Be careful what you sign!

22 February 2005 - SunMoney

Contracts are part of everyday life. Almost everything you buy, sell, borrow, loan, rent, repair or trade involves a contract.

You make a contrast when you use a credit card, rent something, buy insurance, or hire someone to paint your house.
The Ombudsman for Banking Services (OBS) resolves complaints about banking services and products. These customers lodged complaints with the ombudsman. They landed themselves in hot water because they did not take time to find out exactly what they were signing.

Surety contracts: Naledi* signed surety for her son's personal loan of R26 000. After the son settled the personal loan the bank later held her liable for her son's overdrawn cheque account of R5 537. She thought she could only be held accountable for the personal loan but the agreement clearly that she signed said that it was for any of her son's debts up to an amount of R26 000. She simply had to pay up.

Lesson: If you want to sign surety only for a specific amount, you should make sure that the amount is specified in the contract.

Credit Cards: The bank held Bheki*, the member of a close corporation (CC), liable for R5 000 outstanding on the CC's credit card.

Bheki said that the card was in the CC's name and he could not be held responsible for its debts.

But the application form for the card had been signed by the him. This made him responsible for all purchases and withdrawals made with the card.

Even though Bheki said that he was unaware that he had signed in his personal capacity the bank still had the right to take his R5 000.

Lesson: If you have signed surety for a business's debts, tell the bank when the business was sold or liquidated.

Mortgage Bonds: Lindiwe* asked that his bond of R500 000 be cancelled and transferred to another bank.

The bank charged penalty interest, as she had not given the bank 90 days notice. The bank said that it could do so as per the terms and conditions of the mortgage agreement.

Lindiwe claimed that she was not aware of such a clause said that the bank was taking revenge on her for transferring her account.

However, Lindiwe did sign the mortgage agreement and the ombudsman found that the bank could charge penalty interest.

Lesson: Apart from reading the contract, ensure that the bank does the transfer after the notice period has gone.

Bank customers often say that investment brokers did not tell them about fees or charges and commissions up front. It then becomes clear that the bank customers' signatures appear on the quotes and application forms. In these cases, the ombudsman usually finds in favour of the banks.

Mpho* said she was never told of any costs when making her investment of R30 000.

She said she did sign some forms but did not read them properly.

She had to pay the fees as the bank produced the investment contract. it was signed by her and it clearly referred to the various fees and charges.

Investments: Sometimes customers say their broker has guaranteed their investment will perform in a certain way.

Sipho* invested R50 000. He said the broker had promised a 15% return on his investment. He did not ask for a written confirmation. Years later the investment had lost 25% of its value. The investment contract did not refer to any guarantees and the broker denied giving Sipho any guarantees of the returns. The bank was not found liable.

Lesson: make sure you understand the term and conditions of the contract. You as the investor have the right to safeguard your income by asking for more information.

* Names changed.