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Buyer, beware
30/01/2007 ARTICLES OF LAW by BHAG SINGH
When a contract is entered into, it becomes binding despite its perceived
unfairness. One should, therefore, know what obligations one is assuming.
A LETTER from a reader published in the columns of a prominent daily
highlighted how a good part of the population, almost at the start of their
working life, becomes indebted for a greater part of life.
Indeed, even before they start working, young people are already owners of
mobile telephones on which they incur regular, if not fixed, monthly charges
– if not more. And as soon as a person starts working, every encouragement
is given to buy a car.
As an inducement to purchase, low initial payments are offered. The downside
of this is that the individual is tied down for a longer period of repayment
to a highly depreciating asset. To this is added the burden of paying – on
an on-going basis – road tax, insurance, the cost of repair and maintenance
which continue to increase from time to time.
And when the stage of starting a family is reached, the purchase of a
residence becomes an essential requirement. Here again, a low initial
payment – whilst welcome – ties the ordinary individual down for a good part
of his life, if not almost his entire working life.
Whilst the commitment undertaken practically ties down the individual for
life and he may feel trapped by the obligations that have been undertaken
and he is committed to, the obligations are legally binding because all such
transactions are structured according to the law.
Whilst the average individual goes into such transactions on the assumption
that the institution will deal with him fairly and the law will protect him,
any grievance felt will not be addressed on the basis of fairness but the
contract that has been entered into with the other party.
And this is where large organisations have an edge because, when entering
into agreements with them, they usually influence – if not control – the
contract that is drawn up. And when they do so, they are bound to ensure
that their own interests are protected even though it is unfair to the
ordinary individual who invariably is not in a position to bargain.
Many people believe that because an agreement is prepared by a lawyer, it
will be fair to them. This belief is reinforced by the fact that legal fees,
in most cases, are to be paid by the individual. However, it may actually be
a term of the agreement that although the lawyer is acting for the
institution, the individual client must pay his fees.
Whilst fairness and good conscience are desirable virtues, it needs to be
noted that the lawyer’s duty is to prepare the document in accordance to
what is agreed to within the parameters of the guiding principles of the Law
of Contract and other specific legislation that may be applicable.
Therefore before signing on the dotted line, the ordinary individual should
endeavour to know and understand the terms of the transaction and the basis
on which it is undertaken and the obligations assumed.
A bank may, for example, offer a loan at 7% interest per annum. This may
appear at first sight to be a very attractive proposition. And the initial
basic information may be communicated through an advertisement.
However, such an intimation is always subject to terms and conditions. Thus,
the condition may be that the loan must be repaid over a fixed period by a
specific number of instalments at specific times with the interest being
computed on the entire amount for this full period.
For example, a loan for RM12,000 repayable over a 12-month period by 12
monthly instalments will work out to about RM1,000 of the principal being
repaid each month. But it is likely that the interest would have been
calculated for the entire period of 12 months on the total amount advanced.
Thus in the 12th month, only approximately RM1,000 would remain unpaid. But
the interest would still be calculated on the basis of RM12,000. This would
be the same way the interest is calculated and imposed, in the case of hire
purchase transactions.
Thus though the advertisement which attracts the customer announces the
interest rate as 7% per annum, the effective interest rate could be in the
region of 12% per annum.
Of course if the borrower realises this and has actually agreed to it, he
would have no reason to complain.
In this connection, it would certainly be in the public interest if the
authorities could require institutions which place such advertisements to
announce the effective rate apart from the attractive percentage which is
prominently announced and highlighted.
Another area which the individual needs to be cautious about is appealing
advertisements for the purchase of property. The attraction is further
enhanced by a comparatively low price.
However, the small print may disclose that it is leasehold land and that the
lease period had commenced sometime ago, so that only 75 or 80 years of the
lease period are left.
Furthermore, especially in the case of apartments or condominiums, the
exuberant announcements of diverse facilities available may conveniently
leave out mention of the car park, an essential in today’s living. It may be
available at an extra cost, which means that the real price may be much
more.
These are matters that the individual should look into and be aware of, in
order to know the obligations that are being undertaken.
If he feels that the terms are not fair, he has to decide whether or not to
go ahead. However, if he feels it is too troublesome to consider these
factors, there will be little grounds to complain later. |
