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Beshalach-Invested and Lost, based on Poor Advice

BS”D

 

Question

A little over a year ago a friend of mine informed me of an investment that he had recently made in a start-up that was founded by a long-time acquaintance of his. He told me that the founder had a string of successes in his past ventures. After hearing the details, I invested money in the start-up as well. After a year the start-up collapsed and I lost my entire investment. I later learned that the founder never had any success with his previous ventures and had just told my friend stories that were not true. Do I have a monetary claim against my friend since my investment was based on false information that he fed me? I did not know anything about the founder except what he told me and of course had I been given correct information I never would have invested.

Answer

Your case is similar to a situation discussed by the Rama (129, 2) in the section of Choshen Mishpot that discusses the laws concerning guarantors of loans. The Rama writes, “Not only a guarantor of a loan is liable if the borrower fails to pay back the loan, but even one who advised someone to lend someone money is liable if he caused the lender to lose money because he provided him with false information.” This seems to be exactly your situation and would seem to indicate that your friend is liable. However, it is important to investigate further.

The first issue is on what basis is the one who provided false information liable. The fact that the Rama recorded this law in the section that deals with guarantors would indicate that one who gives advice is classified as a guarantor, and if the advice was bad and caused a loss he is liable on that basis.

While there are commentaries who understand the Rama in this manner, the opinion of the major commentators (Yam Shel Shlomo (Bava Kama 9, 24), Sema (129, 7), Shach (129, 7), Nesivos (129, 2)) is that the liability of the one who gave incorrect information is in the category of causative damages for which one is liable, known as garmi. (As a result the Nesivos rules that, according to the Shach who maintains that the heirs of one who is liable for garmi are not liable for this debt, if the one who provided the incorrect information passes away, his heirs are not liable.)

The commentaries who classify the damages as garmi say that the source of the ruling of the Rama is a Gemara (Bava Kama 99B) that discusses an expert in counterfeit coins who rendered an incorrect opinion, which caused a loss to the one who accepted a counterfeit coin based on the mistaken advice. The precise ruling of the Gemara is that an expert is only liable if he was paid to render an opinion, but one who is not an expert is liable even if he gave free advice. The commentaries understand that one who rendered an opinion about a person is similar to one who rendered an opinion about a coin.

When ruling about the liability of one who incorrectly recommended a counterfeit coin, the Shulchan Aruch (CM 306, 6) records a major dispute. The Mechabeir, based on the Rif and Rambam, rules that the advisor is liable (if the advice was free-see Nesivos 11) only if the recipient either informed him, or it should have been clear to the advisor, that the recipient will act based solely upon his advice. The Rama mentions the opinion of the Rosh that the advisor is liable even if he was not informed by the recipient of the advice, but the Rama rules against this opinion and agrees with the Mechabeir. The Shach agrees with the Rama on this point but mentions that the Maharshal rules that the Rosh’s opinion is authoritative in the case of the counterfeit coin.

The previous dispute is also cited in the discussion of one who gave a loan based on misinformation. The Maharshal agrees with the Mechabeir that the advisor is only liable if the recipient of the advice informed him that he will rely solely upon his guidance. He says that the reason why, in his opinion, this was not necessary in the case of the counterfeit coin is because there the recipient was required to accept the coin if the expert said it was not counterfeit. However, here in the case of the loan where this was not the case, he agrees that the advisor is only liable if he was properly informed by the recipient of the advice.

The Chavos Yo’eir (res. 64) also rules that where one expressed his opinion about a borrower’s ability to pay, all agree that the advisor is only liable if he was informed by the lender that he will rely totally upon his advice. His reason is that the usual practice is for people to ask several individuals about a person’s ability to repay because of the difficulty to assess a person’s ability to pay.

The Tumim (129, 3) notes the fact that the Rama failed to mention in the case of the loan that the advisor is only liable if the solicitor of the advice informed him that he will act based upon his advice. As a result, he is diametrically opposed to the Maharshal and Chavos Yo’eir and rules that everyone agrees that one who incorrectly assesses a borrower’s likelihood to repay a loan is liable even if he was not informed by the lender that he will rely totally upon his advice. He explains that the reason it was necessary for the buyer to inform the advisor in the case of the counterfeit coin is only because otherwise the expert could have thought that he was being asked by the recipient after he had already accepted the coin and the reason the recipient asked his opinion was because he was interested to know if he was swindled – but there were no monetary consequences that would result from his opinion. Therefore, he maintains that whenever it is clear that one’s advice is pertinent for future actions of the solicitor of his advice, the advisor is liable even if he was not informed that the solicitor will rely on his opinion.

However, the opinion of the Tumim was not accepted by later poskim. For example, the Beis Shlomo (CM 36) and the Sefer Yehoshua (siman 110) rule that even if even if the solicitor of the advice held money which belonged to the advisor, he cannot hold on to it based on the opinion of the Tumim.

The Aruch Hashulchan (129, 3) has an intermediate opinion. He maintains that we must differentiate between one who was merely asked whether the borrower was reliable and replied that he was reliable, and one who initially suggested to the lender to lend the money. He reasons that it is understood that one who initially suggests an investment investigates matters much more carefully than one who is merely asked for his opinion. Therefore, if the one who suggested the investment mentioned that the recipient is reliable, then he is liable if the recipient turns out to be unreliable, even if he was not informed by the investor that he is relying upon him.

However, there are many poskim who argue with the Aruch Hashulchan. For example, the Pischei Choshen (Halvo’o 13 footnote 4) says that the rule of the Aruch Hashulchan is not ironclad, since often a person who suggests an investment has no intention of assuming responsibility if the borrower turns out to be crook. Furthermore, the Sefer Yehoshua (res. 110) and the Beis Shlomo (CM res. 36) also rule that one who gave unsolicited advice is not liable for his bad advice if he wasn’t informed by the lender that he will rely solely on him.

In conclusion: Unless you informed your friend that you were relying on him, or at least it should  have been clear to your friend that you were relying totally upon his advice, your friend is not liable for your loss.

 

 

 

 

 

 

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