## Facts

- David Castro sought to buy an apartment in Israel and negotiated primarily with Joseph Panidar, a controlling officer of Panidar Investment, Development, and Building Co. Ltd.
- In 1974, Castro and Joseph executed a printed memorandum naming the company as seller; Castro paid the required sums to the company.
- The transaction failed because the land on which the apartment was to be built was not owned by the company, and this problem was not disclosed to Castro.
- The company later entered insolvency proceedings; a creditor composition provided unsecured creditors 15% recovery.
- Castro sued for restitution and damages; the District Court ruled for Castro and imposed joint and several liability on the company and Joseph personally.
- A prior Supreme Court panel affirmed, holding Joseph personally liable under § 12 of the Contracts (General Part) Law, 1973 for bad-faith negotiations despite not being the contracting party.
- Joseph sought a rehearing limited to whether a non-party corporate officer/agent can be personally liable for breach of § 12’s pre-contractual duty of good faith.

## Issues

1. Whether the duty to negotiate “in an accepted manner and in good faith” under § 12(a) applies only to eventual contracting parties or to any person who participates in negotiations, including an agent or corporate officer.
2. Whether a non-party negotiator who breaches § 12(a) may be personally liable in damages under § 12(b), and what measure of damages applies.

## Decision

- The Supreme Court of Israel (rehearing, expanded panel) upheld the earlier decision.
- The Court held that § 12(a) binds every person who takes part in negotiations, including agents and corporate organs, regardless of whether that person becomes a party to the final contract.
- A negotiator who breaches § 12(a) may be personally liable under § 12(b) for damages caused by the negotiations or the contract’s conclusion.
- On the facts, Joseph’s non-disclosure of the company’s inability to perform supported personal liability, jointly and severally with the company.
- The remedy confirmed was reliance-based (“negative interest”) damages attributable to Castro’s reliance on the negotiation and anticipated transaction.

## Legal Principles

- The applicability of § 12(a) turns on participation in negotiations, not on formal status as a contracting party.
- The pre-contractual duty of good faith arises at the negotiation stage and is not conditioned on the contract’s ultimate formation.
- Agents and corporate officers negotiating on behalf of a principal are personally bound by § 12(a) and may incur direct statutory liability for their own bad-faith conduct.
- Damages under § 12(b) are generally measured by reliance loss (“negative interest”), compensating the injured party for harm caused by reliance on the negotiations or the expected contract.
- Personal liability under § 12 for bad-faith negotiation is analytically distinct from corporate veil-piercing; it rests on the individual’s own statutory duty.

## Conclusion

The rehearing confirmed that pre-contractual good-faith duties apply to all negotiation participants, including corporate officers acting for a company, and that such individuals may be personally liable for reliance damages when their bad-faith conduct causes harm, even if only the company is the formal contracting party.


Panidar Inv., Dev. & Bldg. Co. v. Castro, D.N. 7/81, 37(4) P.D. 673 (Isr. 1983)