This article is general information, not legal advice. Every case is examined on its own facts, and every cause of action has its own limitation period.
Clause 7 of the agreement reads: "The supplier shall deliver the goods by 15 September." The goods arrived on 20 November. Clause 14 reads: "For any breach, the party in breach shall pay liquidated damages of 10% of the contract price." The day after delivery the buyer sent a WhatsApp message, three lines long, ending with "the agreement is cancelled". Those two clauses and that message are what our firm asks to see first, whichever side is calling. The Contracts (Remedies for Breach of Contract) Law, 5731-1970, sets out what is available to the party injured by a breach, and in the very same sections it sets out what the other side can argue.
Three remedies, and an order between them
The Law lists three remedies: enforcement, rescission and damages. The injured party may sue to enforce the contract or rescind it, and may claim damages in addition to either of those or instead of them. Enforcement is the rule, and it includes an order to pay a sum of money and an order to correct the consequences of the breach. The Law names four cases in which it is not granted: a contract that can no longer be performed, compelling someone to do or to accept personal work or a personal service, an order that would need an unreasonable degree of supervision by the court, and enforcement that is unjust in the circumstances. "Damage" under the Law includes lost profit. An employment contract has one difference: the Law applies only where the employment statutes contain no special provision on the matter, and a claim between employee and employer arising from the employment relationship is heard by the Regional Labour Court.
Fundamental or not: what decides whether a grace period is needed
The first distinction the Law draws is between a fundamental breach and a non-fundamental one. A fundamental breach is one that a reasonable person would not have entered into the contract had they foreseen the breach and its consequences, or one the parties agreed in the contract would count as fundamental. A clause that turns every breach into a fundamental one, without distinction, is valid only if it was reasonable when the contract was made. What moves the answer in the supplier example is what the goods were and what they were for. A two-month delay in delivering sukkahs for the festival, which were meant to be sold in September, looks different from a two-month delay in delivering shelving for a warehouse that stood empty in the meantime. A fundamental breach allows immediate rescission. A non-fundamental breach allows rescission only after the party in breach was given a grace period to perform and the contract was not performed within a reasonable time after it, and if rescission is unjust in the circumstances, it will not stand. That argument, that rescission was unjust, is open to the party in breach only if it objected to the rescission within a reasonable time after receiving the notice.
The notice, and what the contract says about how to deliver it
Rescission is done by notice from the injured party to the party in breach, within a reasonable time after the injured party learnt of the breach, and where a grace period was given, within a reasonable time after it expired. Notice is given in the way the parties set, and where they set none, by registered post or in another way customary in the circumstances. This is where the WhatsApp message comes back in. If the notices clause in the agreement says "by registered post to the address in the preamble", the other side will argue that no notice of rescission was ever given. If the entire correspondence, from the order to the delivery confirmation, ran through the same WhatsApp group, that argument weakens. An injured party who sent notice properly, and has grounds to assume it reached its destination in time, may rely on it even if it arrived late or never arrived at all. Once the contract is rescinded, each side returns to the other what it received under it, or its value.
A contract on which no notice of rescission was served goes on binding both parties, the injured one included.
Damages: what the party in breach foresaw, and what the injured party could have prevented
The injured party is entitled to damages for the loss caused by the breach that the party in breach foresaw, or ought to have foreseen, when the contract was made, as a probable result of the breach. The moment is signature, not breach. A customer lost because of the delay is a loss the supplier foresaw if, at the first meeting, it was told the goods were for a tender with a deadline, and a loss that is hard to attribute to it if it first heard of that customer in the statement of claim. The messages from before signature, the quotation, and what was written in the preamble to the agreement are the documents that decide this. There are also damages without proof of loss: where the contract was rescinded because of a breach of an obligation to supply goods or a service, the difference between the contract price and the value on the day of rescission, and where an obligation to pay money was breached, interest on the late payment. Against that, the party in breach owes no damages for loss the injured party could have prevented or reduced by reasonable means. Reasonable expenses the injured party incurred to reduce the loss are reimbursed, even if the loss was not reduced in the end. A buyer who waited two months without approaching an alternative supplier will be asked about it.
"Liquidated damages of 10%": what the court does with the clause
Liquidated damages are paid as agreed, without proof of loss. The court may reduce them if it finds they were set with no reasonable relation to the loss that could have been foreseen, when the contract was made, as a probable result of the breach. Reduction is an argument the party in breach raises, and the yardstick is the loss that could have been foreseen at signature. The clause does not lock the injured party in either: it may claim, instead of the liquidated sum, the loss it has proved, and any other remedy. An advance paid before the breach, which the parties agreed in advance would be forfeited, is treated as liquidated damages, and the same power of reduction applies to it.
On the other side of the message
Whoever received the notice of rescission stands on the same sections. The arguments that recur: the breach was not fundamental, no grace period was given, and so the rescission does not meet the conditions of the Law and the contract stands. Or: the breach resulted from circumstances the party in breach did not know of and had no reason to know of when the contract was made, could not have prevented, and performance in those circumstances is impossible or fundamentally different from what was agreed. Those conditions are cumulative, and all of them are tested against what was known at signature. And sometimes the reverse: a party that has made it known it will not perform, or where the circumstances show it cannot or will not, gives the other side the remedies before the date for performance has arrived. A message such as "we will not make September, we will update you" is read in court according to what was written after it.
Where the claim is heard, and what is checked first
A monetary claim for breach of contract, not concerning land, is heard by the Magistrates' Court when the amount on the day of filing does not exceed 2,500,000 new shekels, and by the District Court above that. An individual with a small claim may go to the Small Claims Court, up to a ceiling the Minister of Justice may update. At our firm the examination begins by laying three things side by side: the clause that was breached, with the date written in it. The notices clause. And the message that was sent, with the question of when it was sent and how. Sometimes it is already clear at that point that the breach was fundamental and the rescission was properly served. And in other circumstances, that the notice of rescission itself is the reason someone will be sued.