Partner With Dinonline.org – Click Here 

Shemini-Seller Withheld Information

 

Question

I was offered by a friend to invest in houses that he said were owned by a cousin of his. He told me that the price was temporarily depressed but they would hopefully recover and in the meantime I would earn a substantial profit because the houses were fully rented and in light of the depressed prices the rate of return was unusually high. He explained that his cousin was being forced to liquidate his investment because of cash-flow issues and he wanted to assist his cousin by finding people to invest. He said he himself invested but needed others as well. As far as the friend knew this was all true. However, in truth his cousin lied to him and he did not own the properties. My friend did not believe that his cousin would lie to him, in spite of the fact that he had a well-deserved reputation for being dishonest, and that is why he accepted the lies as facts. However, to his detriment, my friend, at the request of his cousin, withheld from me the identity of his cousin, information which could have helped me investigate further since the cousin had a reputation for being dishonest. Is my friend liable either because he offered me a bad investment or because he withheld key information?

Answer

We previously discussed a similar but slightly different question. We learned that the Gemora ruled that one is sometimes liable for giving bad advice because he thereby damaged in a causative way in a way that is classified as garmi. However, we saw that the consensus opinion is that the adviser is only liable if the recipient of the advice either informed him that he will rely on his advice or that this was obvious to the adviser because of the circumstances.  In your case you did not tell your friend that you were relying on his information. Therefore, the only basis for your claim is that perhaps it was obvious to your friend that you were relying on him.

There are several reasons why it is difficult to rule that your friend is liable. First, you mentioned that your friend really did not believe that his cousin would lie to him. This is obvious from the fact that he himself invested his own money in this venture. As we mentioned, the basis for any liability is garmi and the Shach rules (386, 6) that one is not liable for garmi if he made a mistake, since the Shach understands that the reason one is liable for garmi is that it is a fine which was imposed on people for causing damage. If one did not act maliciously then he does not deserve to be fined.

While even the Shach agrees that one is liable if the advisor was negligent (and that is why the person who said the coin was not counterfeit in the case discussed in the Gemora was liable), it is difficult to call this negligence since your friend is generally cautious but here he was duped – so much so that he himself invested money. This is a judgment call but we will see that there are other factors that serve to exonerate your friend.

Further adding to the difficulty to rule that your friend is liable is the fact that your friend never advised you to invest. Rather he presented you with an offer which he honestly thought was very attractive and might very well interest you, but he did not serve as an advisor. The case that is discussed in the Gemora (Bava Kama 99B) is where a person turned to an expert in counterfeit coins to evaluate the coins someone wanted to use to pay him. There, the expert’s entire role was to give advice. However, since here your friend did not play this role he can easily have assumed that he was not being relied upon for advice.

You mentioned that your friend withheld the identity of the one who was selling the houses. If this made it impossible for you to investigate the investment then it means that your friend would have had to realize that you relied on him. This will still leave us with only one judgmental reason to exonerate your friend – that he did not act with intent to damage – but nothing more. However, in your situation you had access to information which enabled you to investigate the property and to determine whether it was actually registered in the land registry with the one you were signing an agreement with and transferring your money to.

The fact that the person you were dealing with was a well-known crook was helpful information and perhaps would have caused you to refrain from investing with him, which is precisely why the crook asked your friend to withhold this information from potential investors. However, this in and of itself does not create liability since you had means of verification available and as far as your friend knew you utilized them before you actually invested. This is the key factor in determining whether your friend is liable: whether he was being relied upon or not, and not for withholding helpful information. At the end of the day the reason both you and your friend lost money is because neither of you did proper due diligence. You relied on your friend (but he did not necessarily realize this) and he relied on his cousin.

We should note that the fact that the one who informed you about the investment was a fellow investor and furthermore that he was trying to assist his cousin is another reason to exonerate your friend, since this makes him less reliable and consequently it is less likely that your friend thought that you relied on him.

This factor is mentioned by several poskim. For example, Rav Yitzchok Elchonon (Ein Yitzchok Even Hoezer 1, 68, 21) uses this argument to explain the halocho (CM 232, 20) that one who sold seeds that did not produce a crop is not liable for the expenses incurred by his customers even though he knew that the seeds he sold would not produce a crop. He explains that the seller could have assumed that the customer would not rely upon him since he was interested in selling the seeds. (Mishpat Hamazik (1, page 277) points out that today this perhaps would not be the fact since he would end up without a business.) He explains with this why (ibid 21) if the customer informed the seller that he intends to take the seeds to a different location, the seller is liable for the customer’s transportation costs. The reason is that the fact that the buyer went out of his way to inform the seller of his intentions is tantamount to informing the seller that he is relying upon him that the seeds will produce a crop.

Rav Shlomo Eiger (Res. CM 23) also rules that an agent is not liable for incorrect information that he provided one party about the other since each side naturally should suspect that he will provide incorrect information since he only earns money if a deal is closed. He rules that the agent is only liable if he was informed explicitly by the damaged party that he will act based upon his word. This is also the ruling of the Erech Shai (CM 129, 20) that an agent who stated that his brother is wealthy when he was not, is not liable for the loss suffered by the seller who sold merchandise to his brother on credit. The reason is that the seller should not have relied upon the agent’s statements about his brother since it is expected that anyone will try to help his brother, and this is certainly true for an agent who earns money himself only from the successful conclusion of a deal.

In conclusion: Your friend is not liable since you did not explicitly inform him that you relied upon him and it was not clear to him that he was being relied upon.

 

 

 

Leave a comment

Your email address will not be published. Required fields are marked *