P'ninat Mishpat: A Seller with Questionable Rights to the Property – part II | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: Multiple plaintiffs (=pl), each paying different amounts, bought land from a company (=def1), owned by def2, dealing with land sold by Arabs, in the periphery of a yishuv. Years went by without the deal being completed, so pl demanded their payment back according to par 5.6 of their contract. Although a different document states that pl cannot get their money back, it was never signed, and the signed contract says that it supersedes other agreements. Pl claim that def violated their agreement by not advancing it over years. More fundamentally, the sale should be void because pl were misinformed, as def has not provided any proof they own the property they purported to sell. [Last time we saw that pl had grounds to nullify the sale because of misrepresentation.] However, def argues that in the contract, pl admits that he checked all of the relevant facts and waived any complaints. The sides also argued whether def2, who did not sign the arbitration agreement, can be sued personally.

Ruling: The Maggid Mishneh (Mechira 15:3) says that if a buyer could have checked and uncovered the blemish in the purchase item and did not do so, he no longer can nullify the sale because of it. Many agree and many disagree with this opinion (see S’ma 232:10; Shut Maharashdam 385). Also, some limit the Maggid Mishneh to cases where the check can be done easily and without charge. Others say that it does not apply when the seller explicitly assured the buyer that the flaw did not exist. Both of these limitations enable pl to claim an erroneous agreement.
On the other hand, the contract says that pl checked all of the pertinent information and found everything to their liking. Although pl claim that since they signed a standard agreement, dictated by def, they should not be bound by it. It is a complicated matter whether we could accept such a claim against what pl signed. But in this case, it is not necessary because the admission of checking everything is stated to apply to everything except what is found in the contract. Since def1’s ownership of the property is a provision of the contract, def1 indeed misled pl, and pl did not admit that they were aware.
In order for pl to collect from def2, owner of def1, there are two hurdles to overcome: 1. the idea that obligations of a corporate entity are paid only from the assets of the entity, not of its owners; 2. the fact that def2 did not agree to sign the arbitration agreement. Regarding #1, the halachic justification for the "corporate veil" is the agreement of the person doing business with it. However, here where the agreement was nullified based on fraud, the corporate veil should not apply. There are reasons according to Israeli law to lift the veil in this case (ed. note – beyond our scope).
Regarding #2, def2 can be obligated as well. Since he is the sole owner of def1 and he was interested in pursuing litigation in this beit din and took part in all of its proceedings, it is incorrect to say that he is not part bound by the litigation. Therefore, if def1 will not have the funds to pay pl, def2 will be liable to pay.