deprives the transgressor of those additional "benefits" which result from the invalidation of the civil aspects of the contract. For the same reason the court will not grant relief to a party whenever enforcement of a transaction will, in the prevailing social circumstances, amount to an encouragement of criminal conduct. Thus the court will not order the refund of money paid for the procurement of false testimony, if the witness should fail to testify falsely (Shevut Ya'akov, vol. 1, no. 145; see also Pitḥei Teshuvah, ḤM 32:2, n. 1). A similar decision was given by the Great Rabbinical Court in a matter involving the contravention of the currency regulations in Ereẓ Israel (OPD, 63).
Stipulations in Favor of a Third Party
Unlike some legal systems, Jewish law shows no hesitation in recognizing the validity of a stipulation in favor of a person who is not party to the contract, provided that it confers a benefit and does not impose an obligation on him. In tannaitic times this rule was expressed in the doctrine that: "a benefit may be conferred on a person in his absence, but an obligation cannot be imposed on him in his absence" (Git. 1:6; BM 12a; etc.). The phrase "in his absence" (she-lo be-fanav) has been interpreted in the sense of she-lo mi-da'ato (i.e., without his knowledge or consent, Rashi to BM 12a). When the stipulation comes to the knowledge of the third party, he has the option either to accept it – in which case he may demand fulfillment by the promisor – or to reject it, since "a person cannot be compelled to accept a gift" (Yad, Zekhiah, 4:2 and Maggid Mishneh; Tur and Sh. Ar., ḤM 243:1–2; 190:4 in Keẓot ha-Ḥoshen 2). See also Law of *Agency.
Each party to a contract must fulfill his obligations under the contract, from which he is exempt only in the event of ones ("inevitable accident or duress") and the court will generally oblige the parties to render specific performance of their contractual obligations. Hence, the sale of an object to someone other than the party to whom the vendor had previously undertaken, in a valid contract, to sell the same object at a determined price, will be set aside and the object given to the party with whom the undertaking was originally made (Av. Zar. 72a and Codes; Torat Emet, no. 133). If, however, the vendor has worded his undertaking thus: "If I sell, I shall sell to you at such and such a price," and later sells the same object to someone else at a higher price, the sale to the latter will be valid, since the vendor made his prior undertaking conditional on his desire to sell, and "he did not desire to sell, but sold only because of the increment given by the other, placing him in the position of one who sold under duress" (Yad, Mekhirah, 8:7; Resp. Maharik, no. 20).
In the opinion of some of the posekim, specific performance is not ordered unless the claimant is in possession of the object which the vendor undertook to sell to him (Rashba and author of the Ittur, quoted in Maggid Mishneh to Yad, Mekhirah 8:7). However, the majority opinion in the Codes is that specific performance is granted even if the claimant is not in possession of the subject matter of the contract (see Tur, ḤM 206 and Baḥ thereto, no. 1). The opinion was also expressed that both Rashba and the author of the Ittur were in favor of compelling specific performance, even if the subject matter of the undertaking was not in the claimant's possession, in the case of an undertaking worded in the terms: "I bind myself to sell the object to you" (Resp. Torat Emet, no. 133). Specific performance is not dependent on the prior payment of the purchase price and the contract must be executed even if the parties have entrusted other persons, or the court, with the determination of the purchase price (Av. Zar. 72a and Codes, ibid.).
Specific performance is not granted on contracts for personal service, such as a contract of employment, since compelling a person to work against his will involves an infringement of his personal liberty and a form of disguised slavery (BM 10a). This is even more so because of the general attitude of Jewish law that any engagement of a laborer, even of his own free will, is a form of restraint on personal liberty; thus the laborer has special rights for his protection (BM 10a; 77a; see also *Labor Law). Specific performance will be ordered, however, in the case of a contract of employment relating to a public service, if a breach of this would be harmful to the public. Thus, on the eve of a festival, if no other is available, a public bath-attendant, barber, or baker "may be restrained until he finds someone to replace him" (Tosef., BM 11:27; see also Resp. Maharam of Rothenburg, ed. Prague, no. 1016). Specific performance is accordingly recognized as a function of the law itself and not as a matter of equity, as in English law – from which Jewish law also differs in several other important respects on this subject.
Compensation and Penalty for Breach of Contract
Breach of contract renders the party in breach liable for the resulting damage, which, in talmudic times, generally included only compensation for the damage directly suffered by the other party and not for the loss of profit which, but for the breach, he would have earned. Since post-talmudic times, however, the tendency has been to extend liability in certain circumstances to cover also the loss of anticipated profits. Liability of this kind – i.e., consequential damages – is based on a category of damage known as garmi (see *Gerama), or stems from an implied condition imputing an agreement between the parties to be liable to each other for the loss of profits in the event of either of them breaking the contract (see e.g., the statements of R. Jeroham, quoted in Tur, ḤM 176; Beit Yosef, ibid., no. 21; ḤM 176:14). In order to bolster the effectiveness of contractual obligations, the practice was adopted from tannaitic times of specifying in the contract a fixed amount to be payable on breach of the contract by one of the parties (see e.g. Ned. 27b; BB 10:5). The question arose, however, whether such an undertaking was not to be regarded as defective on the grounds of *asmakhta (an undertaking to forfeit an asset upon nonfulfillment of a condition). Since the founding basis of a contract in Jewish law is the gemirat ha-da'at of the parties to be bound, the scholars debated the validity of the additional undertaking to pay a fixed amount by way of a penalty, which they regarded as having been given solely on the strength of a "confident reliance" by the promisor on his ability to fulfill the principal contractual obligation, without his contemplating the possibility of having to fulfill the penalty obligation (BB 168a). The question was decided to the effect that in certain circumstances such an undertaking would be void for reasons of asmakhta, primarily if it appeared that the amount stipulated was exaggerated and beyond any reasonable estimate of the damage suffered by the other party and this would imply the lack of any serious intention by the promisor (BM 104b and Codes.)
The development of commercial life spurred on the search for a way of overcoming the invalidating effect of asmakhta on contractual stipulations. In talmudic times it had been decided that an undertaking effected by way of a formal kinyan before a court of standing excluded it from the operation of the law of asmakhta since in this manner the undertaking made with a complete gemirat ha-da'at would be clear (Ned. 27b and Codes). In the post-talmudic period the process of avoiding the invalidating effect of asmakhta on a penalty-undertaking was furthered by the enactment of a takkanah by the scholars of Spain. Thus the parties might undertake to pay each other, unconditionally, an amount specified in advance, each agreeing in advance to release the other from this undertaking in the event of the fulfillment of the principal obligation under the contract. Since, in terms of the takkanah, the undertaking to pay the amount fixed in advance is an unconditional one, it is valid and unaffected by the effect of asmakhta (Yad, Mekhirah 11:18; Tur and Sh. Ar., ḤM 207:16). Another way that was found to avoid the effect of asmakhta was by strengthening the penalty-undertaking with a vow, oath, or ban (Sh. Ar., ḤM 207:19). It was also decided that the law of asmakhta did not apply to certain obligations, such as an undertaking to pay a penalty for breach of a marriage promise (*betrothal) or for breach of contract by a teacher without his finding a replacement, these being valid undertakings.
In the State of Israel
In Israel the law of contract is based on various different sources – Ottoman and Mandatory law, as well as legislation after the foundation of the state. English Common Law and Equity represents an important source of the law of contract in Israel in all cases where the existing law provides no answer to the problems that arise (i.e., lacunae; cf. 46, Palestine Order in Council, 1922–1947). Various directions in the law of contract have been included in a number of laws of the Knesset, among them Contracts (Remedies for Breach of Contract), 1970; Hire and Loan Law, 1971; Contracts (General Part) Law, 1973; Contract for Services Law, 1974; and Insurance Contract Law, 1981.
A proposition has recently been put forth (see Bibliography, B. Lifshitz) that during the mishnaic and talmudic periods, and up to and including Maimonides, there was no recognition by Jewish Law of the binding nature of a promise. Contractual obligations, as currently understood, were not accorded legal effect. This indeed was the subject of a dispute between R. Yose and R. Judah, which the Talmud explains as being based on the question whether *asmakhta is binding. (BM, 61a, BB 168a). The term asmakhta signifies reliance or support. The Hebrew equivalent of this Aramaic term is devarim (BM 47a–48a, BB 3a). Until the time of Maimonides (Mishneh Torah, Mekhirah, ch.11), the explanation for denying legal effect to promises was the subject of dispute: Was
In any case, according to the basic view of R. Judah as elucidated by the geonim, a transaction can be made binding only by giving it a contemporaneous effect, or assigning it a property character, or establishing a particular status for the obligor, such as borrower, bailee, debtor, employee, guarantor, etc, which would produce the result of a binding obligation. But there was no way to enforce a promise to perform an act in the future, simply as a promise, such as a promise to marry.
According to this approach, the creation of such a status is expressed in the formula, "He has concluded to bind his person" (gamar – 'meshabed nafshei, BB 173, etc.). In this way, the promise is comparable to an act of acquisition – kinyan – which attaches to the obligation and takes effect contemporaneously. "From the present time" thus becomes a key phrase in making a promise binding. It should be pointed out in this connection that establishing an obligation under Jewish Law is thus a unilateral act and not a bilateral undertaking, as in modern contract law.
The Jewish Law on illegal contracts was elucidated and applied in the case of Jacobs v. Kartoz, 9 PD 401 (1955) in an opinion by Justice Silberg of the Israeli Supreme Court.
The plaintiff was a landlord who sued to evict a tenant on the ground that the lease of the apartment violated an important government regulation governing the amount of rent to be paid. Justice Silberg concluded that under the principles of Jewish Law, the claim of the landlord should be rejected.
This result is reached even though the tenant is essentially arguing that an illegal contract should be upheld. Jewish Law however distinguishes between the prohibition involved and the legal consequences of the transaction; the transaction is valid as long as it can be carried out in a permissible manner. For example, a sale effected in violation of a prohibition of the price to be paid is nevertheless valid, and the permitted price is to be paid.
As stated by Justice Silberg:
Howard v. Miarah., 35 (2) PD 505 (1980) involved a contract for the sale of land. At the request of the seller, the price stated was lower than the actual price, with the difference paid in cash. Upon discovering that part of the land had been expropriated by the municipality prior to the signing of the contract, the buyer requested a reduction in the price. When this was refused, the buyer stopped payments. The seller, claiming a material breach, rescinded the contract. The buyer thereupon sued for restitution of all sums paid.
The defendant seller argued that a transaction in which the true price is hidden is an illegal contract and the court should not hear a claim based on such a contract, both parties being in pari delicto. Justice Elon, however, found that under Jewish Law, the plaintiff buyer was entitled to restitution of the money paid.
The applicable principles of Jewish Law are that an illegal contract is generally valid as a matter of civil law; the parties should be held to their contractual obligations to the fullest extent permitted, and a wrongdoer should not be rewarded.
Comparing English Law to Jewish Law, Justice Elon stated:
A decision by the Rabbinical Court of Appeals illustrates the view of Jewish Law that when it appears in a particular situation that giving effect to a transaction would serve to encourage the commission of an illegal act, the court should not lend its assistance to the enforcement of the contract.
In the case of A V. B (Warhaftig, Ossef Piskei Din, p.63, 1945) A sued B for a sum of money, alleging that A was entitled to the money as a result of the purchase of foreign currency, which B bought on A's behalf. At that time, trading in foreign currency was prohibited. The court held that since the claim was based on a transaction that violated a fundamental law of the state, the court should not entertain the action.
The Principle of Good Faith (Tom Lev)
Roth v. Yeshufeh (Construction) Ltd, 33 (1) PD (1979) was an action for damages for breach of contract. The claim was based on the failure of the defendant to transfer an apartment within the time period fixed in the contract. The apartment had been transferred to the plaintiff six months late.
The defense to the claim was based on a clause in the contract that provided that the purchaser's acceptance of possession shall serve as conclusive and final proof of the fulfillment of the seller's obligations under the contract. On the basis of this clause, the lower court rejected the claim.
On appeal to the Supreme Court, the decision was reversed and the case was remanded to the lower court.
The majority opinion was greatly influenced by the principles of Jewish Law. Israeli contract law provides that "a contractual obligation shall be performed and a right arising out of a contract shall be exercised in good faith" (tom lev). The opinion of Justice Elon examined the meaning of the term
In his opinion he explained:
Among the Jewish Law sources cited were the following:
1. Mekhilta (Be-Shallah, Tractate De-Va-Yassah, sec. 1 Horowitz-Rabin ed., p.158): "If one is honest in his business dealings … it is accounted to him as though he had fulfilled the entire Torah."
2. Shabbat 31a: "Rava said, When a man is brought in [before the Heavenly Court] for judgment, they ask him: 'Were you honest in your business dealings.'"
3. Deuteronomy 6:18: "Do what is right and good."
4. Nahmanides, Commentary on Leviticus, 19:2: One who obeys only the technical and formal sense of the law is a "scoundrel within the bounds of the Torah (naval bi-reshut ha-Torah)." The Torah states, "Do what is right and good" to establish an affirmative commandment to behave with uprightness and fairness.
The lower court was directed to determine whether the defendant acted in good faith, and if not, whether the conduct was sufficiently egregious to have legal consequences.
In the case of Laserson v. Shikkun Ovedim Ltd. 38 (2) PD 237 (1984) Justice Elon established that there are limits to the application of the principle of "good faith."
The issue in the case was whether the defendant was obligated to install a generator in the building it had constructed, which was necessary to operate the elevator in an emergency. The contract required the building of a chamber for a generator but it did not mention the generator itself. The question arose whether the obligation to perform the contract in good faith meant that the generator also had to be supplied.
In his opinion, Justice Elon pointed to the inherent problem in applying the principle of "good faith" – the tension between stability and flexibility in business transactions, and between predictability and uncertainty in the law. Thus in applying the command "Do what is right and good" great caution is required.
The conclusion reached was that for "proper and reasonable legal policy" the "good faith" principle should not be used to create new legal obligations which the parties did not contemplate and did not include in their contract. The principle should govern only the fulfillment of the obligations that were agreed upon.
In applying the command "do what is right and good" Jewish Law established some duties as legal obligations, and other duties as ethical precepts.
The rationale for refraining from categorizing all duties the performance of which may be considered to be "right and good" as legal obligations is given in the opinion as follows:
In this case, the lower court should determine whether in view of all of the circumstances, the contract could be interpreted as itself containing an implied agreement that the defendant should install the generator.
In regard to the basic principle of "good faith" in Jewish Law, the opinion quotes the characterization of "good faith" given by Professor R. Powell, who refers to the Hebrew terminology (Powell, Good Faith in Contracts, 9, Current Legal Problems, 16 (1956), 37–38):
INTERPRETATION OF DOCUMENTS
Various rules of Jewish Law govern the interpretation of contracts and other legal instruments. For example: The later part of a contract controls situations in which there is an inconsistency between an earlier and a later clause, which cannot be reconciled. It is presumed that the earlier statement was reconsidered and the later clause states the final intention.
Another rule is that if there is a doubt as to the meaning of a clause in a contract, the doubt will be resolved in favor the obligor. For an obligee to succeed, his claim must be free from doubt. However, this rule is applied only when the result will not destroy the essential validity of the instrument.
This rule was applied in the case of Alperovitz v. Mizrahi, 34 (4) PD 129 (1980), which involved an agreement for the purchase of an apartment. A memorandum of purchase fixed the price. It was accompanied by an initial payment and was to be followed by five additional payments. Possession was to be transferred at the time of the final payment.
The purchaser's contention that the memorandum implied that a detailed contract was to be executed was accepted by the court. The question that remained was when the further contract was to be made. Clearly this would not be at the end of all of the payments. But prior to which of the payments did the parties intend that the contract be executed?
The rule that doubtful questions are to be decided in favor of the obligor supported the conclusion that the contract was to be executed before any of the additional payments. Additionally, there was no logical basis for choosing the time of any one of the payments over the others.
The opinion by Justice Elon cited a responsum of R. Asher b. Jehiel (Resp. Asheri #68:14; beginning of the 14th century). A obligated himself to pay a sum of money to B "after Passover." The question was: which Passover does this refer to – the next succeeding Passover or the last Passover in the history of the world? There was no logical basis for choosing any Passover in between. In this instance, R. Asher b. Jehiel did not apply the rule that ambiguities should be resolved in favor of the obligor, because to do so would completely nullify the agreement.
The twelfth of the thirteen canons of (biblical) interpretation of R. Ishmael is that "an ambiguous word or passage is explained from its context or from a subsequent expression." This principle was the basis for the decision in Katan v. Municipality of Holon, 32 (1) PD 494, 1978.
The municipality sent out an invitation to a group of contractors to bid for a job. The invitation stated: "To validate the bid, the contractor shall provide a bank guarantee… for a period of sixteen months." An unsuccessful bidder claimed that the successful bidder did not provide the guarantee at the time it submitted its bid. The latter argued that the guarantee was not required to be submitted until the contract was awarded.
The court, in an opinion by Justice Elon, cited R. Ishmael's canon of interpretation, and held that in view of the context of the document and the surrounding circumstances, the successful bidder was correct. The duration of the work was set as sixteen months from the time of acceptance. The sixteen months of the bank guarantee was meant to cover the time during which the work was to be performed. The guarantee was thus to be submitted when the contract was awarded, not when the bid was submitted.
In addition, the submission of a guarantee is necessary to assure a degree of seriousness on the part of the bidder. In this case, the invitation to bid was not sent to the public as a whole, but to a limited number of contractors. It was therefore not necessary to assure the seriousness of their bids by requiring a guarantee at the time of the submission of the bids.
[Bernard Auerbach (2nd ed.)]
M. Bloch, Der Vertrag nach mosaisch talmudischem Rechte (1893); Gulak, Yesodei, 2 (1922), 10–12, 31–82, 147–200; idem, Toledot ha-Mishpat be-Yisrael, 1 (1939), 15ff.; Herzog, Instit, 2 (1939), 19ff.; A. Shaky, in: Sugyot Nivḥarot be-Mishpat (1958), 470–508; B.-Z. Schereschewsky, Kenas ve-Piẓẓuyim Ekev Hafarat Ḥozim Lefi Dinei Yisrael (1950), 3–12; ET, 7 (1956), 138–49; 11 (1965), 245–59; B. Rabinovitz-Teomim, Ḥukkat Mishpat (1957), 2–4, 247–56, 269–73; M. Silberg, Kakh Darko shel Talmud (1961), 82–88; M. Elon, Ḥerut ha-Perat be-Darkhei Geviyyat Ḥov ha-Mishpat ha-Ivri (1964), 68ff.; idem, in: ILR, 4 (1969), 96–98; H.E. Baker, Legal System of Israel (1968), 101–9; Elon, Mafte'ah, 67–72; I.S. Zuri, Mishpat ha-Talmud, 5 (1921). ADD. BIBLIOGRAPHY: M. Elon, Jewish Law (1994), 96–99, 128–30, 183–89, 422–43, 1603–4, 1916–20, 1936; idem, Jewish Law, Cases and Materials (1999), 99–144; B. Lifshitz, Promise and Acquisition in Jewish Law (1998); idem, Employee and Independent Contractor – Acquisition and Obligation in Contrast (1993); idem, Law and Action, Terminology of Obligation and Acquisition in Jewish Law (2001); I. Warhaftig, Undertaking in Jewish Law (2001).
Source: Encyclopaedia Judaica. © 2008 The Gale Group. All Rights Reserved.