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)
It should be noted that the determination of one sixth as the minimum required for invoking monetary remedies applies only to the value of the item. If, however, the sale was transacted by size, weight, or number, and an error occurred, the seller must make up for his error, no matter how small. The same applies to defective merchandise:
“If one sells commodities to another by measure or by weight or by number and has made even the slightest error, the difference must always be returned, because the laws of overreaching apply only to errors in money value, while in errors in quantity the difference must be returned. Thus, if one has sold to another one hundred nuts for a dinar and it is found that there were one hundred and one or ninety-nine, the transaction is valid, but the amount of the error must be returned to the aggrieved party.... So too if one has sold [an item]... and a defect of which the purchaser was unaware is found on the purchased article, the purchaser may return the article even after the lapse of many years because this was a transaction in error....” (Maimonides, Mishneh Torah, Laws of Sale 15:1)
The monetary regulations concerning overreaching comprise numerous details. Their place, however, is to be found within the civil law. Unlike the monetary remedies which look essentially to the past, granting ex post facto remedies to the aggrieved consumer, the prohibition of overreaching protects the consumer by establishing a norm of behavior for the future. We now turn to a discussion of the prohibition.
Are Real Estate and Small Infractions Covered?
The scope of the prohibition is not identical to the scope of the monetary measures available in cases of overreaching. Whereas overreaching is not actionable in immovable property or where the amount is less than one sixth of the market value, there are those who hold that the prohibition nevertheless applies to real estate and to overreaching less than one sixth.
Buyer and Seller
The prohibition of overreaching applies to both buyer and seller. This is inferred from the relevant biblical passage, which discusses both buying and selling (see above, second paragraph).
Sale and Rental
The prohibition of overreaching applies not only to sale but to hire as well, given that the latter is regarded as a temporary sale. Maimonides writes: “If one hires utensils or livestock, the transaction is subject to the law of overreaching because hiring is equivalent to a sale for a day.” (Maimonides, Mishneh Torah, Laws of Sale 13:17)
Can You Sign Away Your Rights? Sometimes
Is the law of overreaching dispositive, in the sense that it can be being excluded by express stipulation? The Talmud reports the following difference of opinion between [the third-century Babylonian sages] Rav and Sh’muel [or: Samuel]:
“If one says to his neighbor, ‘I agree to this sale on condition that you have no claim of overreaching against me’ -- Rav said, ‘He nevertheless has a claim of overreaching against him.’ Whereas Sh’muel said, ‘He has no claim of overreaching against him.’” (Babylonian Talmud Bava Metzi‘a 51a)
The law was decided in accordance with the opinion of Rav, though his opinion is construed restrictively:
“If one says to another, ‘I will sell to you on condition that you have no claims of overreaching against me,’ the other nevertheless has claims of overreaching against him. This rule applies only in a sale where the buyer does not know the amount of the overcharge to which he should waive his right; and needless to say, this rule applies if one has said, ‘on condition that there is no overreaching therein,’ since there is overreaching therein.
“However, if the amount of the overcharge is known, then the aggrieved party has no claim for the difference because all stipulations made in monetary transactions are binding.
Thus, if the seller says to the buyer, ‘I know that this article which I sell you for two hundred zuz is worth one hundred only, but I sell it to you on condition that you have no claim of overreaching against me,’ then the buyer has no claim of overreaching. Similarly, if the buyer says to the seller, ‘I know this article that I buy from you for a mina is worth two hundred zuz, but I buy it on condition that you have no claim of overreaching against me,’ then the seller has no claim of overreaching.” (Maimonides, Mishneh Torah, Laws of Sale 13:3-4)
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