Your Loss, My Gain

Q. Is it ethical to take advantage of someone else's mistake in business?

A. "Taking advantage of someone else's mistake" is quite a broad topic. This week we will give an overview of some of the dilemmas this could involve, and in subsequent columns we will try and give more specific examples.

Jewish law on this question really falls into three categories:

• When the benefit is something that both parties have equal rights to. In this case there is no problem taking advantage of someone else's carelessness to obtain something that I have every right to -- as long as I don't actually deceive them.

• When the benefit is at the expense of the mistaken individual. Jewish law does not allow us to benefit from someone's mistake in order to obtain their property or their private information.

• When the benefit is in the framework of negotiations, we have an intermediate situation. All negotiations involve give and take which, in some sense, are at the expense of one side or the other. In this case it is forbidden to deceive the other side, but permissible to negotiate an advantageous deal.

Many times rivals compete over something that belongs to no one, for example a customer, a rare purchase, a valuable idea, etc. If a rival makes a fatal misstep, then we can only rejoice at the opportunity we have to realize the benefits. The Talmud gives an example of ownerless property. One person intended to take ownership of an abandoned field, but did not fulfill all the legal technicalities. Another person noticed this laches and immediately ran in to make a binding acquisition. The court ruled that despite the former's clear intention to make an acquisition, good intentions are not enough in law and the second person obtained a clear and unobjectionable title. (1)

At the other extreme, we have cases where a mistake gives us the opportunity to obtain property (or ideas) belonging to someone else. Common cases include: a (traceable) accidental wire transfer; an inadvertent e-mail containing valuable information; accidental overpayment of a bill or undercharge for merchandise. The Talmud states that if someone is due a payment but the amount paid is too high due to an evident error, then the money has to be returned. (2) Likewise, if a person makes a payment in the mistaken impression that he really owes the money, the money must be returned. (3) The Talmud discusses a parallel case where someone believed that his sale of land was valid; when his title was finally vindicated it was ruled that he was entitled to rent for the intervening years, since his failure to demand it was based on a mistaken impression. From this we infer a general principal, that a waiver made in error has no legal force. (4)

The most interesting case is that of negotiations. The ethics of negotiations is an underdeveloped area of ethics generally, because negotiations are a paradoxical interaction. Negotiations receive their validity from consent and agreement, yet the very nature of negotiations is uncertainty as to what the other side really is willing to pay or how much they are really willing to give up. A certain amount of hidden information is natural. At the same time, if the sides are totally deceitful then no effective negotiations can ever take place. So negotiations take place in the gray area where each side is obligated to "reveal one handbreadth and hide two".

Mistakes in negotiations are common. One common mistake is accidentally revealing confidential information, but on the other hand occasionally you get away with this because the other side assumes it must be just a ploy. (Is planting information in this way ethical? That's a topic for another column.) More to the point, sometimes one side fails to notice a very detrimental clause in a contract; sometimes a side may even carelessly submit a contract proposal which is to its own disadvantage.

The Talmud discusses a similar case, and concludes that the appropriate response is to draw the other side's attention to the agreement as a whole. A merchant offered Rav Kahana an unusual bargain, which created the suspicion of a mistake; Rav Kahana stated pointedly, "I'm relying on your calculation." (5) Likewise, in a bargaining situation a person could assert: "We're responding to your conditions." Your job does include making sure that the other side understands exactly what conditions they are agreeing to, but it is not your responsibility to ensure that these conditions are to their advantage.

It is legitimate for you to seek an agreement that is in your interest, but if there is an actual misunderstanding then there is a lack of proper consent. In case of doubt the best solution is that of Rav Kahana: call modest attention to the situation, by asking the other side to review the conditions and confirm "informed consent." A deal which is actually mistaken is really made in bad faith; it's bad ethics to enter into such a contract, and often bad business as well since it greatly increases the chances of a broken contract and of resentment and an unproductive business relationship.

The best course of action when presented with a seeming misstep in a negotiating situation is neither to aggressively seize the opportunity nor to meekly yield on your vital interests. Rather, you should ask the other side to re-examine the offer and confirm that they understand all the conditions and are willing to go ahead.

SOURCES: (1) Babylonian Talmud Baba Batra 54a (2) Babylonian Talmud Bava Metzia 63b, Shulchan Arukh Choshen Mishpat 332b. (3) Babylonian Talmud Bava Metzia 63b (4) Babylonian Talmud Bava Metzia 66b (5) Babylonian Talmud Bava Kamma 113b