1183rd Commissioners' Meeting (2014)
Case:
Yi Chi Construction Co., Ltd.violated the Fair Trade Law in sales of the presale houses of "Yue Wan – You Yue Area"
Key Word(s):
Presale house, down payment, deposit, contract
Reference:
Fair Trade Commission Decision of July 9, 2014 (the 1183rd Commissioners' Meeting); Disposition Kung Ch'u Tzu No.103088
Industry:
Real Estate Development Activities (6700)
Relevant Law(s):
Article 24 of the Fair Trade Law
Summary:
The Company explained that its trading process with potential buyers was as follows "introduction to the environment and product → buyer verifies the unit → inquiry about terms of payment and related affairs →deposit→5 to 7 day contract review period → the buyer signs the contract if the buyer agrees upon the terms or the deposit is fully refunded." The Company admitted that it required a deposit before providing the contract for potential buyers to review. The statements of the complainant, the persons involved, and potential buyers provide sufficient evidences that prove the Company did require a deposit before it provided the contract for them to review. This improper restriction that prevented buyers from reviewing the contract had not yet led to any individual trading disputes (or incidents). Although the Company claimed that a sample of the contract was displayed in the lobby of the sales location for the public to browse at will, it later indicated that it would provide the contract to buyers for review at the sales location before a deposit was made. However, the FTC found that the complainant, persons involved, and 9 buyers all stated that they did not see the contract displayed at the sales location, and this situation couldn't be considered free for buyers to review. Only 2 buyers stated that the Company provided the contract for them to review at the sales location, and it thus couldn't be determined as a consistent trading pattern of the Company in this case.
| (1) | Presale houses are considerably "highly priced" compared with other consumer products. Since presale houses are not yet completed, the ownership of presale houses are not registered, and buyers have access to very limited information of the houses when signing purchase contracts with sellers. Under these circumstances, the construction company clearly has an advantage in terms of information. Moreover, the purchase contract is unilaterally drawn up by the construction company, and its contents are the most appropriate way of disclosing the truth about the house and the rights and obligations of both parties. Hence, in the trading process of presale houses, construction companies shall fully disclose information to buyers so that they can evaluate whether or not make the transaction and to balance the position of the two parties entering into the contract. If the information is made available to buyers only after they make a deposit, the buyers will already be in a disadvantaged position when they gain the information, and it certainly will affect their rights and interests. A company's use of information asymmetry in the trading process is an improper means of competition that severely violates business ethics and effective competition.
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| (2) | The Company required buyers first making a deposit before it provided them with the contract for review during the sales of presale houses, putting buyers at a disadvantaged position in terms of trading information and under the risk of forfeiting their deposit or being forced to perform the contract. This conduct caused buyers to make decisions without fully disclosed information. The fact that the Company used its advantage from information asymmetry was clearly unfair to buyers and violated the business ethic of effective competition. The conduct also created a situation of unfair competition with its competitors that provided the contract in advance for buyers to freely review, and was a clearly unfair conduct capable of damaging trading order in the market. Hence, the FTC concluded that the Company violated Article 24 of the Fair Trade Law and imposed on the Company an administrative fine of NT$600,000. |
Appendix:
Yi Chi Construction Co., Ltd.'s Uniform Invoice Number: 28547760
Summarized by Lin, Cheng-Yu; Supervised by Hung, Shui-Hsing