Liquidated Damage Clauses and the Law of Asmachta

Professor Chaim Saiman

Enforcing Liquidated Damage Clauses: A Case Study in Real Estate Contracts and the Jewish Law of Asmachta

Introduction

Contemporary real estate transactions often include liquidated damages clauses stating that a specific amount held in escrow will be forfeited by the buyer in the event of breach. When this amount reflects 10% or less of the purchase price, such provisions are routinely enforced in American courts. Nevertheless, the principle of asmachta renders their enforceability under halakhah less straightforward.

This article examines the halakhic status of liquidated damage clauses by analyzing facts drawn from a recent case decided by the Beth Din of America. The article has two main goals. First, it provides a framework for identifying the conditions under which liquidated damage provisions should be enforced under Jewish law. Second, it demonstrates the Beth Din’s policy that when parties explicitly or implicitly adopt commercial practices established in the marketplace, the Beth Din employs these practices as the rules of decision “to the fullest extent permitted by Jewish Law.”^[1]

I. Background & Facts

Mr. & Mrs. Schwartz (Sellers) put their Long Island home on the market for $2 million. They entered into a contract with Mr. & Mrs. Weiss (Buyers) using a pre-printed contract form approved by New York Realtors Association and New York Bar. The purchase price was listed at $2,000,000, showing $160,000 (8%) as the amount paid into escrow as a down payment. The escrow arrangement was governed by the contract, which outlined the escrow agent’s responsibilities, including the handling and disbursement of funds in accordance with the agreement and applicable law.

While the pre-printed form included several financing options, the parties specifically hand-marked the “no financing contingency” option in the contract. This means that Buyers’ obligation to purchase the house was thus not contingent on obtaining a mortgage, financing, or the sale of their existing home. All risks associated with securing the purchase funds were allocated to the Buyers.

In the event of Buyers’ default, Sellers’ remedy was to retain the $160,000 escrow deposit as liquidated damages. Per the language of the contract, “If Buyer fails, neglects, or refuses to perform Buyer’s obligations under this Contract within the times specified, Seller may elect to recover and retain the Deposit as agreed upon liquidated damages, consideration for execution of this Contract, and in full settlement of any claims, whereupon Buyer and Seller shall be relieved from all further obligations under this Contract.” From a contractual perspective, this amount reflected both the floor and the ceiling of Sellers’ remedy in the event of Buyers’ breach.

The contract also contained a dispute resolution clause noting that the parties must first attempt to resolve their disputes through mediation prior to taking any legal action. Litigation or arbitration was only permitted if mediation efforts failed. While the form was supplied by the New York Bar and Realtor’s Association, the contract did not contain a choice of law clause.

As per the contract, buyers initially placed $160,000 in escrow. When they applied for a loan, however, the escrow agent realized that the paperwork did not conform with the source of funding regulations required for mortgage loans. The agent returned the initial escrow deposit to Buyers with instructions that they re-deposit funds in a manner that complied with the relevant regulations.^[2] Buyers, however, got cold feet and never re-deposited the funds. The agent accused Buyers of “hav[ing] defrauded all parties involved by not replacing the $160,000 deposit as you promised to do in order to comply with the lender’s request.” The money was nevertheless not re-escrowed and Buyers never closed on the home purchase. At the time the Beth Din heard the case and issued its psak, the house remained in the hands of Sellers.

Buyers’ primary argument at the din Torah was that notwithstanding the contractual language, all parties understood that the money to fund the transactions would come from Buyers selling two homes they owned in Florida. Buyers contend these facts were clearly known to all parties— a claim that Sellers vigorously denied. Moreover, since the parties knew each other through their local shul community, Buyers argued their interactions should be assessed through their mutual understandings rather than the formalities of the legal documents. Sellers rejected this idea, citing the contract and noting that the “no financing contingency” was discussed and hand-checked by the parties prior to the contract being executed. They further alleged that having the escrowed funds deposited and subject to the written terms of the agreement was an essential condition to executing the contract. The Beth Din largely agreed with Sellers’ position.

Buyers’ second argument merited more attention. They claimed that the liquidated damages clause set forth in the contract is an asmachta and for this reason is not halakhically binding.

II. Asmachta & Liquidated Damages Clauses

The rules governing asmachta are complex and difficult to reconcile.^[3] The Gemara itself explains “there are times when [an asmachta] is binding and there are times when it is not binding.”^[4] Reflecting the divergence found amongst the Geonim and Rishonim on the topic, Rashba notes, no account “charts a path free from difficulty.”^[5]

In the context of damages for breach of contract, asmachta describes a case where a party agrees to pay a stipulated amount of money should it fail to perform the contract. The Rishonim enumerate at least three separate factors which impact the validity of asmachta-type clauses in contracts. These factors are discussed in greater detail below, but a brief overview is as follows:

1. An asmachta states an obligation that depends on whether the promisor will perform or breach the contract. The temporal gap created between the kinyan action that generates the obligation and the subsequent contingency that determines whether the rights will actually vest may impair the validity of the kinyan-act and render the kinyan invalid.
2. Asmachta turns on the degree to which performing the condition lies in the capacity of the party making the promise (“in his hands”—beyado). This can mean either that:
   1. 1. A condition whose performance is in the hands of the promising party is generally binding, while a condition which depends on contingencies or parties beyond the promisee’s control is made without the degree of intent necessary to bind.^[6]
      2. A condition in the promise maker’s control is an asmachta since that party assumes it will be able to perform the contract and avoid the penalty for breach. But when the condition depends on other parties the obligor assumes the matter is outside of its control and the agreement is binding.^[7]
3. When a party undertakes to pay a fine (kenas) in an exaggerated amount (guzma) as a penalty for failing to perform a contractual commitment , the agreement is an asmachta and not binding.^[8]

The Rishonim diverge as to which of these criteria is dominant and how they interact. Rav Hai, and possibly the Rambam, generally emphasize the first factor, holding the kinyan is problematic due to the contingency of future events.^[9] Rav Hai understands the root of the term asmachta— סמך in the sense of “near” or “close.”^[10] Other Rishonim focus on the second^[11] or third factors,^[12] often in some combination.^[13] These accounts understand the term asmachta— סמך in terms of “to rely,” and highlight that undertaking party may lack the fully formed intent (gemirut da’at) required to bind the promise. This is either because the promising party assumes it can prevent the condition from coming to pass, and thus lacks the necessary intent to make it binding,^[14] or because the exaggerated promise is designed to induce the counter-party to enter the deal— but the promisor never had serious intent to bind itself to the term.^[15]

Further refinements emerge as the poskim aim to match the definition of asmachta with the examples presented in the Gemara. For example, assuming the penalty (kenas) theory, some hold asmachta applies only where the promisee hopes the condition will fail rather than when he desires it to succeed.^[16] A promise to pay a stipulated sum if the condition fails is thus more likely to be deemed an asmachta than a promise to perform an action should the condition come to pass.^[17]

The different theories defining the core limitation of asmachta impact how it might be cured. Under the first approach, this involves ensuring that the kinyan’s transfer of rights is effective immediately.^[18] For the second, shifting the degree to which the promising party controls performance.^[19] For the third, distinguishing between punitive and compensatory payments.^[20] The approaches may also differ regarding the role of party intent in affirming the transactions. Under the second and third accounts evidence that the parties either actually— or should have — appreciated the implications of the asmachta may be relevant to rendering it enforceable, while under the first view, the actual or presumed intent of the parties is likely less relevant.

In the fact pattern described above, the deficiencies undergirding all three factors may be in play placing the asmachta concerns at their highest: The Buyers’ promise to pay a fixed amount was conditioned on their failure to close on the house, the closing was largely in the Buyers’ hands, and the stipulated sum may constitute a penalty disproportional to the Sellers’ loss.

These concerns are reflected in the Gemara Bava Metzia (48b and 77b), which describes a buyer presenting an earnest deposit (eravon) to the seller, and stipulating the seller can retain it should the buyer back out. In exchange, the seller agrees that if he backs out, the original earnest deposit would be returned to the buyer in addition to the same amount from the seller’s own pocket. The Gemara holds that such an arrangement is an asmachta, but its precise implications are debated by the Rishonim. The prevailing understandings are presented by Shulchan Arukh (Mechaber) and Rema.^[21]

Assume an earnest deposit of $100,000. The Mechaber allows the seller to keep the deposit should the buyer breach. If the seller breaches, the initial $100,000 must be returned, while the additional $100,000 need not be paid because asmachta renders the seller’s promise to pay out of pocket void. Rema, by contrast, holds the asmachta limitation works in both directions, such that the jilted seller must return the original deposit even should the buyer breach.

The contract at issue requires the breaching buyer to forfeit the deposit, and thus clearly raises asmachta concerns according to Rema. But even the Mechaber’s asymmetrical approach which allows the jilted seller to retain the earnest money, relies on the fact that the funds are in the seller’s possession (he is muchzak). In the case before the Beth Din, however, the initially deposited funds were returned by the escrow agent to Buyers. Thus, even the Mechaber would likely agree with Rema that the earnest money should remain with the Buyers.^[22]

More generally, liquidated damages provisions that require the buyer to forfeit the deposit in cases of breach are ubiquitous in modern real estate contracts. The most common scenario is where: (i) the contract does not immediately transfer property rights to the buyer but generates an obligation on the parties to close the transaction at a future date; and (ii) the deposited amount is typically held by a third-party escrow agent rather than by the seller themself.

Under these common facts, the extent to which the asmachta rules preclude enforcing the liquidated damage amount as the cost of is a matter of considerable debate amongst dayanim. One school of thought, led by Chazon Ish, hesitates to enforce such clauses, and requires sellers to show actual damages in place of the stipulated amount.^[23] Other dayanim offer a variety of halakhic rationales for why such clauses should be enforced.^[24]

For reasons spelled out below, I believe the better halakhic argument is to enforce these clauses. Under the facts presented to the Beth Din, Sellers should be entitled to the full $160,000 stated in the contract without needing to prove the actual losses caused by Buyers’ breach.

III. Contract Penalties & Liquidated Damages in American Law

Given the centrality of commercial standards and secular law to the analysis below, it is helpful to review the basic principles of American contract law which form the commercial expectations of parties that are potentially relevant to the analysis of gemirut da’at, ,minhag ha-sochrim, and dina de-malchuta dina taken up below.

The common law has traditionally been hostile to enforcing penalty bonds and contractual clauses stating damages well in excess of actual losses.^[25] Courts therefore aim to distinguish between amounts designed to coerce performance and/or penalize the breaching party, which are unenforceable, and agreements that reflect the parties’ reasonable estimate of damages which are permitted.^[26] Thus liquidated damages are not enforceable unless: (i) actual damages are difficult to estimate at the time of the contract; and (ii), the amount fixed in the provision offers a reasonable estimate of actual losses.^[27]

Several rationales have been offered for these rules. First, paralleling the anti-penalty rationale adopted by some Rishonim, the goal of contract damages is to compensate for losses rather than punish or economically coerce the party into performing. In addition, a classic treatise explains that, “It is is characteristic of men . . . that they are likely to be beguiled by the ‘illusions of hope,’ and to feel so certain of their ability to carry out their engagements in the future, that their confidence leads them to be willing to make extravagant promises and commitments as to what they are willing to suffer if they fail.”^[28] This likewise parallels a line of thought developed by several Rishonim.^[29]

More updated accounts frame these concerns in terms of behavioral theory. Scholars point to persistent cognitive biases which prevent parties from fully appreciating the risks of breach. This is particularly relevant to damages clauses since parties generally focus on the immediate aspects of the transaction (price, quantity, central terms, etc.,) while underplaying the impact of back end scenarios that may result to their detriment. On this view, judicial scrutiny is warranted in order to correct for the predictable and empirically grounded limits of human judgment regarding contingent events that have a small chance of coming to pass.^[30] Another line of argument maintains that establishing the costs of breach is a matter of communal concern which should be regulated by public law and not be left entirely to the private bargain of the parties.^[31]

Over the past several decades, the traditional doctrine has come under assault by some legal economists who reject the idea that remedial or damage clauses should be treated differently than the ordinary contract terms which are generally enforced.^[32] This view holds that legal restrictions on party autonomy are economically counterproductive and reflect a holdover from an earlier era of how contracts were conceptualized.^[33] These scholars favor freedom of contract, arguing that rational parties are better than judges at estimating the likely costs of breach and allocating these risks efficiently. Liquidated-damages clauses should be enforced because they reduce uncertainty, minimize litigation costs, and provide clear incentives for parties to determine whether to perform or pay the price of breach.

While courts have resisted the call to fully abandon the regulation of damages clauses, the doctrine has nevertheless shifted towards enforceability.^[34] Liquidated damages clauses are generally enforced unless they state damages that clearly exceed the losses caused by breach. For example, in the case of a middleman who buys for $600/ton and sells for $1000/ton, courts will be generally skeptical of clauses that deviate significantly from the actual losses of $400/ton. By contrast, in situations where actual damages are harder to predict or calculate, as in the sale of a business or construction of a roadway for a governmental entity, parties are given greater leeway to form their contractual estimation of the cost of breach.^[35] The same is true when damages are primarily non-economic or emotional, such as when a florist fails to install the arrangements for a wedding ceremony, or a caterer who promises to deliver vegan food that turns out to be meat. The difficulty in determining actual damages in these cases, affords the parties greater discretion to establish the cost of breach.

Real estate deposits represent a distinct subset within the liquidated damage case law where courts routinely enforce clauses that award the deposit to the jilted seller. As one court explained “no rule in respect to the contract (for the sale of real estate) is better settled. . . than this: that the party who has advanced money . . and then. . . refuses to proceed to its ultimate conclusion… will not be permitted to recover back what has thus been advanced or done.”^[36] A leading contract law treatise explains that “liquidated damages clause allowing the seller [of real estate] to retain 10 percent of the contract price as earnest money is presumptively a reasonable allocation of the risks associated with default.”^[37] Similar conclusions have been reached by courts around the country.^[38]

Looking to New York law in particular, in 1986 the Court of Appeals stated that “[f]or more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment.”^[39] The New York high court approvingly “recognized [the] difficulty of estimating actual damages and the general acceptance of the traditional 10% down payment as a reasonable amount.”^[40] A recent scholarly survey (though otherwise critical of the trend) noted that, “courts are extremely reluctant to invalidate liquidated damages clauses in real estate contracts,” and “buyers are safe to assume that they will likely forfeit their deposit in any given real estate transaction.”^[41]

The experience of deciding cases in the Beth Din confirms why parties often aim to estimate their damages via contract. Where buyers failed to go forward with the purchase, parties have submitted evidence from realtors of the value of real estate rising and falling depending on time of year and the supply of comparable housing stock in a given shul-based community. Jilted sellers may also face additional listing or brokerage fees, carrying costs, taxes, homeowner association fees, utilities, etc., before the house is sold. In one case before the Beth Din, the initial contract was formed without the assistance of a broker, but when the deal fell apart, the seller was forced to pay the customary commission to a broker to move the house off the market. Litigation at the Beth Din frequently revolves around what costs are reasonable, how long sellers should have held out before accepting an alternative offer, how to compare offers with different financing terms, whether to engage a full-service broker, whether the house should be staged, and whether sellers should have rented the property in the interim or borrowed funds against the house to cover the carrying costs. These costs—and the difficulties and expense associated with measuring and litigating them—factor into the parties’ reasonable estimation of cost of breach. They further demonstrate why American law enforces the forfeiture of deposit amounts when they are not excessive, arbitrary, or structured as penalties.

IV. The Liquidated Damage Provision is not an Asmachta

   A. Background

One of the primary Talmudic examples of stipulated damages for contractual non-performance is found in Mishnah Bava Metzia 9:3. The Mishnah presents a case of a sharecropper who undertakes to till the landowner’s field for a percentage of produce. If the land is left fallow, the sharecropper is required to compensate the landlord in the amount the field would normally produce. The Mishnah grounds this obligation in the language of the standard agreement, in which the sharecropper states: “if I leave the field fallow and do not cultivate it, I will pay in full” (אֲשַׁלֵּם בְּמֵיטְבָא).^[42] The Gemara understands this ruling to accord with the view of doresh lashon hedyot, which entails giving halakhic effect to the conventional practices of the lay community.^[43] Many Rishonim explain that when the practice of compensating the landlord for non-performance is sufficiently widespread, the sharecropper’s liability extends even when this term is not expressly drafted in the agreement.^[44]

Two separate discussions in the Gemara refine the principles of asmachta via reference to this Mishnah.

   B. The principle of guzma

The Gemara (Bava Metzia 104b) contrasts the Mishnah’s ruling that the sharecropper must ‘“pay in full” with a case where he promised to pay 1000 zuz should he fail to till the soil. Rava holds this promise is an asmachta, causing the Gemara to question why this is different from the ostensibly similar clause the Mishnah upholds. Rava answers:

הָתָם לָא קָא גָזֵים הָכָא כֵּיוָן דְּקָאָמַר מִילְּתָא יַתִּירְתָּא, גּוּזְמָא בְּעָלְמָא הוּא דְּקָגָזֵים.	There he did not exaggerate. But here, since he promised to give an excessively large sum of money, he is merely exaggerating [and the promise is not binding].

According to Rava a “pay in full” contract is enforceable since it is not exaggerated, while a contract stating 1000 zuz penalty is inflated and not enforceable. At the conceptual level, Rava’s distinction somewhat parallels the line drawn in American law: contractual promises reflecting reasonable damages are generally enforced, while excessive amounts are not.

   C. The principle of beyado

A second principle derives from the Gemara (Bava Metziva 73b), which presents the following case: A gives money to B to serve as his agent and travel to the port city to purchase wine on his behalf at the discounted rate found in port. Initially, the Gemara assumes that if B negligently fails to purchase wine, he must compensate A by supplying him wine at the reduced price in port.^[45] Rav Ashi counters, however, that the agent’s promise is a non-binding asmachta. Challenged to distinguish this invalid promise with the sharecropper’s enforceable promise set forth in the Mishnah, Rav Ashi answers: The sharecropper’s performance is “in the hands” of the promise-maker, (beyado), while performing the wine purchase contract is “not in the hands” of the agent.

Tosafot explain the distinction as follows. Performing a condition—such as tilling a field—is deemed within the promisor’s capacity even as the sharecropper may have to purchase supplies (e.g., seeds) from a third party and even though the price of these supplies may rise and fall under ordinary market conditions. So long as the necessary inputs are generally available, even performance that assumes involvement of other parties or the risk of market fluctuations can nevertheless remain “in his hands.” The promise to compensate for breach is thus not an asmachta.^[46]

The exception of “not in his hands” applies where the undertaking was to purchase goods (wine) at reduced price available only during a short season— and perhaps limited to a designated location (the port town).^[47] Since the anticipated performance assumes market conditions tied to specific time and place, it is not “in the hands” of the agent. More generally, when B’s performance is premised on the availability of goods or services under local, seasonal or irregular market conditions, it is deemed beyond the party’s control (eino beyado) and the ensuing promise to compensate for breach is an asmachta.^[48]

   D. Application to the instant facts

Drawing these principles together, both Mechaber and Rema hold that a liquidated damage clause is not an asmachta if it is not exaggerated (lo gazim) and when performance is within the capacity of the promising party (beyado).^[49] The issue is how to interpret and assess these principles in light of the facts of this case.

As discussed in Section III, 8% ($160,000) of the contract price is generally understood as a reasonable estimation of actual damages and sits well within the conventions of real estate transactions that are routinely upheld by the courts. Indeed, American courts often justify their own enforcement of such clauses on the basis that it has become widespread practice.^[50] Thus, whether viewed from an objective measure of whether the amount is excessive,^[51] or from the perspective of what a reasonable party operating in the American context should expect to forfeit in the event of breach, the 8% deposit is within accepted range. In addition, Sellers in this case were able to prove some amount of actual losses. When some actual loss can be shown, a number of poskim are willing to uphold liquidated clauses even for amounts beyond the actual damages—so long as the amounts are not excessive.^[52]

According to Tosafot, there is also a strong argument that performance of the contract was “in the hands” of the Buyers, as the obligation they undertook to pay the amount due at closing was an event within their control. Yet even assuming that Buyers’ internal state of mind was to condition this payment on selling the Florida properties first—and that this assumption should be binding on the Seller— this does not render the damages clause an asmachta as per Tosafot. The Buyers’ obligation under the contract was to fund the transaction. This could have been accomplished either by selling the homes, by borrowing against these properties, and/or by obtaining a mortgage on the New York residence itself. The Buyers never alleged any conditions that would have restricted their ability to obtain financing from the general market, and, barring unusual facts, American law typically assumes that credit is available to market participants.^[53] The fact that Buyers were either not ready to sell their properties or did not receive offers at their ideal price-point, is insufficient reason, per Tosafot, to render the performance “not in their hands.”

This approach, however, relies on several assumptions regarding the nature of asmachta that are not shared by all Rishonim. First it does not address the view that the core defect of an asmachta is the conditional nature of the kinyan, as understood by Rav Hai and Rambam. Second, it assumes Tosafot’s interpretation of beyado, whereas Ramban and Ran reach the opposite conclusion: the more an undertaking is within a party’s personal capacity to perform, the more likely to be void as a non-binding asmachta.^[54] Finally, it assumes that the “exaggerated” amount that is unenforceable refers to a payment either well beyond the expected norm or vastly disproportionate to the actual losses incurred. Rambam, however, understands that the inverse of an exaggerated amount (lo gazim) is where the payment corresponds to actual losses.^[55] Beit Yosef considers extending this rule such that any clause stating a fixed amount of damages may be an asmachta, since by definition a flat fee is not designed to correspond to the claimant’s actual losses.^[56] Though other Achronim disagree,^[57] under this approach, a clause stating 8% of the purchase price would be unenforceable.

V. Enforcement under a Theory of Commercial Minhag

Even if the damages provision cannot be sustained under internal halakhic standards, it may nevertheless be enforced under a theory of commercial custom (minhag). The Rishonim discuss the relevance of minhag to asmachta in two different contexts: the sharecropping discussion mentioned above, and the custom of paying agreed-upon fees for broken shidduchim. While the two examples arguably draw on the same underlying principles of minhag, some poskim seek to limit each case to situation-specific factors that do not apply to the home purchase agreement before the Beth Din. Examining the two cases together, however, allows for developing a minhag theory with a wider application that garners the greatest support from a broader range of poskim.

In the ensuing discussion of the parties’ understanding, it is important to recall that their intentions regarding the transaction and the general market practices must be assessed at the time of contract and the placement of funds into escrow. The fact that the funds were eventually removed in breach of the escrow contract is —from the perspective of the parties— a fortuitous event and not relevant to determining their assumptions at the time of contract.

A. Rav Hai Gaon’s Reading of the Sharecropping Agreement

Section IV explored Tosafot’s understanding that a defaulting sharecropper’s promise to pay 1000 zuz is an exaggerated asmachta, while a promise to “pay in full” is valid. Rav Hai Gaon, and a number of Rishonei Sefarad, however, maintain that as a matter of strict halakhah, since both the promise to pay “1000 zuz” and the promise to “pay in full” are stated in conditional form, each violates the asmachta rule. The Mishnah’s “pay in full” clause is enforced due to the common practice of parties stipulating that an under-performing sharecropper is liable for failing to till the field. Several Rishonim maintain that since this practice had become so widespread, it attains the status of a rabbinic enactment that overcomes the asmachta limitation.^[58] Ran further elaborates that since the landlord relied on the sharecropper’s promise to till the field and forwent other opportunities, the rabbis enforce the custom to penalize the sharecropper and require payment for the losses.^[59] Finally, as mentioned above, the ubiquity of the practice means that it may be imputed into every sharecropping agreement.^[60]

The emerging principle is that though a promise to “pay in full” technically qualifies as asmachta, when the counter-party relies on the representation, the promise can be enforced on the account of the widespread minhag. Indeed, Rashba understands Rav Hai’s approach in terms of the general view that halakhah validates commonplace commercial practices even when they deviate from internal halakhic standards.^[61] On this basis, because deposit forfeitures of 10% or less are ubiquitous in the American real estate setting and are routinely enforced by the American courts, they obtain halakhic validity under a theory of minhag.

Nevertheless there may be a number of potential limitations to a minhag theory predicted solely on R. Hai’s understanding of the sharecropper Mishnah.

First it is possible that the minhag is limited to cases akin to the sharecropping contract outlined in the Mishnah.^[62] To the degree the Mishnah’s “pay in full” ruling flows from the unique aspects of the sharecropper/landlord relationship, it may not be generalizable to other settings.^[63] A related idea is that liability may stem from the fact that the sharecropper’s decision to leave a part of the field fallow constitutes a form of negligence or based on a tort theory that causes the landowner actual losses.^[64] To the degree the Mishnah’s rule (and associated takkana) depends on the presence of certain or actual losses, or aspects of tort or negligence, it may not apply to the real estate deposit setting case where these factors are lacking. Moreover, even Rashba who understands R. Hai to articulate a general principle of commercial minhag, suggests that the minhag only applies when the beyado and guzma limitations against asmachtot are otherwise resolved.^[65] Finally, recall Beit Yosef’s suggestion that any fixed amount of damages may be considered an asmachta— a position assumed to apply even within R. Hai’s minhag-based approach to curing asmachta.^[66]

B. The Minhag to Enforce Shidduch Agreements

An alternative source for applying a minhag theory emerges from the Rishonim’s analysis of the breakup fee embedded in the tna’im, the customary pre-marriage agreement. Common practice was for each party to a shidduch to agree to pay a stipulated sum to the other side should they renege on their commitment to marry. The tna’im raise asmachta concerns because they often state the requirement to pay a large sum of money (knas) that is contingent on a future event (backing out of the shidduch). Nevertheless, nearly all Rishonim maintain that such amounts are enforceable—even as different reasons are offered to explain their validity.^[67] Because the discussion of tna’im does not emerge from the specific context of sharecropping agreement, it is less concerned with the degree of correspondence between the amount of damages set in the contract and the actual damages sustained by the non-breaching side. The shidduch discussion thus offers an additional application of minhag that can sustain the damages provision in the real estate contract.

Two rationales for the shidduch agreement are recorded in Tosafot Bava Metzia 66a and recorded by subsequent poskim.^[68] The first is a theory of minhag/situmta, namely, that since it is the common practice of the marketplace/ community to enter and enforce such shidduch agreements, they are rendered halakhically enforceable.^[69]

While situmta is often used to sustain a wide range of commercial practices, it may be particularly relevant to the case of asmachta. There is a longstanding debate amongst both Rishonim and Achronim regarding the impact and scope of kinyanim predicated on minhag. Many hold that a minhag-based kinyan can render any common marketplace transaction effective—and this approach would certainly include cases of asmachta.^[70] Nevertheless another group of poskim hold that minhag-based kinyanim can be no more effective than the standard kinyanim (lifting or pulling) sanctioned by Torah law.^[71] On this view, minhag cannot overcome transactional limitations that are predicated on the status or nature of the transferred assets— such as those not-yet-in existence (דבר שלא בא לעולם) or assets that are not in the seller’s posession (אינו ברשותו).

Drawing on Tosafot’s understanding of the shidduch case, however, Hatam Sofer argues that the shortcoming of an asmachta is tied to gemirut da’at rather than the inherent validity of the contractual undertaking. For this reason, all poskim would agree that an asmachta agreement is binding when it is common to enforce such clauses.^[72] On this view, when the party undertakes the obligation in full appreciation of its consequences, the defect reflected by the potential absence of gemirut da’at (fully formed intent) falls away.^[73]

The facts of the case before the Beth Din present a strong basis for enforcing the clause based on a minhag thesis as understood by Hatam Sofer. The parties drafted their contract on the form published by the state bar and realtors associations, and Buyers deposited the relevant funds in escrow. These facts are particularly relevant according to those Rishonim who understand that asmachta relates either to the promisor’s overconfidence in its ability to perform the contract and avoid the stipulated penalty, or due to the lack of intent to actually pay the stipulated amount in the event of breach. In light of the American practice regarding residential real estate deposits, Buyers’ conduct in this case indicates either that they knew or should have known that their deposit would be forfeited should they fail to close and/or that they engaged in a market behavior where such practices are routinely enforced.^[74]

C. The Relevance of Emotional Harms in Shidduch Agreement

Tosafot’s second approach to validating the fine for a shidduch break-up stems from the fact that they compensate for another category of harm, namely the boshet (emotional damage) caused by the broken engagement. However, as Ketzot notes, the formal halakhic obligation to pay boshet damages arises only when the injured party has suffered an actual physical injury— an element not present in the shidduch scenario.^[75] On this account, the breakup payment does not compensate for a loss recoverable under strict halakha, but, akin to the untilled field, a rule that the parties may contract for reasonable compensation for damages incurred even though they are not halakhically compensable.^[76] Maharik maintains that the emotional harm caused by the broken shidduch is sufficient to render the breakup fee “not exaggerated” and thus enforceable.^[77] The Beit Shmuel further holds that the liquidated sum is not an asmachta even if it exceeds the actual degree of emotional harm caused by the breakup.^[78] Other poskim however hold that while there is some elasticity built into shidduch breakup fees, they cannot be vastly disproportionate to the actual harm caused by the broken shidduch.^[79]

The boshet example reinforces the view that when there is a promise to pay a reasonable amount for losses incurred due to a breach of contract, the promise can be sustained via minhag even though the stipulated amounts do not precisely correspond to actual damages.^[80]

D. Ongoing Hesitation Towards applying Minhag

Notwithstanding the authorities canvassed above, some more recent poskim and dayanim hesitate to enforce asmachta agreements on the basis of minhag. This is often traced to Hatam Sofer’s teshuva mentioned above. Though it accepts the minhag rationale in principle, Hatam Sofer refrained from applying it to the case before him as he was unaware of any established custom supporting such enforcement.^[81]

A straightforward reading of this teshuva would enforce an asmachta where a strong commercial minhag exists, yet some poskim read it differently. Minchat Yitzchak maintains that to overcome asmachta, we must look at whether it is the minhag of the beth din itself to enforce such clauses, rather than practices of the broader marketplace.^[82] Others hold the relevant minhag depends on whether people voluntarily pay the liquidated amounts without being taken to court or beth din to mandate enforcement.^[83]

As applied here, these arguments fall short at the level of both practice and principle. In terms of practice, the Beth Din of America generally enforces real estate deposit clauses suggesting that this is indeed the Beth Din’s minhag. Second, due to the absence of a credible American law argument for non-enforcement of standard deposit forfeiture clauses, scholars specializing in this area have noted that “buyers are safe to assume that they will likely forfeit their deposit in any given real estate transaction.”^[84] This indicates that in the ordinary course damages are simply paid/forfeited without resorting to the time and expense of litigation.

At the level of principle, the Beth Din of America routinely relies on the position of R. Moshe Feinstein (and others) who holds that minhag can be formed through non-Jewish laws and practices and not need not be located in the customs of Jews or the beth din specifically.^[85] Moreover, as addressed further below, even when dissenting voices are around, the Beth Din generally adopts the more capacious halakhic approach to minhag.

Another objection raised by R. Uriel Lavi of Jerusalem’s Rabbanut Beth Din, is that a minhag can only effectively create a kinyan when the transaction takes full effect at the time of the agreement, when the parties’ full gemirut da’at is required to accept the terms of the deal. Because a civil court may review and modify a liquidated damages clause for compliance under civil law, however, the precise scope of the breaching party’s liability may be under-defined at the point of contractual inception. This uncertainty, per R. Lavi, precludes locating the necessary gemirut da’at at the time of contract and undercuts the claim that the agreement is binding under a theory of minhag.^[86]

Even assuming this understanding is how minhag functions, the case before the Beth Din is distinguishable from R. Lavi’s discussion because the enforceability of the underlying contract was never in question under American law.^[87] As both parties operated against the backdrop of this established commercial custom, the contention that their da’at was vitiated by the potential of nonenforcement via the civil courts does not apply.

Finally, some contemporary dayanim go further and question whether as a matter of basic halakha, minhag is insufficient to overcome asmachta. R. Chagai Izirer, who served on the Israeli Rabbanut’s Beit Din HaGadol, notes that many Rishonim do not invoke the minhag theory when explaining the enforceability of shidduch fines but rely on alternative rationales such as the boshet model discussed above.^[88] He further argues that the idea that minhag overcomes issues of asmachta is absent from the writings of the Rosh, Tur, Shulchan Arukh or Rema.^[89]

Fundamentally, this is an argument from silence which has been challenged by other dayanim serving on Israel’s rabbinical courts.^[90] R. Nachum Gurteler of the Rabbanut’s beth din in Rehovot, notes that other Rishonim do not explicitly reject or attack this position, and that its absence in the other Rishonim may stem from the fact that shidduch fines were not as prevalent outside of Ashkenazic communities.^[91] Moreover, at the level of principle he argues that the boshet approach to the shidduch case is itself fundamentally based on minhag, and that when a minhag is coupled with a justified reason for payment— (as in compensating for the emotional harm of a broken engagement), nearly all Rishonim agree that is can overcome the limitation of asmachta.

These discussions nevertheless remind us that minhag should not be understood as a blanket license to enforce every penalty clause, but rather as a framework that must correspond to the relevant commercial reality of the time and place. Liquidated damages should be enforced when stipulated sums correspond to genuine and reasonable market practices which would be routinely enforced by the courts but may be held as an asmachta when these conditions are not present.

VI. Enforcement Under Dina De-Malchuta Dina

A separate ground for enforcement flows from Rema’s understanding of how dina de-malchuta dina applies to asmachta. Rema cites a rule that when the parties have escrowed funds pursuant to valid civil law documents, the principle of dina de-malchuta dina is sufficient to enforce an asmachta clause.

וְיֵשׁ אוֹמְרִים דְּאִם הִשְׁלִישׁוּ מַשְׁכּוֹנוֹת זֶה כְּנֶגֶד זֶה בְּמִשְׁפְּטֵי גוֹיִם וּבִשְׁטָרוֹתֵיהֶן, קָנוּ אֲפִלּוּ בְּאַסְמַכְתָּא, מִשּׁוּם דִּינָא דְמַלְכוּתָא דִּינָא.^[92]

As discussed in Section III, the stipulated damages clause in this case is unquestionably valid under civil law. The Buyers escrowed their funds pursuant to the written agreement, engaging in the contemporary version of the procedure set forth in Rema.^[93] To the degree this clause cannot be enforced under a minhag theory, it may obtain halakhic validity under dina de-malchuta dina. This approach is accepted by the Eretz Chemda network of batei din in Israel.^[94]

The Hazon Ish, on the other hand, would not enforce a liquidated damages clause on the basis of dina de-malchuta.^[95] He argues that when both parties are Jewish, dina de-malchuta has no bearing on their intent, since they are forbidden from appearing before civil courts. In this regard, it is worth noting that Hazon Ish’s view that dina de-malchuta does not apply between Jews runs counter to Rema who generally applies dina de-malchuta to a wider range of cases.^[96] It is also contrary to R. Elyashiv and others who hold that the fact that liquidated damages clauses are enforceable under dina de-malchuta bears relevance to establishing the intent required to bind an asmachta.^[97]

Moreover, while a number of Achronim reject dina de-malchuta when secular law conflicts with the internal halakhic rule, Maharsham holds that this concern does not apply when at least some poskim find symmetry between the halakhic rule and the parallel civil law. In a case where the validity of an asmachta was subject to conflicting views amongst the poskim, Maharsham held the contract could be sustained per dina de-malchuta, since one halakhic view ran parallel to the civil law.^[98] Along similar lines, R. Herzog wrote that where a halakhic conclusion is unclear, one is justified in following the view that conforms to civil law.^[99]

VII. Asmachta Workarounds and Halakhic Boilerplate

Over time, both Rishonim and Achronim have offered various contractual structures and linguistic formulations to cure asmachta defects. Though none of these asmachta-avoiding formulations are present in the relevant contract, Rav Elyashiv noted that the existence of these mechanisms offers further support for the view that an asmachta transaction can be validated based on the minhag-theories discussed above.^[100]

The first mechanism is to formulate the contact so that the kinyan takes effect immediately and applies me-achshav (at present). Recall that according to Rav Hai and the Rambam, the central defect of an asmachta is that the kinyan does not transfer present rights due to the temporal gap between the kinyan-act and the future condition that will determine whether the obligation takes effect (what lawyers call a condition precedent). Thus, if the structure is reversed, such that the kinyan completes the transfer immediately (me-achshav), and then creates a secondary right to cancel the transaction on the basis of a future contingency (a condition subsequent), the asmachta concerns fall away.

Rambam’s understanding of me-achshav is presented as follows:^[101]

כל האומר, קנה מעכשיו, אין כאן אסמכתא כלל וקנה, שאילו לא גמר להקנותו לא הקנהו מעכשיו. כיצד, אם באתי מכאן ועד יום פלוני קנה בית זה מעכשיו, וקנו מידו על כך, הרי זה קנה אם בא בתוך הזמן שקבע. וכן כל כיוצא בזה.

“Anyone who says, “Acquire from now,” there is no asmachta at all, and he acquires, for had he not fully resolved to convey, he would not have conveyed from now. How so? If one says, ‘If I come from now until such-and-such a day, this house is acquired to you from now,’ and they performed a kinyan with him on this matter, then he acquires if he comes within the set time; and so in all similar cases.

 

Rambam’s approach is adopted by Shulchan Arukh.^[102] Nevertheless, most Rishonim ground the limitations of asmachta in several of the additional concerns raised above. For this reason, Rema rules that merely phrasing a transaction to take effect “me-achshav” is insufficient to allay all asmachta concerns.^[103]

In the context of shidduch agreements, Rambam records a second asmachta-avoiding device known as the “enactment of the sages of Spain,” (takkanat chachmei Sefarad).^[104] Here, the obligating party stipulates an unconditional debt that is presently due in the amount of contracted-for damages. The counterparty then agrees to retroactively forgive this debt if the contract is performed as promised. This structure works because, according to Rambam, mehila— the release of the debt— may be framed conditionally and is not subject to the same asmachta limitations as the creation of a new obligation.^[105] Subsequent poskim refined this practice and extended it to support conditional payments for default across a broad range of cases.^[106]

A third approach, drawn from Nedarim 27b, involves a litigant who deposits documents favorable to his case with a beit din on condition that if he does not return by a set date the documents will be deemed invalid. Although this takes the form of a classic asmachta, the Gemara rules it is binding because obligation was undertaken via a kinyan before a “beit din choshuv”—a reputable or distinguished beit din.^[107]

Rishonei Sefarad understand this case to state a rule of procedure that relates primarily to the beit din’s regulatory powers. When a beit din is concerned that a party will not return for future hearings, it sanctions him with an order to deposit documents central to his case to ensure future appearances.^[108] This usage is akin to a modern bail bond. On this view, the beit din chashuv paradigm is a tool of public, not private law, and has limited bearing on ordinary commercial contracts.^[109]

Rema, however, applies this rule to all transaction types such that any asmachta undertaken with a kinyan before a beit din chashuv is held valid. Rema goes one step further: even if the kinyan did not actually occur before a beit din, but the contract merely includes language stipulating as such, it is treated as a party-admission that the beit din chashuv procedures were followed in a way that conclusively defeats any asmachta defense.^[110]

As the Achronim point out, the idea that one can stipulate facts contrary to evidence and conclusively shield the transaction from halakhic defects only applies in the case of an asmchata where the party’s admission to the stipulated facts indicates sufficient gemirut da’at to bind him to the asmachta.^[111] By contrast, a contract that states that the parties undertook the relevant procedures necessary to validate a kinyan relating to items not yet in existence (דבר שלא בא לעולם) or items that are not in the seller’s possession (שאינו ברשותו) is deemed invalid if evidence is presented that these stipulated events did not occur.

As a result of the developments outlined above, nearly every contract drafted or reviewed by a halakhic consultant includes boilerplate recitals stating that the obligation was undertaken me’achshav (presently), not as an asmachta, in accord with takkanat chachmei Sefarad, and effected with a kinyan before a beit din chashuv. Though standing alone, each device may not always cure asmachta defects, taken together they are almost always recognized as effective.^[112] Form manuals and halakhic practice guides have standardized these formulations which have become commonplace boilerplate in halakhic forms or documents.^[113] Moreover, even contemporary poskim who are generally reluctant to enforce damage clauses under minhag or dina de-malchuta theses, maintain that if the document recites formulas such as: “this contract is undertaken in a manner that there is no asmachta” or “everything was undertaken with a kinyan before a reputable beit din,” the ensuing stipulated damages are enforceable.^[114]

These doctrines demonstrate how Rishonim and poskim have developed numerous pathways to mitigate the impact of asmachta and enforce the parties’ agreement. While the contract in the case before the Beth Din was written on an American law form and did not include any the standard asmachta-defeating language, the minhag theory surveyed above offers a parallel route to enforcement that is consistent with the mechanisms developed by the poskim.

VIII. The Beth Din of America’s Rules and Procedures Require Deference to Commercial Minhag in this Case

Finally, even if one remains uncertain about applying minhag in the abstract, the Beth Din of America’s Rules and Procedures supply an additional ground to enforce the liquidated‑damages clause t. Section 3(e) of the Beth Din’s Rules and Procedures state:^[115]

In situations where the parties to a dispute explicitly or implicitly accept the common commercial practices of any particular trade, profession, or community — whether it be by explicit incorporation of such standards into the initial contract or arbitration agreement or through the implicit adoption of such common commercial practices in this transaction — the Beth Din will accept such common commercial practices as providing the rules of decision governing the decision of the panel to the fullest extent permitted by Jewish Law. (emphasis added).

These rules call on the Beth Din to use minhag as a rule of decision “to the fullest extent permitted.” Thus when recognized halakhic views support reliance on commercial usage — even amid contrary opinions — the Rules direct the Beth Din of America to give effect to that usage. For this reason, once a viable halakhic approach relying on minhag is established, the burden shifts to the party opposing enforcement to show that halakha forecloses reliance on minhag, not merely that it is contested.

The predicate commercial usage in this case is clear. Forfeiture of an earnest‑money deposit of roughly 10% (and certainly 8%) upon buyer default is a routine feature of residential real‑estate transactions which is regularly enforced in American courts. The parties adopted a standard‑form contract promulgated by local bar and realtor associations, hand‑checked a no‑financing contingency, and arranged for an escrow in accord with industry practice. Those features indicate that the parties “explicitly or implicitly” accepted the trade usage governing remedies upon default and the Beth Din’s rules direct the panel to adopt that usage as the rule of decision.

Section 3(e) of the Rules and Procedures does not require unanimity among the poskim. Though earlier sections canvassed authorities who hesitate to apply minhag in certain asmachta settings, there is substantial halakhic support for enforcing reasonable liquidated damage amounts grounded in commercial custom. These include Rav Hai Gaon’s reading of the sharecropping agreement (as developed by Rashba and Ran), Tosafot’s understanding of the shidduch‑agreement as grounded in situmta and gemirut da’at (as developed by Hatam Sofer and later poskim), and more recent authorities such as Arukh HaShulchan and R. Elyashiv who all recognize enforcement of commercially accepted liquidated damages. This practice is corroborated through routine enforcement in American law.

Accordingly, even to the degree there is doubt regarding the scope of the minhag theory in general, Section 3(e) instructs the Beth Din to give effect to established commercial usage “to the fullest extent permitted by Jewish Law.”

Concluding Note

This analysis rests heavily on concepts of minhag and common commercial practice, and is therefore limited to factual scenarios akin to those outlined above. Specifically, cases involving: (i) real estate contracts; (ii) where the damages stated in the clause are easily within the commercially accepted range; (iii) where the Buyers demonstrated their understanding of the default risk by placing the stipulated amount into escrow; and then (iv) Buyers entirely failed to perform. These standards would likely apply differently should the amount exceed the commercial norm, where the breaching party substantially performed or rendered performance merely a few days late, or where actual damages could have been easily calculated or caused only minimal loss to the counterparty.

Finally, the halakhic analysis of asmachta should not simply collapse into American law. In consumer contracts, or other settings where liquidated damage clauses are less common and monies are not typically escrowed, a halakhic reading of the relevant expectations and minhag may result in a more restrained approach towards liquidated damages clauses than the doctrines found in American courts.^[116] In the setting outlined in this article, however, there is a strong halakhic basis to enforce the liquidated damages clause as written.

 

NOTES

** I want to thank Eitan Oberlander for his assistance in researching and thinking through the ideas in this article.

1. Section 3e of the Beth Din of America Rules and Procedures, avalaible here https://bethdin.sfo3.digitaloceanspaces.com/2024/03/BDA125-RulesProcedures-2024-Bro_02.pdf ↑
2. While this act likely constituted a breach of the escrow agreement, the escrow agent was not a party before the Beth Din. ↑
3. The most extensive book-length treatment of the subject from the mishpat ivri school is Berachyahu Lifshitz, Asmachta (Jerusalem, 1988) [Hebrew]. ↑
4. Bava Metiza 66b. “אָמַר רַב פָּפָּא: הַאי אַסְמַכְתָּא, זִימְנִין קָנְיָא וְזִימְנִין לָא קָנְיָא” ↑
5. Rashba Bava Batra 168a. “לפי שראיתי לכל גדולי המחברים והמפרשים דרכים רבים ולא הסכים אחד עם חבירו ולקחו להם כללים ופרטים מכל אשר בחרו ולא ראיתי להם דרך נמלט מן הקושיות.” ↑
6. See Tosafot Bava Metzia 73b; Tosafot Sanhedrin 24b citing Rashi and R”i. See also Rema HM 207:13. ↑
7. See Ramban and Ran Bava Batra 168a. See also Arukh Hashulchan HM 207:26. Numerous attempts to refine and reconcile these views are proposed by Rishonim and Achronim. ↑
8. Bava Metzia 104b. See below note 12. ↑
9. Sefer HaMekach vehaMimkar Sha’ar 17. Mishnah Torah Mechira 11:6-7. See Gra HM 207:5 and Even HaEzel to Mechira 11:1-2. ↑
10. In Rav Hai’s language:דזו היא אסמכתא, לפי שסמך קנין הקרקע לזמן אחר לאחר שהתנה ואינו קנין בשעתו. ↑
11. See above notes 6 and 7. ↑
12. See Sefer HaChinuch 343, Rosh Nedarim 3:10, Rashba Bava Batra 168a, Shu”t haRashba 1:933, Ritva Bava Metizia 66b, R. Tam in Sefer HaYashar Hiddushim §220. ↑
13. Beit Yosef offers a fourfold taxonomy of asmachta scenarios. See Beit Yosef HM 207 (p.53 in Shirat Devora ed.). See also Rema HM 207:13. ↑
14. Rashbam Bava Batra 168a; Nimukei Yosef Bava Batra 78b (Rif pagination). ↑
15. Rashi and Tosafot Bava Metiza 66a; Tosafot Bava Metzia 74a. ↑
16. See Rashba Bava Batra 168a. ↑
17. Arukh Hashulchan HM 207:24. ↑
18. See sources in note 9. ↑
19. See sources in notes 6 and 7. ↑
20. See sources in note 12. ↑
21. Choshen Mishpat 207:11. ↑
22. See Shach Choshen Mishpat 207:17. Rema expressly writes that where the funds are in the hands of a third party, the seller can not retain possession of them. ↑
23. See Chazon Ish HM Likutim 16(11). See also, R. Ovadya Yosef Toledano, Et Yosef: Mishpat HaKinyan pp.362-370; Emek HaMishpat (Tzanz) Vol 1. Dine’ Chozim VeHeskemim, Siman 31;. See also R. Uriel Lavi, Ateret Devora, Vol. 2 Siman 40. ↑
24. See R. Nachum Gurteler, Asmachta Lo Kanya, in Shurat HaDin, vol. 11, pp. 35-62; and R. Hillel Geffen, Position Paper 19 for Machot Mishpatei Aretz, available at https://dintora.org/Show_article/1040. ↑
25. See William H. Loyd, Penalties and Forfeitures, 29 Harv. L. Rev. 117 (1915). ↑
26. 24 Williston on Contracts § 65:1 (4th ed.) ↑
27. See Seana Valentine Shiffrin, Remedial Clauses: The Overprivatization of Private Law, 67 Hastings L. J. 407 (2016) at 410-11; 415. ↑
28. Charles McCormick, Handbook on the Law of Damages § 147 at 601 (1935). ↑
29. See above note 7. ↑
30. See Melvin A. Eisenberg, The Limits of Cognition and the Limits of Contract, 47 Stan. L. Rev. 211 (1995). ↑
31. Shiffrin, Remedial Clauses above at note 27. ↑
32. The classic sources include, Charles J. Goetz & Robert E. Scott, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach, 77 Colum. L. Rev. 554 (1977); Larry A. DiMatteo, A Theory of Efficient Penalty: Eliminating the Law of Liquidated Damages, 38 Am. Bus. L.J. 633, 637 (2001) (arguing that “a law that holds all penalties as per se unenforceable is necessarily flawed”), and Judge Posner’s discussion in Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985). See also Avery W. Katz, Economic Foundations of Contract Law, in Philosophical Foundations of Contract Law 171, 185 (Gregory Klass et al. eds., 2014) (reviewing the literature); Michael Pressman, The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate, 7 Va. L. & Bus. Rev. 651, 653 (2013) (arguing that the price of breach on the backend should not be subject to more regulation than the price of the contact on the front end. ↑
33. XCO Int’l Inc. vs. Pacific Scientific Co.,369 F.3d 998, 1002 (“The rule against penalty clauses, though it lingers, has come to seem rather an anachronism. . . .”) (Posner, J.). ↑
34. Shiffrin, p. 67 Hastings L. J. at pp. 410, 416-17. ↑
35. See generally, Farnsworth on Contracts §12.18a. (3rd. ed. 2004). ↑
36. Palmieri v. Partridge, 2004 PA Super 250 (2004). ↑
37. Farnsworth on Contracts §12.18a. (3rd. Ed. 2004). See also, Restatement (Second) of Contracts § 374 Illustration 6 (1981); Tsiropoulos v. Radigan, 163 Conn. App. 122 (2016). ↑
38. See, Brooks v. Bankson, 445 S.E.2d 473 (Va. 1994); Bradley v. Sanchez, 943 So. 2d 218, (Fla. App. 2006). See San Francisco Distrib. Ctr., LLC v. Stonemason Partners, LP, 183 So. 3d 391, (Fla. App. 2014); Haas Automation, Inc. v. Fox, 243 So. 3d 1017 (Fla. Dist. Ct. App. 2018) (“liquidated damages are appropriate damages in a contract for sale of real estate in Florida, and they are not to be considered a penalty. . . a forfeiture amount of ten percent or less of the total purchase price is not unconscionable.”) ↑
39. Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 378, 502 N.E.2d 184, 186 (1986) (citing Lawrence v. Miller, 86 N.Y. 131 (1881). ↑
40. Id. ↑
41. See Tanya J. Monestier, Fixer Upper: Buyer Deposits in Residential Real Estate Transactions, 80 Ohio St. L.J. 1149 (2019). See also Jeffrey B. Coopersmith, Refocusing Liquidated Damages Law for Real Estate Contracts: Returning to the Historical Roots of the Penalty Doctrine, 39 Emory L.J. 267 (1990). ↑
42. The Mishnah states: “הַמְקַבֵּל שָׂדֶה מֵחֲבֵירוֹ וְהוֹבִירָהּ שָׁמִין אוֹתָהּ כַּמָּה רְאוּיָה לַעֲשׂוֹת וְנוֹתֵן לוֹ שֶׁכָּךְ כּוֹתֵב לוֹ אִם אוֹבִיר וְלָא אֶעֱבֵיד אֲשַׁלֵּם בְּמֵיטְבָא.” ↑
43. Tosafot Rid Bava Metzia 104a explains this stipulation obligates the sharecropper in what is otherwise non-compensable grama damages. Rav Hai’s alternative theory is presented below. ↑
44. See Tosafot, Ramban, Rashba, Ran, Raavad cited in Shitta Mekubetzet Bava Metiza 104a. ↑
45. As explained by Rashba Bava Metzia 73b. An alternative explanation is offered by Ritva. ↑
46. Tosafot Bava Metzia 73b.התם בידו הכא לאו בידו – תימה במאי הוי טפי בידו התם מהכא? דאי מיירי התם שיש בידו תבואה לזרוע הכא נמי אם יש לו יין הוי בידו .ואי חשיב התם משום דיש בידו לקנות הכא נמי בידו לקנות.ויש לומר דהכא אין בידו כשער הזול דשער הזול דזולשפט לא משיך כולי האי, דשמא כשיבא לקנות לא ימצא באותו שער. אבל “באם אוביר” בידו לקנות חטין שאם לא ימצא בזול יקנה ביוקר. ↑
47. See S”ma HM 207:29 and Netivot 207:32 (Hiddushim) who explain that the designation of a specific place where the wine must be purchased is what renders the condition “not beyado.” ↑
48. See Arukh HaShulchan HM 207:25. ↑
49. See Rema HM 207:13 and Beit Yosef HM 207 (p.52 in Shirat Devora Edition). ↑
50. See Monestier, above note 41, p. 1170 (“courts simply rubber-stamp clauses that fall within some given range considered customary in the local area.”). ↑
51. See Arukh HaShulchan HM 207:25 explaining that per Tosafot and Rema, only promises to pay clearly exaggerated amounts are held an asmatcha. ↑
52. See sources cited in Pitchei Choshen Vol. 8 (Kinyanim) Ch. 21 at n. 25 and n. 28 (Laws of Asmachta). See also Vol. 6. (Nezikin) Ch. 3:42 at n. 98. ↑
53. For example, case law routinely holds that parties who have suffered breach are expected to mitigate damages for non-performance by accessing the credit markets and borrowing the amounts that the breaching party should have paid. For this reason, damages are typically held to the costs of credit incurred due to breach. See Destiny USA Holdings, LLC v. Citigroup Glob. Markets Realty Corp., 69 A.D.3d 212, 889 N.Y.S.2d 793 (2009); Bradford, E. & C.R. Co. v. New York, L.E. & W.R. Co., 123 N.Y. 316 (1890). ↑
54. See above note 7. Beit Yosef 207 (55-56 in Shirat Devora Edition). ↑
55. Mishnah Torah Sechirut 8:13. ↑
56. Beit Yosef Choshen Mishpat 207 (p. 57 in Shirat Devora ed.). See also Emek HaMishpat cited above note 23 at §3. ↑
57. In his Minchat Pitt’im, R. Meir Arik notes that the majority of poskim disagree with this ruling and hold that any amount that is not exaggerated is not considered an asmachta. See Minchat Pitt’im, HM 328, Sheri HaMincha 2. ↑
58. See Ramban Bava Metzia 73b and 104b; Rashba Bava Metizia 104b. ↑
59. See Ran Bava Metzia 73b and Rashba Bava Metizia 104a. ↑
60. See note 44. ↑
61. See Shut Rashba 2:268; 4:125. See also sources and analysis in Itamar Rosensweig,The Position of Rashba regarding Minhag and Dina De-malchuta, Kol Tzvi pp. 22-23 [Hebrew]. ↑
62. See for example, Yerushalmi Bava Metzia 9:3 which suggests that the liability of the sharecropper may be exceptional and does not state a universal principle. “א”ר יצחק הדא אמרה המבטל כיס חבירו אין לו עליו אלא תרעומת המבטל שדה חבירו חייב לשפות לו”. R. Gurteler cited in note 24 at pp. 47-48,52, 58 suggests that the takkana attested to by R. Hai is limited to cases parallel to the Mishnah and is not generalizable. ↑
63. For example, Or Sameach Mechira 11:6 explains that the sharecropper agreement obligates the undertaking party to pay a fixed percentage of the yield to the landowner whether the field is tilled or not. Since the obligation is absolute, the asmachta rules are not implicated. See also Yad HaMelech to Mechira 11:6 who offers a similar explanation. These approaches are offered as explanations of the Rambam, even as Rambam is generally understood to accord with Rav Hai’s explanation. ↑
64. See Rashi Bava Metzia 104b and Tosafot Bava Metzia 66a who stress the loss to the landowner. Even HaEzel Mechira 11:1 expressly justifies the payment because the delinquent sharecropper is a mazik. Ra’avad Bava Metiza 74a emphasizes that the sharecropper who fails to perform is poshe’a– negligent. ↑
65. Rashba Bava Metzia 104a. See also Ran Bava Metzia 73b
    אפילו הכי כיון דבידו ולא גזים והורגלו להתנות כן בית דין מקיימין דבריהם ודנין עליהם. ↑
66. See above note 56. ↑
67. The dominant positions in a wide range of Rishonim will be addressed in this section. The Rambam’s position is discussed below in Section VI. ↑
68. See Tur, Beit Yosef, and Rema Even HaEzer 50:6. ↑
69. See also discussion in Bais Yosef HM 207 s.v. וא״א הרא״ש ז״ל כתב בפרק ד׳ נדרים ובתשובות כלל ל״ד.Nevertheless, the Mechaber HM 207:16 and Even HaEzer 50:6 seems to reject the minhag theory since Mechaber justifies the shidduch payment either on the basis of the boshet or because the parties structured the tna’im in accord with theTakkanat Chachmei Sefarad. See below. ↑
70. See Tashbetz #398 citing the competing positions of Maharm of Rothenberg and R. Yechiel of Paris. See also Mordechai Shabbat 482-83; Shu”t HaRosh13:21; Arukh HaShulchan HM 201:3. See also sources cited in R. Ovadya Yosef Toledano, above n. 23 at section 4. ↑
71. E.g. Ketzot 201:1; Netivot 201:1 (Beurim) and 201:5 (Hiddushim). For a more complete discussion of these sources, see Ron Kleinman, Methods of Acquisition and Commercial Custom in Jewish Law, pp. 279-317 (Bar Ilan Press 2013) [Hebrew]. ↑
72. The debate regarding why a kinyan for assets not-yet-in existence (dashba”l) is not valid somewhat parallels the debate regarding asmachta. R. Hai and the Geonim understand the limitation of dashba’l as follows: since the item is not in existence, the kinyan has nothing to attach to and is invalid. By contrast R. Tam and others claim that the defect of dashba”l relates to the lack of gemirut da’at. See Kleinman pp. 280-82. The idea that minhag cures asmchata but not dashba’l, is easiest to reconcile with an approach that understands minhag as a da’at enhancer and that the concern over asmachta relates to a lack of da’at, while the limitations on dashba’l are tied to a structural defect with the kinyan itself. ↑
73. Hatam Sofer Vol. 5 (HM) §66 writes: “דכל טעמא דלא קני משום דלא סמכא דעתי’ ומכיון שנהגו שפיר סמכא דעתי’ וקני.” Rav Elyashiv and the rabbinical courts in Israel have also enforced asmachta-type damages clauses on this basis. See citations in Hillel Geffen cited in note 24 pp. 19-20. See also Gurteler at pp. 52-62, discussed below. ↑
74. Rav. Elyashiv ruled that parties who enter an obligation that is binding as a matter of civil law are assumed to have the degree of intent required by halakha to bind themselves to the agreement. See report cited in Gurteler p. 62. ↑
75. Ketzot 207:7 ↑
76. See also sources cited in n. 52 above. ↑
77. Maharik Shoresh 29. ↑
78. Beit Shmuel Even HaEzer 50:14. See Sma HM 207:47 who seems to permit even inflated amounts. ↑
79. See Pitchei Teshuva, Even HaEzer 50:9. ↑
80. See Gurteler p. 55. ↑
81. See Hatam Sofer cited above note 73.דכל טעמא דלא קני משום דלא סמכא דעתי’ ומכיון שנהגו שפיר סמכא דעתי’ וקני אך כל זה אי הוה מנהג כהאי אסמכתא דנידון שלפנינו אך אני לא שמעתי מנהג זה מעולם אדרבא בכל כיוצא בזה מדיינים עליו בדינא ודיינא הא לן בדיננו והא להו בפליליהם וא”כ לא קני היהודי השני: ↑
82. Shut Minchat Yitzchak, Vol 6 §170:20. See also Emek HaMishpat, cited in note 23 at §19. ↑
83. Gurteler, p. 54. ↑
84. See Monestier, above note 41. ↑
85. See Iggerot Moshe HM 1:72. See also R. Itamar Rosensweig, Minhag Ha-Sochrim: Jewish Law’s Incorporation of Mercantile Custom and Marketplace Norms who understands minhag as a halakhic principle of incorporation that validates the commercial norms of the general marketplace. ↑
86. Cited above note 23 at p. 897. ↑
87. See above section III. ↑
88. Piskei Din Rabaniim, vol. 14 pp. 37-41. He points out that even within Tosafot the issue of the shidduch fine is discussed a number of times and the justification for enforcing based on minhag is not always invoked. Tosafot Nedarim 27b, Sanhedrin 24b, and Kiddushin 8b each raise the issue but provide alternative explanations. The theory of enforceability based on minhag is only mentioned in Tosfaot Bava Metzia 66a. The same is true of Rosh who cites the minhag rationale for the shidduch payment in his Tosafot to Bava Metizia 66a, but omits it other places in his Tosafot and as well as in his Shu”t (34:4), and psakim. See Gurteler at p. 57. ↑
89. R. Izirer reads the Rema based on Beit Shmuel Even HaEzer 50:14, who claims the Rema holds the shidduch fine is enforceable based on boshet. See also Darkei Moshe HaArukh Even HaEzer 50 (p. 54 in Shirat Devorah ed.) which cites boshet as the primary rationale. ↑
90. Notably even R. Izirer is reluctant to reject a well established commercial minhag based solely on his analysis that the minhag thesis is not accepted as normative halakha. He reaches this decision in conjunction with additional factors, including the absence of a clear commercial custom in the case before him. See there pp. 41-42. ↑
91. Cited above note 24 pp. 57-58 ↑
92. Rema HM 207:15 ↑
93. Some Achronim sought to limit the scope of Rema’s ruling arguing it applies only when the funds were specifically escrowed in court, when the transaction was me-achshav, or that even when drafted on a secular law form, the parties lack the requisite intent since Jews assume they will litigate before a beit din that will not enforce the asmachta clause. See for example, Maharsham, Mishpat Shalom 207:15; Shu”t Minchat Yiztchak Vol. 6:170; Pitchei Choshen Vol. 8 Ch. 21 n. 44.
    None of these arguments are compelling under these facts. First, in contemporary American practice, deposit funds in real estate are not typically escrowed in court but with a private agent under a contract. Second, Rema states this rule categorically, and the most straightforward application is that dina de-malchuta theory stands independently of the usage of me-achshav. The third argument raises evidentiary complexities. For example, can the Seller claim that it only entered into the transaction on the assumption the clause would be upheld, either because it would be litigated in court or because Seller assumed the beit din would rely on one of the shittot permitting an asmachta to be enforced under these circumstances? Finally, as R. Elyashiv explains, when parties sign a document that is valid under dina de-malchuta, the presence of the gemirut da’at necessary to overcome the asmachta issue is assumed. See view attributed to R. Elyashiv, cited in Gertler, at p 62. ↑
94. See Hillel Geffen, cited in note 24, p. 23. But see Emek Hamishpat cited above note 23 at §18. ↑
95. See above note 23. ↑
96. E.g., HM 369:8. See also Shu”t Minchat Asher Vol 2 #121 at 4:9 who notes that the Chazon Ish’s view disagrees with Rema. For a more complete review of Rema’s position, see Shmuel Shilo Dina DeMalkhuta Dina (1975) [Hebrew] (Chapter 4). ↑
97. See note 74 and sources in note 85. ↑
98. Shut Maharsham 5:45. ↑
99. Rav Yitzchak Isaac Halevi Herzog, A Constitution for Israel in Accord with the Torah, Vol. 2 p. 72 [Hebrew]. ↑
100. See Kovetz Teshuvot haRav Elyashiv, 1:209.מ”מ באסמכתא מהני סיטומתא שהרי קנין במעכשיו ובי”ד חשוב מועיל גם באסמכתא … ואם צוה לכתוב בשטר שקנו ממנו בב”ד חשוב אף על גב דלא קנה מהני דהודאת בע”ד כק’ עדים דמי. ↑
101. Mishnah Torah Mechira 11:7. ↑
102. HM 207:14. Later authorities debate whether certain asmachta transactions cannot be cured by using the me-achshav terminology. See, for example, Taz there. ↑
103. Rema, id. ↑
104. Mishnah Torah Mechira 11:18 and Shulchan Arukh HM 207:16. The issue of why Rambam necessitates this more complex transactional structure if the simple formulation of me-achshav can avoid asmachta concerns is addressed by a variety of commentators. See, for example, Kesef Mishnah Mechira 11:18; Bach HM 207:20; Sma HM 207:46. ↑
105. As explained by Ran Nedarim 27b. ↑
106. See Netivot 207:19 (Beurim) and Arukh HaShulchan HM 207:47 who develop this mechanism in a way that it need not rely on the view that asmachta does not apply to cases of debt release (mehila). ↑
107. Nedarim 27b. Since a kinyan sudar is typically understood to function as me-achshav, there is extensive discussion in Rishonim and Achronim regarding the relationship between a kinyan me-achshav and the kinyan before a reputable beit din. See, for example, Bach cited in note 104; Drisha HM 207:19. ↑
108. See Ran and Rashba Nedarim 27b. Notably, Ramנam in Perush HaMishnayot to Bava Batra 10:5 holds that this rule only applies to a beth din with formal smikhah in Eretz Yisrael. ↑
109. This is made explicit in Nimukei Yosef Nedarim 9b. ↑
110. Mechaber and Rema, HM 207:15 explain:
     אַסְמַכְתָּא שֶׁקָּנוּ עָלֶיהָ בְּבֵית דִּין חָשׁוּב, הֲרֵי זֶה קָנָה, וְכָל שְׁלֹשָׁה דִּבְקִיאֵי בְּדִינֵי אַסְמַכְתָּא מִקְרֵי בֵּית דִּין חָשׁוּב לְעִנְיַן זֶה. וְיֵשׁ אוֹמְרִים דְּבָעֵינָן בֵּית דִּין חָשׁוּב שֶׁבָּעִיר אוֹ הַמֻּמְחֶה לָרַבִּים . וְאִם צִוָּה לִכְתֹּב בַּשְּׁטָר שֶׁקָּנוּ מִמֶּנּוּ בְּבֵית דִּין חָשׁוּב, אַף עַל גַּב דְּלָא קָנָה, מְהַנֵּי, דְּהוֹדָאַת בַּעַל דִּין כְּמֵאָה עֵדִים דָּמִי. ↑
111. Netivot 207:18 (Beurim). See also Arukh Hashulchan HM 207:44. ↑
112. See Pitchei Choshen Vol. 8 Ch. 21 at ¶19-21 and notes cited therein. ↑
113. For a contemporary example in English, see the “Agreement Validation” clause developed by R. Ari Marburger, available at https://www.shtaros.com/contract-halachos. ↑
114. Some dayanim indicate that the presence of such boilerplate would allow for the enforcement of even an exaggerated payment, see Emek Hamishpat, above note 23 at §24. Others however, claim that even when this language is employed, only a reasonable sum could be enforced. See Ateret Devorah, above note 23 at p. 904. The latter position is based on the assumption that, even with this language, the obligated party only has gemirut da’at to accept liability for a reasonable sum. ↑
115. Above note 1. ↑
116. See Rosensweig, cited above note 84, for a discussion of the difference between applying secular laws under dina de-malchuta dina as opposed to under a theory of minhag which proceeds along these lines. ↑