What Exactly is a Seller Obligated to Tell a Buyer?

Ethical Business Dilemma submitted by: Anonymous

 

A friend of mine, Reuven was the CEO of a very successful private company. They were being pursued by Shimon, a CEO of a public company, who wanted to buy Reuven’s company. Reuven knew much more about his own company than Shimon knew. Shimon, of course, sent in a small army’s worth of attorneys and accountants to perform due diligence on Reuven’s company. However, after the due diligence was completed, Reuven knew that Shimon’s army had overlooked some critical issues and was potentially offering too much money for the company.

 

Ethical Dilemma:

Is Reuven obligated to point out the mistakes to Shimon these critical issues, which will almost certainly result in Shimon reducing his acquisition price?

This is a very common dilemma, whether you are selling a house, a car a pet or your mother-in-law? The seller always knows more information than the buyer does. Is the seller obligated to reveal all the information they know or not?

 

Kurt Answers:

One way of looking at this is it may be possible to say that since buyers knows that a seller has more information, they should always making an offer based on the idea that there is a margin of error – buyer-be-ware However, it’s these kind of decisions that a person has to make with an eye towards their legacy. Although it is possible to make a decision that runs according to the letter of the law, we all want to hold ourselves out and the Torah praises us for going beyond the letter of the law.

Let’s say you are selling your house. The right decision is to tell the buyer everything that’s wrong with your house, the fact the your plumbing backed up yesterday, occasioning when you plug something into every socket the fuse blows, the fact that even though you put insulation in your room and the kids room and during the inspection they couldn’t hear anything, even when your son and his friends are jumping from the bunk bed to the floor, you hear it.

 

The example I cited in the beginning of this discussion was based on true events. It was a huge ethical dilemma as the things that Shimon overlooked were valued in the millions of dollars. I have agreed to keep the exact dealings private, and so I can’t tell you exactly what Reuven did, but suffice to say he still has an excellent relationship with Shimon.

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