Upon ordering a product or booking a service, consumers are sometimes requested to pay a deposit or make an advance payment. Sellers often inform consumers that these payments are non-refundable should consumers eventually decide not to proceed with the sales contract.
This condition is usually also written in the sales contract, and consumers are even asked to sign that they agree with it. Can such clauses be included in sales contracts? How does consumer legislation protect consumers in these situations?
Just because something is written in a contract of sale, it does not always mean it is legally enforceable. The circumstances in which businesses are entitled to keep consumers’ deposits or advance payments must be fair to be legal. Even the amount of deposit paid needs to be taken into account.
If consumers decide to cancel a sales contract, sellers are generally only entitled to keep or receive an amount equivalent to their actual losses that directly result from the cancellation. This could include expenses already incurred or loss of profit.
In addition to this, it should be noted that consumer legislation considers as unfair contract terms that require a consumer who fails to fulfil his obligations, to pay the trader as compensation a sum that is disproportionately high when compared to the value of the goods or services purchased.
Terms that allow the trader to retain sums paid by the consumer if the consumer cancels the sales contract, without providing for the consumer to receive compensation of an equivalent amount from the trader if the latter cancels the contract, can also be considered unfair.
Just because something is written in a contract of sale, it does not always mean it is legally enforceable- Odette Vella
When a sales contract is concluded, there is a commitment on both parties to abide with it. When it is the consumer who decides not to honour the sale contract, the trader may impose a reasonable and justified penalty.
If it is the trader who is unable to provide the product or service as per sales agreement, then consumers may not only opt to cancel the sale and claim full refund of the deposit paid, but may also hold the trader liable for any extra expenses incurred as a direct result of the cancellation.
This liability, and the obligation to refund the deposit, cannot be waived by making consumers sign terms and conditions that diminish their legal rights. Such conditions are considered unfair and cannot be legally enforced by traders.
Upon assessing the fairness of a contract term, consumer legislation considers the circumstances in which the contract of sale was concluded. These circumstances include the bargaining power of both parties, whether consumers were subjected to undue pressure to sign the sales contract, and whether the lack of knowledge or skill of the consumer was taken advantage of by the trader.
A contract term is also considered unfair when it creates a significant imbalance between the rights and obligations of the contracting parties to the detriment of the consumer. However, if a sales contract includes one unfair term, it does not necessarily make the entire contract unfair. The whole contract only becomes null and void if it no longer makes sense after the unfair term is removed from the contract.
To summarise, contract terms concerning non-refundable deposits can be included in consumer contracts if consumers are properly informed of such clauses before signing the sales agreement and as long as the deposit amount is not disproportionate.
The sums retained by sellers in situations where consumers cancel a sales contract must reflect actual business costs and losses. If consumers feel that the amount retained is unreasonable and do not manage to come to an understanding with the seller, they may seek the assistance of the Office for Consumer Affairs to be guided on their legal rights.
WWW.MCCAA.ORG.MT