Fraudulent Pricing in Jewish Law
A seller charging more than fair market value can be forced to rebate the difference, or even to cancel the sale.
Reprinted with permission from Ethics in the Market Place: A Jewish Perspective, published by The Library of Jewish Law, 2000, where extensive notes supplement the text presented here.Rakover uses the term "over-reaching" where most of us would say "overcharging." The reason for the exception made for real-estate sales (see below) is debated in Jewish legal literature, with one opinion being that land is an inexhaustible resource and therefore people are willing to pay extremely high prices for it.
The Prohibition and its Result
The biblical term ona’ah -- variously translated as overreaching or fraudulent pricing -- is used in two different ways in Jewish legal sources. In the first use, the term refers to the prohibition itself:
It is forbidden for a seller or a buyer to defraud his fellow, as is said (Leviticus 25:14): “And if you sell anything to your neighbor or buy of your neighbor’s hand, you shall not wrong one another.” (See Sefer Ha-hinukh, commandment 337.)
In the second use, the term refers to the effect of the prohibited act upon the monetary rights of the victim vis-a-vis the perpetrator:
Whether one overreaches knowingly or is not aware that there is any fraud [ona'ah] in this sale, he is obligated [to make restitution]. (Maimonides, Mishneh Torah, Laws of Sale 12:1)
Protection against overreaching is granted to the consumer in the form of a monetary remedy: the defrauding merchant has to refund the difference between the market value of the item and the amount paid. Moreover, when the fraud amounts to more than one sixth of the market value of the item, the seller may face cancellation of the entire transaction. On the other hand, when the difference between the market value and the amount paid is small -- less than one sixth of the market value -- there are no monetary consequences for overreaching. Thus, only transactions where the amount of overreaching was small were treated as final:
“How much does the overreaching have to amount to in order that he who committed it shall be obligated to repay it? A sixth of the value of the article... constitutes fraud in which the transaction is valid but the defrauder has to pay the entire difference to the aggrieved party. If the overreaching amounts to anything less than that, the defrauder is not obligated to repay anything, because it is the general custom to waive the right to frauds amounting to less than a sixth. If the overreaching amounts to anything more than a sixth..., the transaction is void and the aggrieved party may return the article and not buy it at all. The defrauder, however, may not retract if the aggrieved party wishes the transaction to stand....” (Maimonides, Mishneh Torah, Laws of Sale 12:2-4)