Consumer Protection: Price Fraud
Dr. Itamar Warhaftig
Consumer Protection: Price Fraud
Dr. Itamar Warhaftig
Reprinted with permission from "Crossroads: Halacha and the Modern World, Vol. II," Published by Zomet Institute (Alon Shvut-Gush Etzion, Israel)
The first part of this article1 discussed economic policy concerning price-levels, profits, wages, and the like.
In the present section, we will analyze the halachic approach to the relationship between the seller or provider of services and the consumer. How are they to behave vis-a-vis each other? What is the sanction for improper behavior? This topic includes: The obligation to disclose information relating to price and quality; advertising and display; warranty and guarantee, etc.
Although the requirement of honesty and fairness in trade applies equally to both sides, we are most concerned with the seller, especially in a modern market where the consumer is at an inherent disadvantage vis-a-vis giant merchants and manufacturers. All too often. the individual consumer pays well and receives less than he deserves.
Halachic literature contains a great deal of material concerning this topic. Although the sources deal with the problem casuistically. we shall attempt to derive general halachic principles from the multitude of specific cases.
Since these laws are based on honesty and fairness, they are not subject to contemporary whims. However, socio-economic changes will affect the cases that are decided according to these eternal principles. This will at times obstruct our ability to find direct answers to our problem in the classical sources. For example, the question of manufacturer liability for defective merchandise has a different character today than in Talmudic times. Few sources can be found to bear on the question of advertising as practiced in the modern world. On the other hand, there are topics that are dealt with exhaustively in the Talmud which today are nearly completely irrelevant to financial disputes, such as methods of acquisition, acquiring objects not vet existing. etc.
Already at the outset, it can be stated that the Halacha not only prohibits fraud in business but also prescribes a high moral level of truth and fairness unparalleled in other legal systems. This imperative is not only a religious ideal but, to a great extent, carries legal sanction as well, as we shall see.
We shall, in the present article discuss the laws of price fraud. The source of this law appears in the Torah (Lev. 25,13) in the context of the sale of land during a period when the law mandates the return of the land to the seller at the jubilee year. The Talmud views this passage as the source of the laws of fraud in general and price fraud in particular, and derives from it many details not explicitly specified in the verses.
The standard case of fraud in the Talmud is price fraud (ona'a), where a disparity exists between the price received for the object and the market price. The correct price is officially set by the authorities or is the prevailing price in the marketplace, and one of the sides to the transaction is not aware that he is paying more or receiving less than that price.
This situation immediately raises a basic question of commerce. On the one hand, there is a broad trend in favor of free trade, enterprise, and competition, and therefore we abstain from setting fixed prices for most items. The price is dependent on the pressures of supply and demand in a free market. Our assumption is that this system maximizes economic benefit. Under this system, the seller, operating in his own interest and not as a financial advisor of the consumer, attempts to achieve the highest degree of profit possible. So long as he does not deliberately mislead the consumer, he feels no obligation to inform him of prevailing market conditions relating to price or the availability of comparable merchandise. That is the responsibility of the consumer, as enshrined in the Roman injunction, accepted by English law - caveat emptor" - let the buyer beware.
On the other hand, we accept today that society has an obligation to protect the consumer. We insist that the seller not cheat the buyer. that he describe the item accurately, and furthermore that he not conceal any defect or suppress any relevant information.
In our case, there is no defect in the object itself, by virtue of which the buyer could claim that he has not received that which he agreed to buy. The "problem" is not the object itself. but an external fact. In general. a free market would not consider this to be fraud; on the contrary, it is perfectly legitimate to conceal this sort of information. Many legal systems attempt a compromise in the case of price. whereby a large differential between the price received and the market price would serve as a reason to cancel the transaction. while a small difference would be considered legitimate in a free market. This is the case under Israeli law today. The Halacha however. applies sanctions to a transaction with a differential as small as 16%. and there are opinions that prohibit fraud even below 16%, although the sanction is not applied at that level.2
After discussing various opinions. the Talmud (BM 50b) concludes: "Rava said: The law is that less than a sixth, the sale is binding; more than a sixth. the sale is cancelled; a sixth, the sale is binding and the fraud is refunded."3 There are two assumptions at the base of this law. Firstly, there exists a standard market price from which the sale price deviated by a sixth or more. Secondly, the victim was not aware of the fraud and therefore it cannot be claimed that he waived or agreed to pay more than the market price.
Less then a sixth: The sale is binding. The differential is small, and it may be assumed that it is waived by the buyer. (In this article, we assume that the seller is committing the fraud and the buyer is the victim, although, as was stated at the outset, legally there is no difference between fraud by the seller or by the buyer.) The Ramban (Commentary to the Torah, Lev. loc.cit.) maintains that even though the buyer is presumed to have waived the fraud and is therefore not entitled to a refund, the seller has transgressed a prohibition. The Chinuch (337) states that it is permissible to charge up to one sixth more than the market price, "so that the necessities of men will be available." The Rosh (BM 4.20) is undecided on this question. and rules that "one who fears God will fulfill both opinions." In the Shulchan Aruch (ChM 227,6), both opinions are quoted without a decision. The Bach prohibits overcharging by even less than a sixth. The Sma apparently maintains that if one did so, it is proper to return it, although the buyer does not have the right to sue.
Exactly a sixth: The sale is binding and the fraud must be refunded. Most authorities maintain that the buyer cannot cancel the transaction, but is only entitled to a refund of the excessive payment. Rabbenu Tam (Tosafot. BM 50b, s.v. "Amar") contends that the buyer has the option of demanding a refund of the excess or a cancellation of the transaction, but his opinion is not accepted. We shall consider the explanation of this law below.
More than a sixth: The sale is cancelled. A discrepancy of this magnitude is equivalent to a fraud in the object itself.
Is the cancellation a right of the buyer alone. or can the seller also cancel the sale in this case? Can the buyer obtain the refund of the excessive payment without cancelling the transaction? There are four opinions dn this matter.
1) The Tosafot (BM 50b. s.v. "Ve-ilu") states that it is the equivalent of the sale of wine which turns out to be vinegar. which is automatically abrogated, and both parties may initiate the cancellation.
2) The Rosh quotes Rabbenu Yona, who maintains that if the buyer has not yet explicitly accepted the fraud, or if the time period for cancelling the sale has not been exceeded (see below), the seller may cancel. Once the buyer waives his rights and accepts the sale as is, the seller cannot cancel unilaterally. The Rama cites this opinion in the Shulchan Aruch (227,4).
3) The Rivam (Tosafot, ad.loc.) contends that the seller never has the right of cancellation. However, if the buyer demands the return of the excessive amount alone, the seller can force the cancellation of the sale.
4) The Ramma (Yad Ramma, BB 83b) claims that even the buyer cannot cancel the sale outright, but must initially demand the refund of the excessive payment. Only if the seller refuses to refund the amount of the fraud can the buyer cancel the transaction.
B. Period of Cancellation
The Talmud limits the right of the buyer to a period in which he could "show it to a merchant or a relative." After this period. we assume that the buyer is aware of the fraud and his continued silence implies acceptance (BM 50b). What is the practical interpretation of this period? Is it a fixed time or is it dependent on circumstances?
The Tosafot (BNI 49b, s.v. "kidei") asserts that it is a fixed time-period. unaffected by the distance between the buyer and a merchant or his relative. Other authorities evince more flexibility on this question. The Rambam (Hilchot Mechira 12,11). for instance. states that certain objects. such as precious stones. require an expert appraisal. and therefore the buyer is granted an extention in which to meet with such an expert. The Rosh (BM 4,15) declares that if the buyer can substantiate that he was unable to compare prices in the standard time, he retains the right to cancel the sale. From the Chinuch (337) it appears that the period is not fixed at all, but is set by the judge in each case as he sees fit.
This only applies to a buyer. A seller who has been defrauded can renege at any time, since he does not have the object in hand to show to an appraiser. He only discovers the fraud when he happens to encounter the same object for sale at a higher price (BM 51a). Accordingly. the Rambam (Hilchot Mechira 12,6) concludes that if the object is a standard one, "such as peppers". he may cancel only during the time that he could inquire as to the market price. The Rashba disagrees and allows no exceptions to the unlimited period of cancellation of a defrauded seller.
Ona 'a is a law derived from a particular passage in the Torah. Consequently, it does not apply in all cases. We shall therefore succinctly survey the exceptions articles, transactions, and individuals, the particular circumstances of each case and the reason for the law.
The Talmud (BNI 56b) derives from the Torah verses that ona'a does not apply to deeds, land, slaves, and sanctified objects.4
a)Deeds - The Talmud excludes deeds from ona'a since they are not intrinsically objects of value but exist only as proof of indebtedness. The Ketzot HaChoshen (126,30) and the Divrei Chayim ("On a'a", 36) disagree whether debts are subject to the laws of ona'a. A practical question exists today regarding stock shares and other financial paper. One the one hand, the share represents no more than certain rights of the holder vis-a-vis the company, and is therefore similar to a deed which is only a proof of something else with monetary value. On the other hand, if the Halacha does not recognize the incorporation as an independent legal entity, it is, in effect, a partnership, and the sale of a share by one of the partners is a sale of his share of the company's assets, which is subject to the laws of Ona'a. The entire question of the status of limited partnerships and incorporations requites further study.5
b)Land - The Talmud (ibid.) limits the applicability of ona'a to "objects sold from hand to hand." This excludes real property, which is immovable.
Why is ona'a inapplicable to land? The Tosafot (BB 61b s.v. "shma mina") declare that it is a divine decree, without a rational reason. The Chinuch (337) however, offers a rationalization. "Since land is a permanently enduring object, people are wont to waive price fraud after the fact, in the same way that the Sages stated, in an exaggerated manner, that land is worth any amount of money (BK 14b)." In other words, since it is an inexhaustible property, people are willing to spend more than the going price for land.
One can suggest an additional rationale. Land is immovable and is therefore different. Movable objects are interchangeable and therefore it is possible to determine a market price for them. Land is immovable and its price depends to a certain extent on its location. Hence, there is no standard market price for land.
In any event, the exceptionality of land is restricted by various authorities in several ways. Firstly, the Ramban (Commentary to the Torah, Lev. 25,15) maintains that although there is no sanction for price fraud in land, it is prohibited. He points out that the original case in the Torah from which the laws of ona'a are derived is one involving the sale of land. The Tosafot (BM 6 1a s.v. "Ela") apparently contend that there is no prohibition.
Secondly, there are opinions that apply ona'a to land above a certain degree. One opinion cited by the Rif (to BNI .57a) applies ona'a to land above one sixth, limiting the exception to the law of exactly a sixth only. A more widely accepted opinion is that of the Tosafot (BM 57a, s.v. "Amar"). who assert that ona'a applies to fraud of 100% or above. This opinion is accepted by the Rama (227,29). The Rambam, however, maintains that since the fraud is not inherent in the object but only in the price, ona'a does not apply to land at any rate of fraud; this is the opinion cited by the Shulchan Aruch (ibid.).
c) Exclusive objects - R. Yehuda excludes various objects from ona'a because they do not have a standard price. He mentions Torah scrolls, animals. and pearls as examples of this principle. The Talmud (BM 58b) explains that a Torah scroll has no limit to its value, and animals and pearls can be of excessive value to a given individual if he wishes to match them to one that he already has. R. Yehuda b. Beteira adds a horse, sword, and shield to the list, since one may be willing to pay an excessive price for them if they are needed for battle.
Although the Rif (ad.loc.) quotes an authority who accepts this opinion. all other authorities, including the Rif himself, reject it. If there is a market price for these objects, any deviance from it is considered fraud.6
The classic case of ona'a is a sale. What about other types of transactions?
a) Leasing - The Talmud (BM 56b) concludes that leasing (movable objects) is subject to the laws of ona'a, as "a lease is a temporary sale." However, the time limitation that applies to cancellation of sales does not apply here (Rambam, Hilchot Mechira 13,17). It is not customary to obtain appraisals for objects rented for temporary periods, and therefore failure to renege in a given period is not cause to assume waiver (Magid Mishna, ad.loc.).
b) Employment - Is there ona'a for wages? The Talmud does not explicitly discuss this question. The Rambam distinguishes between a salaried worker and a contractor. For the former, the Rambam states that there is no ona'a, "for he has bought him temporarily, and there is no ona'a for slaves" (Hilchot Mechira 13,15). In the latter case, he states (13,18): "In my opinion, the contractor is subject to ona'a.... Both the contractor and the (property) owner can cancel without time limit." The Maharam Rottenberg (Responsa, Bloch ed., 749) rules that ona'a applies to salaried workers as well, but his opinion is not cited in the codes.7 The Ramban and the Rashba (BM 56b) maintain that ona'a does not apply to wages. both of a salaried worker and a contractor. Apparently, they limit the laws of ona'a to the case explicitly referred to in the Torah, namely sales. The Terumat HaDeshen (318, cited by the Rama 227,33) adds that if a worker is hired with his own tools, there is ona'a relative to the value of the tools.
c) Barter - In a sale, an object is exchanged for money. At times one object is exchanged for another. This transaction is called chalipin. Must the objects exchanged be of equal value in order to avoid ona'a? The Talmud refers to this case only indirectly (BM 46b). The Rif and the Ri Migash (Shita Mikubetzet ad.loc.) maintain that barter is not considered a sale and is not included in the laws of ona'a. The Ramban and the Ritva (ad.loc.) contend that there is no intrinsic difference between barter and sale. However, it is conceivable that in a case of barter the parties are not concerned with the exact value of the objects. Therefore, if there is circumstantial evidence that they are interested in the value of the objects, e.g., if they had the objects appraised before the transaction, ona'a applies.
The opinion of the Rambam and the Shulchan Aruch is not clear. The Rambam (Hilchot Mech ira 1 3,1) states: "If one exchanges utensils for utensils or an animal for an animal, even a needle for garments or a goat for a horse, there is no ona'a, for he wants the needle more than the garments. But if one exchanges fruits for fruits, whether they have appraised them before the transaction or afterward, there is ona'a." The Shulchan Aruch (227,20) quotes the Rambam verbatim.
The distinction between utensils and fruits is not immediately clear. See the Magid Mishna and the Kesef Mishne (ad.loc.); Machane Efraim, "Ona'a", 8; S'ma, Pitchei Teshuva, to the Shulchan Aruch, loc.cit; Chukat Mishpat, Hilchot Mechira 18,15.
Our next topic concerns exceptions due to the nature of the individual parties to the transaction.
a) Non-Jews - The Talmud (Bech. 13b) states that price fraud is not refunded to non-Jews. The question remains whether the act is prohibited. Although fraud is prohibited, "both in relation to Jews and non-Jews", it is possible that price fraud is not included, since the buyer has agreed to the price and the fraud is not inherent in the object itself. The Shulchan Aruch HaRav ("Ona'a", 11) rules that it is prohibited. The Minchat Chinuch (337) maintains that if both parties are non-Jews, it is prohibited, but not if one party is Jewish. The Rambam and the Shulchan Aruch make no mention of any prohibition, which implies that it is permitted.
b) Agent - If the victim of the fraud was an agent for someone else, the Talmud (Kid. 42b, Ket. 99b) states that the actual party can cancel the sale even in those cases where he could not do so had he been a direct party to the transaction, such as less than a sixth (or exactly a sixth) or land sales. The buyer claims that he did not waive his rights, and accuses the agent of exceeding his mandate by agreeing to the sale. The transaction is cancelled because the agency is abrogated. The Rambam (Hilchot Mechira 1 3,9) adds that the same applies to a guardian acting for his charge. However, if the agent has an independent personal interest in the sale, for instance if he is a partner in the purchase8 or a public representative for a communal purchase9, the sale is subject to the normal rules of ona'a.
If the agent was the perpetrator and hot the victim of the fraud, there appears to be no reason to grant the buyer the right of cancellation beyond that accorded him in the usual case of price fraud. The Rosh (Ket. 11,16) however, cites an opinion that the Sages equated the two cases and granted extraordinary rights of cancellation to the buyer in this case as well. The Shulchan Aruch (227,30) quotes both opinions.
This presents a problem today, when in many stores an agent of the owner is the salesman. If the price exceeds the market price by less than a sixth, can the consumer renege? However, as we shall see below, in most cases today it is impossible to establish a market price, and, even where there is one, it falls in a range of values, so that cases of ona'a arc, for the most part, eliminated. Furthermore, a salaried worker has a stronger link with his employer than an unsalaried agent (BM 10a, cf. Tosafot ad.loc. s.v. "Tofess"), and therefore should possibly be viewed as equivalent to the owner for the purposes of ona'a.
c) Private Seller - The regular case of ona'a concerns a merchant. If the seller is a private individual selling his personal effects10, the Talmud states that ona'a does not apply, as he is not operating under the rules of the marketplace, but rather evaluates the article in accord with his personal attachment to it. Knowing this, the buyer willingly waives his rights of protection under the ona'a laws. This applies only to personal effects and not to other objects that he happens to be selling. Rashi explains that these effects are precious to him, so he sells them more dearly, and it is as though he has explicitly stipulated that there is ona'a....
What if the seller was defrauded? The Tur (227) quotes two opinions. The Bach (ad.loc.) claims that a private individual operates completely outside the laws of the marketplace, and it is quite conceivable that he knowingly sells his personal effects for less than the market price.
One opinion cited by the Shulchan Aruch (227,23) limits this law to ona'a of one sixth. If the ona'a is greater, the sale may be cancelled. Others disagree (Shulchan Aruch, loc.cit.).
D. Stipulation and Waiver
Fraud is based on the withholding of information. It follows that if, for example, the seller explicitly stipulates that the price is higher than the market price, and the buyer accepts this, the laws of ona'a are inapplicable. It is not comparable to usury, where the borrower agrees to pay interest only because he is in need of money, and therefore his waiver of the usury laws is not binding. Here, the buyer can obtain the merchandise elsewhere at the market price.
Two kinds of situations may be distinguished in this respect. Normally, explicit stipulation is required. Under certain conditions, the stipulation is assumed and need not be explicit.
In a normal sale, Rav states that a general waiver is not effective, as "he does not know what he is waiving." The buyer hopes that the price will not be excessive and does not fully and totally agree to waive the fraud. The waiver is valid only if expressed specifically. "The seller says to the buyer: "I know that this object that I am selling you for two hundred is worth only one hundred. I stipulate that the sale not be subject to ona'a." (BM Sib) The Rambam (Hilchot Mechira 13,3-4) requires that the differential in the price be explicit, as in the case cited in the Talmud. Others require only explication that there is fraud in this specific case, without noting the exact differential.11
In a number of cases, explicit stipulation is unnecessary. One case is that of a private seller, discussed above. Other examples include:
1) At times, a buyer pays with a handful of currency, assuming it to be the appropriate amount for the sale, only to discover that, in reality, the sum is not what he or the seller assumed. (A similar case can occur when produce is sold in this manner.) The Shulchan Aruch rules that this is a case of ona'a, whereas the Rama (based on a ruling of the Rosh) says that this is an irresolved question, hence the sale is valid. It would appear that the opinion that this type of case is not categorized as ona'a is based on the assumption that the buyer has waived the right of cancellation.
2)Barter - We have previously discussed the question whether ona'a applies to barter. In any event, under certain conditions, if they did not ascertain that the objects were of equal value, there is an assumption of waiver and ona'a does not apply.12
3) Cost-plus - If a seller declares in advance that he is interested in a fixed profit on his investment, without reference to the market price, ona'a does not apply, even though the seller was defrauded when he purchased the item originally. The Sma rules that this is true even if the buyer does not know the base price on which the sale price is figured, since he has explicitly stated that he believes him and will pay all his expenses together with a certain profit, so that from the beginning they were not basing themselves on the value of the object. If the seller deceives the buyer concerning the base price, there is ona'a, and he must refund the excess amount.13
4)Excessive ona'a - If the differential is very large and obvious, we may assume that the buyer must have been aware and has therefore knowingly paid the price (BB 78a, Shulchan Aruch 220,8).
5)Silence - The Bach (227, s.v. "Garsinan") maintains that if at the conclusion of the transaction the buyer is aware of the fraud and remains silent, it may be assumed that he has waived the ona'a, unless he informs witnesses that he is not waiving his rights. The Rama (227,7) however, contends that it is possible, in a case of ona'a of one-sixth, that he wishes to affirm the sale while reserving his right to subsequently receive a refund of the excess. This, of course, will not apply to more than a sixth, where there is no reason to postpone cancellation.
E. Ona'a as an Independent Category
A central question concerning the nature of the law of ona'a is its relation to the category of theft. This in turn depends primarily on a clearer understanding of the requirement to refund ona 'a of one-sixth. What is the source and nature of this law? Since the sale is binding in this case, there apparently exists sufficient awareness and consent (gemirut daat) concerning the transaction per se. What then is the basis for the obligation to refund the excess?
Two basic approaches to the laws of price fraud may be discerned in halachic literature. We shall attempt to explain the law of refund as well as several other laws accordingly.
One approach views ona'a as a kind of theft. The Talmud (BM 61a) distinguishes between theft and ona'a, in order to explain why a separate passage was required to prohibit the latter. Nonetheless, it is possible to argue that once the Torah prohibits price fraud, despite its resemblance to normal commerce, it is to be viewed as a novel form of theft. The seller has received money that is not coming to him. Accordingly, he must refund the excess sixth, in the same manner that a thief must return what he has stolen. (See Tur 227, Bach and Prisha ad.loc.)
Alternatively, one may view ona'a as an independent legal category, unrelated to theft. Since, as the Talmud states, ona'a is perpetrated without violating the requirements of normal commerce, it cannot be considered theft, but only an infringement of the fairness expected in financial transactions. The Torah expects us to behave in accord with certain standards of brotherhood and fairness, and consequently not to conceal vital information regarding the market price from the other party.
A general source for this standard of behavior is found in the verse, "Your brother shall live with vou." This is an exalted moral principle which carries specific practical ramifications; e.g., the obligation to refund illegal interest is derived by the Talmud from this verse (BM 62a). It is therefore possible to argue that the obligation to refund the excess payment in cases of ona'a derives from the same verse.14
In any event, there are several specific regulations in ona'a that are not applicable to theft, so that it is clearly not identical with theft. These regulations are most easily explained in accordance with the second approach. For instance, ona'a does not apply to non-Jews (although theft does), just as the prohibition of usury does not apply. This is understandable according to the second approach, as an obligation based on brotherhood ("Your brother shall live with you") is not applicable to non-Jews.
Another regulation peculiar to ona'a is the time-limit imposed on the rights of the buyer. We do not insist that the victim of theft or an inherently fraudulent sale cancel within a given time period. His silence is not taken to imply acceptance and waiver: This could be explained conventionally -merchants customarily check prices but do not necessarily investigate possible defects. However, it seems to me that this regulation reflects the unique and independent character of these laws. We are making a special effort to aid the buyer, despite the satisfaction of basic commercial requirements in this sale; therefore, we are justified in demanding that he make the effort to quickly investigate the market prices, within a specified time. Correspondingly, if he has determined that he was defrauded and he remains silent, he forfeits his right, for we assume that he has waived it and accepted the price differential as a normal feature of commerce.
Another peculiarity of ona'a is the exclusion of various items, such as land and deeds, which is not the case in theft. It is also worth noting the opinion of Rabbenu Chananel (BM Sib) that ona'a is treated as a ritual prohibition and not as a monetary matter, which implies that it is different than theft.
The independence of ona'a is also indicated by the fact that the obligation of refund exists at only one point, a sixth, while greater frauds result in the cancellation of the sale. This, of course, brings us to consider the nature of the law of cancellation. Are we still in the singular area of ona'a, or is it now considered to be an inherently fraudulent sale (mekach ta'ut)? On the one hand, the buyer can cancel the sale as in the case of inherent fraud. On the other hand, the time-limit of ona'a still applies. This is apparently the subject of a controversy, as discussed above in the section on land. The opinion that allows cancellation of land sales if the fraud is greater than a sixth views it as inherent fraud and therefore not limited to movable items. The opposite view does not distinguish between a sixth and more, but treats them both as ona'a.
F. Fraud, Profit Limitation, and Unfair Pressure
Aside from overpricing relative to the market price, two other categories of consumer protection are relevant to the buyer.
a) Profit Limitation - In our previous article (Crossroads I, p.55), the statute of Shmuel (BB 90a) limiting profits to one sixth above costs was cited. What is the relationship of this law and ona'a? The commentators enumerate several differences:
1. Profit limitation is a rabbinic ordinance, whereas ona'a is of Torah status.
2. Profit limitation is a factor in setting the market price and is therefore an intervention in the operation of a free market. The laws of ona'a apply on the basis of the market price and are not in themselves an intervention in the free market, since even in a free market, the requirement of fairness is legitimate.
3. Profit limitation is an obligation not subject to change through stipulation or waiver, unlike ona'a.
4. Profit limitation is restricted to essential items. In other items, there is no inherent limitation in profits, subject only to ona'a.
b) Unfair pressure - Aside from ona'a, the consumer at times receives protection from excessive pricing if the transaction was concluded under conditions of stress and pressure. Even though he knows the market price, or the seller has explicitly stipulated that ona'a shall not apply to this sale, he may be able to cancel the sale if he can show that his agreement to the price was due to extraordinary stress; for instance, if he is fleeing imprisonment and needs to hire a ferry to carry him across a river. In this case, the consumer is not claiming that he did not know the facts of the sale, but that he did not agree to it fully and completely. (Yev. 106a)
The scope of this concept is difficult to determine. It is plausible to assume that "pressure" refers to an exceptional instance, but not, for instance, to an entire public subject to a monopoly. Similarly, normal financial need would not be considered extraordinary pressure. Financial need is considered to be a valid reason to accept the sale of items for less than their market price (Shulchan Aruch 227,8).
The Tashbetz (111,151) considers a case where a group of merchants have agreed to sell to Jews at a higher price than to Moslems, although the differential is less than a sixth. Responding to the claim that since the price is known, it is as though there were explicit stipulation that ona'a should not apply to this case, the Tashbetz states that since the consumers have no choice but to pay the price, and the seller is intending to commit ona'a, it is a case of "pressure" and prohibited. He apparently maintains that the pressure of a monopolistic arrangement is included in the prohibition of ona'a. In any event, it is prohibited for a monopolistic body to distinguish between different consumers and to charge some more than others.
G. Contemporary Application
The law of price fraud, as developed in Jewish law, is based on two basic assumptions: a) The existence of a market price for the product; b) The ignorance of the buyer of the market price. Both these assumptions are problematic in a modern market. Can we speak of a market price today, when prices change from place to place and from time to time, and every seller does what he pleases? The Rosh, (Responsa, 17,6) more than six hundred years ago, already stated that there is no ona'a in land tenancy leases, since the price is variable. There are authorities who attempt to apply the laws of ona'a in nearly every case.15 It appears that the answer should depend on the circumstances.
1) In certain cases the price is determined officially, e.g., bus tickets or bread (in Israel). The Aruch HaShulchan (227,3) rules that in such a case there is ona'a for even less than a sixth, since it may be presumed that the consumer does not accept any differential.
2) The opposite case exists in a completely free market, where every merchant has his own price. There is no market price, and therefore no ona'a.
3) An intermediate situation exists where a price is accepted by most merchants. This might be a manufacturer's recommended price, followed by most stores, or simply the result of market factors which make deviance from the norm difficult. In such a case, there is a market price, though it is conceivable that it will be defined as a range rather than a fixed point. In many cases, we can say that the price of a given item is between two prices, say $15-$20, so that ona'a would be measured from the boundaries of this range. However, I was unable to find a precedent for measuring ona'a in this way.
Secondly, ona'a can be measured only for standardized products. In the conditions of a modern market, a seller can claim in many cases that his product cannot be compared to that of his competitors, and it is the responsibility of the plaintiff to prove that they are indeed equivalent.
Furthermore, the seller may claim that the price reflects differences in packaging, not only of the physical container of the product, but of such intangibles as background music, quality of service, air conditioning, etc. In effect, he is claiming, his product is worth more than a comparable one in his competitor's store.
On the other hand, a claim that a higher price is justified because of costs that do not directly enhance the product, such as higher insurance rates in certain neighborhoods, could not justify suspension of the ona'a provision, since the product itself is comparable. His claim to higher costs is no more a reason to allow a higher price than a claim based on the fact that he has ten children to feed and therefore needs a greater profit.
There exists a problem regarding the knowledge of the buyer as well. In general, every consumer knows that prices are higher in an exclusive boutique than in a neighborhood outlet. Therefore, it is reasonable that ona'a is suspended in the former even without explicit stipulation.
Finally, a market price applies only in a given locality. How do we define a local market in today's world? The owner of a grocery store in a small town charges more than a big city supermarket because his volume is smaller. Can the prices in the city be used as a basis of comparison for the distant town? The assumption of fraud is based on the fact that the product could have obtained at the lower price. Does an hour's drive mean that the product is not readily available at a, lower price?
In conclusion, application of ona'a laws today requires careful definition of the market price, product standardization including packaging, consumer knowledge, and the size of the local market.
2. There is no parallel to the halachic laws of fraud in any ancient legal system in Biblical times. cf. E. Melamed. Hitpatchut Dinei HaOna'a, Yavne 3,5702. p.35. Only in late Roman times do we find in the codex of Justinian rules relating to price fraud of more than 100% Concerning the possibility of Talmudic influence on the development of Roman law. see P. Daiken. Mechir Tzedek Ve-Ona'a, HaMishpat Halvri, I, pp.15,28.
3. The source that ona'a is one-sixth is unclear. The Ramban (Commentary to the Torah. Lev. 25) states that the Sages estimated the measure of people's willingness to suffer a higher price. An interesting suggestion for a biblical source is found in Melamed op.cit. The source-text of ona'a states that land sold during the period when the Jubilee laws apply should be sold according to "the number of years after the Jubilee... the number of harvest Years." in the forty-nine years between Jubilees. there are seven sabbatical years. so that there are only forty-two harvests. Hence, one who pays for forty-nine years has been defrauded of one-sixth of his value. Another idea was suggested to me by my father. In a work-week of six days. a Jewish worker had to earn a seven-day week's pay. a form of ona'a.
4. The Pitchei Tcshuva (22.23) Cites an opinion that all communal property has the status of sanctified objects for the purposes of this law. This has important ramifications for public or state property today. However, he cites the Shvut Yaacov (1,166) who rejects this opinion vehemently. The Pitchei Teshuva suggests another reason to exclude public property from the laws of ona'a. Since the payment to be refunded amounts to less than a pruta for each individual member of the community. there is no obligation to refund the fraud. If however, we view the community as a whole as a single legal entity independent of the individuals who compose it, this problem does riot arise. The question of the legal status of the community requires a separate discussion. On the other hand. the Rash bash (responsa 566) asserts that it is improper for a community to sue for fraud.
5. The Chukat Mishpat (Hilchot Mechira 18.17) equates shares with deeds. It is possible that a transaction between two people who are in control of a Company is not to be equated with a deed held against a third party. In a case where shares in the family business were sold by one brother to another, where I was consulted by an 'attorney, I answered, after conferring with R. Shaul Yisraeli, that the laws of ona'a apply,
6. The Ritva (Kid. 8a) states that if an object has particular value for an individual, the laws of ona'a do not apply. The Ketzot (227,1) asserts that this contradicts the ruling rejecting the opinion of R. Yehuda. In my opinion, R. Yehuda's ruling refers not to special people but to special objects. He claims that anyone buying a pearl can be assumed to be willing to pay more than the market price. This is rejected. The Ritva is referring to an individual who is known to be exceptional because the given object is worth more to him than to others. An example of this would be shmura matza for one especially strict in his observance, or a beautiful parrot for a bird fancier. However, see the Machane Efraim, "Ona'a", 20. The Ritva himself distinguishes between a case where the object is genuinely cherished by him and a case where he has a temporary need for it, such as a medicine.
7. The Terumat HaDeshen (323) excludes salaries from ona'a for a different reason. The employer or the worker might have special need for the work or the money, and therefore they do not necessarily insist on the market price. This would presumably apply equally to a contractor.
10. The Prisha (227,27) states that this law applies to to a merchant if he is selling his personal effects. Even according to his opinion, it is plausible to distinguish between a merchant selling his personal effects in his store and one selling in his home.
14. This suggestion was made to me by R. Aharon Lichtenstein, the Rosh Yeshiva of Yeshivat Har Etzion. A consequence of this suggestion is that, similar to the case of usury, the obligation to refund the fraud does not create a lien on the property of the seller, nor is the debt inherited by the heirs of the buyer.
15. Responsa Heishiv Moshe 102; Galia Masechet 4. The Beit Yosef(209) states that ona'a does not apply to items that do not have a fixed price, such as shearing and milk. Most commentators disagree; cf. Darkei Moshe, Bach, Shach, Be'erHaGola, and Netivot, ad.loc. It appears to me that we should distinguish between items that do not have a fixed price, but a current price can be determined, and items that have no market price at all, to which the Rosh is referring.
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