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Defect Disclosure

May 9, 2009 | by Rabbi Dr. Asher Meir, Business Ethics Center of Jerusalem

When do I have to let customers know about defects?

Q. If I tell a customer the whole story when he first comes to look at a property, he may lose interest before he becomes aware of its advantages. How far can I put off disclosing some details?

A. One thing is certain: any flaws in a purchase item must be made known to the customer before closing the agreement. The Talmud teaches explicitly that any attribute of the item that is material to the seller must be made known to him, and the seller needs to take the initiative to disclose this information. Maimonides writes: "It is forbidden to cheat people in commerce or mislead them… If he knows of any defect in the sale item, he must disclose it to the buyer." (1)

We see that Jewish law categorically rejects the norm of caveat emptor, "let the buyer beware," which places all responsibility for a satisfactory purchase on the buyer. The seller has to volunteer information that he knows is material for the buyer.

But our law also avoids the opposite extreme of placing the entire burden on the seller. The seller is not expected to be a fiduciary or agent for the buyer; it is perfectly legitimate for him to promote his own interest by trying to persuade the buyer to buy. While he may not mislead the customer into thinking that the product has qualities that it really lacks, the seller does have the right to present the genuine characteristics of the merchandise in a flattering way, which maximizes the customer's interest.

One way the merchant can do this is by giving the merchandise an attractive appearance. The Mishna states that it is forbidden to paint old utensils so that the buyer is misled into thinking that they are new, but by the same token we learn that painting them to make them more attractive, without passing them off as new, is permissible. (2) So painting a house before putting it up for sale is okay, as long as the paint is not used to disguise defects such as decay.

Another legitimate selling tactic is to give the product an attractive name. The Talmud tells of an unusual case where the kosher butchers in a particular city had only non-kosher meat to sell. Since customers would normally assume the meat is kosher, the defect must be revealed to all customers, even non-Jewish ones, to avoid misleading them. However, the butchers are not required to announce in a coarse way that the meat is "treif," meaning "carrion." Rather, they may use a more delicate expression, stating that this is "meat for the soldiers." (3) Any reasonable buyer will get the hint. When dealers sell "pre-owned cars" or computer sellers market "out of the box" items, they are taking advantage of this leniency. These expressions are more delicate than "used," but they definitely get the message across.

Finally, the seller is allowed to use some judgment in deciding when to reveal defects. The Talmud tells of a fellow who found it difficult to find a match because some people disdained his family background. The leading sage, Rav, advised him to go to another city where his background would not be known. As a consequence, people would not prejudge him as a marriage prospect based on this one characteristic. In other words, it would be permissible for him to put off disclosure until the "buyer" would have chance to evaluate his positive qualities.(4)

So if you are selling a beautiful property but some of the plumbing needs replacement, you don't have to disclose this fact immediately. You can allow the customer to be impressed by the positive aspects of the home first, and disclose the flaws afterwards when the customer will be able to consider them in the total context of the property's characteristics.

However, we have to be careful not to cross the line into bargaining in bad faith. If you wait until the closing to disclose the property's flaws, then you are taking advantage of the fact that the customer has already invested time and money in pursuing this particular home; to some extent you have him over a barrel. This is definitely a misleading and exploitative sales tactic. Rather, as soon as you feel that the customer has obtained a fair impression of the property's advantages, you should advise him of any material disadvantages.

(1) Maimonides Mishneh Torah Laws of Sale 18:1. (2) Mishna end of fourth chapter of Bava Metzia. (3) Babylonian Talmud Chullin 94b (4) Babylonian Talmud Yevamot 45a.

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The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.

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