Friday 13 July 2007

The fatal weakness of mankind

It seems like there isn’t a week when we aren’t contacted by someone who has ended up in trouble because of problems with contracts.

Whether it’s someone in a mess with a store credit scheme, a warranty that has gone wrong or even a contract they can never walk away from, contracts seem to be a minefield for consumers. You put one foot wrong and it all blows up and hurts you.

A few weeks ago a consumer contacted us because of a huge problem they had got themselves into after buying things on credit from Supreme Furnishers. This customer had gone to Supreme a year ago and bought a microwave oven, a TV stand and, he thought, a queen-sized bed all on a 2-year credit agreement. Shortly afterwards he contacted Supreme because the bed hadn’t turned up. Supreme told him that they had no record of him ever ordering a bed from them and only had details of the other items.

The customer then had a slight temper tantrum and told Supreme to take everything away. Bad move. They came along, took away the goods he had bought and he thought everything was settled. Well, he did until this year when he went to a bank to get a loan only to be turned down when the bank found he had been listed by Supreme with ITC. When we contacted Supreme they told us that when they picked up the goods the customer signed a “Voluntary Repossession Order”. This stated that he acknowledged that he owed Supreme for the outstanding credit scheme payments, minus any resale value Supreme could get for the items. The customer had just assumed that by returning the goods he could just walk away from the whole situation.


Think of it from Supreme’s point of view. The customer had voluntarily entered into a contract and Supreme delivered what was ordered. Shortly afterwards Supreme were instructed to take back items that were now second hand. The law prohibits them form selling them as new so their market value is much less. Supreme had spent money making or buying these items and are now severely out of pocket. They’re going to want that money back, one way or another.

You simply can’t just walk away from a contract.

Whether it’s a car loan, a store credit agreement or a tenancy, you can’t just walk away. There has to be a proper end to the contract.

Now most contracts have some way of ending them or at least some fixed lifespan. Store credit schemes usually last a year or two, car loans perhaps a little longer, home loans a lot longer. Whatever type of contract it is you can usually end it, either by just reaching the end of the term of the contract or sometimes by paying off the debt early.

Incidentally the Supreme situation ended very well because Supreme acknowledged that they hadn’t communicated with the customer as well as they perhaps should and have VERY generously written off the whole debt. However don’t think this happens often. This was a very remarkable result and Supreme showed considerable maturity in taking this one “on the chin”.

The lessons are very simple. A contract is a contract. You can’t just walk away without some consequence.

However, there ARE obligations on suppliers when it comes to contracts. They should be reasonable. They should have terms that are not exploitative and allow some flexibility for those unplanned situations. They should also be clear and easy to understand.

Unfortunately this isn’t always the case. We’ve heard many times of organisations that seem to have something to hide in their contracts. There are contracts that claim to be “irrevocable”, contracts with all sorts of hidden charges or simply those that are impossibly difficult to understand.

Our advice is simple. Caveat emptor. Buyer beware. Let me put it more simply. Here are some simple rules regarding contracts.

Do not ever sign a contract you don’t understand.

Do not ever sign a contract that you haven’t read several times.

Do not ever sign a contract you haven’t shown to a trusted friend, relative or colleague.

Do not ever sign a contract you weren’t allowed to take away to read at leisure.

Do not ever sign a contract that you are pressurised to sign on the spot.

Any reasonable supplier will allow you to take a contract away with you before you sign it. They won’t apply any unreasonable pressure to sign it. They will be happy for you to take it to someone you trust for their opinion. A reasonable supplier will allow you to enter into the contract with the full knowledge of what you are going into. A reasonable supplier will have nothing to hide.

Any supplier that doesn’t allow you to exercise these rights has something to hide and you shouldn’t do business with them.

Just remember that contracts are between two parties. Yes, suppliers have an obligation to play fair but remember that you must enter a contract rationally. Don’t deceive yourself. As Adam Smith said in The Theory of Moral Sentiments 217 years ago, “This self deceit, this fatal weakness of mankind, is the source of half the disorders of human life.”

This week’s stars!

  • Mogorosi Israel, a government security guard at Parliament, who we’re told is hard-working, trustworthy sincere and friendly.
  • Olga, Moloi and Immanuel from Simsa Gas and Geo Gas for speed, helpfulness and courtesy.
  • Arnold and the team at Supreme for going out of their way to be reasonable.

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