Da Li Construction Co., Ltd. was complained for failing to provide customers with adequate time to review contracts while selling their “Sin Di Lai Heng No. 60 First-Class Residence” pre-sold housing units, constituting an illegal, obviously unfair practice sufficient to adversely affect the trading order

Chinese Taipei


Case:

Da Li Construction Co., Ltd. was complained for failing to provide customers with adequate time to review contracts while selling their “Sin Di Lai Heng No. 60 First-Class Residence” pre-sold housing units, constituting an illegal, obviously unfair practice sufficient to adversely affect the trading order

Key Words:

pre-sold housing, information asymmetry, contract review

Reference:

Fair Trade Commission Decision of August 28, 2003 (the 616th Commissioners’ Meeting); Disposition (92) Kung Chu Tzu No. 092154

Industry:

Real Estate Investment (6611)

Relevant Law:

Article 24 of the Fair Trade Law

Summary:

1. This case is based on complaints from members of the public alleging that Da Li Construction Co., Ltd. (Da Li Construction) violated Article 24 of the Fair Trade Law while selling their “Sin Di Lai Heng No. 60 First-Class Residence” pre-sold homes by failing to provide customers with adequate time to review the contract before collecting their deposits or signing contracts with them.

2. Results of Fair Trade Commission (FTC) investigation: When purchasing housing [from Da Li] the complainants in this case paid their deposit and signed the contract on the same day. In addition, when the FTC dispatched an officer to visit the site, he was told by the salesperson that, in order to take away a copy of the contract, he was required to pay NT$520,000 (NT$260,000 for deposit and NT$260,000 as a contract fee). Furthermore, during their sales pitch, Da Li Construction’s salespersons would use their own discretion to decide, taking into consideration a variety of factors, whether or not to give the contract [to the potential buyer] for review. In addition, salespersons would make this decision by dividing customers visiting the site into three categories, namely “customers who are ‘just browsing’,” “customers who pay a deposit,” and “customers who sign the contract on the spot.”

3. Grounds for disposition:
(1) Since the object of sale has not yet taken a concrete form in the pre-sold housing business, prospective buyers therefore must rely solely upon salespersons and advertisements to familiarize themselves with relevant information regarding the property, with the content of the sales contracts the sole means of sufficiently disclosing the actual specifications of said properties. In addition, the majority of purchase contracts for this kind of transaction are drafted unilaterally by the contractor in advance. Therefore, with regard to information relevant to the contract, the contactor is, without a doubt, in the advantageous position of having sole possession of market information. If a contractor were to first collect a deposit and then disclose the terms of the contract, and the homebuyer were to subsequently express concerns regarding the terms of the contract, and if contractor did not agree with or accept their concerns or even insisted on confiscating the deposit if the contract is not signed as written, collection of this deposit would clearly put the purchaser in a disadvantageous position and is obviously unfair. Furthermore, because the contract contains a great deal of professional jargon, a certain period of time is required to fully understand it. Therefore, if the contractor fails to provide consumers with reasonable time to review the contract, it negatively affects the homebuyer’s ability to negotiate. To prevent abuse of their advantageous position with regards to market information and to implement the legislative intent of Article 24 of the Fair Trade Law, the FTC made decisions at their 191st and 383rd Commissioners’ meetings that when selling pre-sold housing, commission of any one of the following acts by construction investment enterprises may be considered an obviously unfair act in violation of Article 24 of the Fair Trade Law: 1) requiring customers to pay a deposit before providing them with a copy of the contract; or 2) not providing the customer with adequate time to review the contract (no less than 5 days) before collecting a deposit or signing the contract.
(2) This case is based on complaints by homebuyers who both paid their deposit and signed the contract on the same day. Furthermore, according to the information provided by Da Li Construction, there is no concrete evidence sufficient to prove that they provided adequate time for review of the contract. Even if the complainants had reached a consensus with Da Li Construction regarding the major conditions of the purchase before paying the deposit or signing the contract, until the object of the purchase (the pre-sold house) has taken concrete form, the terms of the contract are the only basis on which facts about the house are disclosed. Although the complainants were unaware that they could request to read over the contract, Da Li Construction, being in an advantageous position with regards to market information, should have provided them with an adequate opportunity to review the contract before signing. In addition, when the FTC’s officer visited the sales site of the disputed pre-sold houses to conduct an investigation, he asked whether or not the contract could be taken home. The salesperson refused and stated that a total of NT$520,000 (NT$260,000 for deposit and NT$260,000 as a contract fee) would have to be paid in order to take the contract home. Da Li Construction argued that its salesperson decided that the FTC’s investigator was unlikely to buy, and therefore asked for the NT$520,000 payment in an attempt to make him leave. If, on the other hand, his requirements had matched those of that particular construction project, and he had seemed sincerely willing to buy and possessed of the means to do so, they would have provided the contract on request. This, however, differs from Da Li Construction’s own claim that no consideration needs to be paid in order to review the contract. This information asymmetry puts the homebuyer at a disadvantage and confirms that, by failing to provide adequate time for contract review before either collecting a deposit or signing the contract, Da Li Construction has clearly taken advantage of customers’ lack of information. This is an obviously unfair act sufficient to affect the trading order and thus violates the provisions of Article 24 of the Fair Trade Law.
(3) Da Li Construction claims that it categorized customers before deciding whether to provide homebuyers with a contract for review, but according to statements made by the company, the system of categorization allowed Da Li Construction to use not only their advantageous position with regard to market information but also allowed them to use various other sales methods (e.g. intentionally and falsely telling potential buyers that not many units remain or other similar misleading statements) to induce homebuyers to either pay a deposit or sign the contract within a short period of time. Thus, homebuyers are left without adequate time to fully review the contract and the salespersons are able to test the sincerity of the homebuyer. This also allows salespersons to reach their goal of collecting the deposit and getting the contract signed. These acts also take advantage of the homebuyers’ unfavorable position, and therefore this company’s arguments should not to be considered.
(4) After considering factors such as motivation, purpose, and expected improper benefit from these unlawful acts, the duration of harm to the trading order, and Da Li Construction’s cooperation in the investigation, the FTC ordered the respondent, under the provisions of the forepart of Article 41 of the Fair Trade Law, to immediately cease its unlawful acts and imposed an administrative fine of NT$1 million.

Appendix:
Da Li Construction Co., Ltd.’s Uniform Invoice Number: 12853876

Summarized by Taur, Rong; Supervised by Chen, Yuhn-Shan


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