A main contractor signed a "three-party order" with a cladding installer and a panel supplier, then withheld payment from both. The court held that each was liable only for its own part, and that the handwritten changes they added bound the contractor.
What happened
In early 2021 a main contractor won two tenders to renovate and clad shopping centers in Ashdod and Rishon LeZion. It signed a single agreement, called a "three-party order", with two companies: a supplier of substructure and cladding panels, and an installer. Each had its own rate and payment terms.
The contractor drafted the agreement and sent it for signature. Both companies added several handwritten changes, signed and returned it. The contractor never signed, but it did not object either: it ordered materials and work and paid part of the invoices.
A dispute then arose. The contractor argued it only had to pay for materials already installed, not for everything delivered. It withheld payments and cancelled a cheque. The supplier stopped deliveries until the debt was settled, and the installer left one of the sites after its payment demands went unanswered. Both companies sued for the balance, and the contractor counterclaimed about ILS 1.3 million for the cost of finishing the work with others.
The key argument: "a single package"
The contractor argued that the three-party agreement made the two companies jointly and severally liable, so that a breach by one deprived the other of its right to payment. In its view, it had bought "a complete cladding system", not separate components.
The court rejected this. The agreement contains no joint-liability clause, and its definitions, rates and payment terms clearly distinguish the supplier from the installer. The contractor's deputy CEO testified that he did not include such a clause because he had no legal advice. The court held that this does not allow it to read into the contract a term that is not there, and noted that the contractor's reading led to an absurd result: a supplier that delivered everything on time would go unpaid because the installer was late, and vice versa.
Handwritten changes: silence and performance mean acceptance
Under Israeli contract law, an acceptance that changes the offer is a new offer. By receiving the amended contracts without objection and then ordering and paying under them, the contractor accepted the new offer by conduct. Among other things, this brought into force:
- payment for substructure and panels on delivery, not on installation;
- the right to replace the installer only for a reason attributable to it, after giving it reasonable time to fix;
- completion deadlines subject to site readiness and receipt of materials and plans.
The court also gave weight to the contractor's failure to call its finance director, who was involved at every stage. Under case law, not calling a central witness raises a presumption that the testimony would have supported the other side.
The duty of good faith
The evidence showed that as early as May and June 2021 the contractor was negotiating with alternative suppliers while presenting itself to the supplier as seeking a settlement in order to continue. The court found this a breach of the duty to perform a contract in good faith. Once the contractor made clear it would not pay in full, the supplier was entitled to suspend deliveries, and the contractor cannot claim the supplier was in breach.
Toward the installer, too, the contractor was in breach: the agreement required a cheque within 15 days of each monthly invoice, yet payments piled up and were made late. The installer sent a warning letter and gave extra time, so stopping work was lawful.
The outcome
The contractor's counterclaim was dismissed. It must pay the installer about ILS 666,000 (about ILS 886,000 with interest) and the supplier about ILS 190,000 (about ILS 249,000 with interest), plus court fees and legal costs of ILS 150,000 and ILS 50,000 respectively. This is a first-instance judgment and may be appealed.
Key takeaways
- Want two contractors to answer for each other? Say so expressly in the contract. A court will not add a clause that was never written.
- Received a signed contract with handwritten amendments? If you disagree, say so in writing before work begins. Silence and performance can count as acceptance.
- Withholding payment as leverage while quietly negotiating with another supplier may be found to be bad faith and turn the case around.
- In litigation, call the person who actually managed the relationship. Leaving them out can count against you.
This article summarizes a published Israeli court decision in plain language and is not legal advice. Every case depends on its facts. The parties' names have been omitted. This is a first-instance decision and may be appealed.
