Lawyers urge delay of contract law

Press, 13 April 1982, Page 4

Lawyers urge delay of contract law

The introduction of the Credit Contracts Act on June 1 should be delayed for six months until the’ effects of the new legislation can be properly studied, according to a group of Auckland lawyers. The act will fundamentally change the procedures of most financing transactions by replacing much of the established law with a new code. "The clear' results of the Credit Contracts Act is that many forms of financing which were formerly carried on in the community with real benefit to both parties will either be no longer possible or become expensive and complex." said a report from the group of 14 who make up the Auckland District Law Society's public issues committee. ’

The report outlines some of these transactions. Under the new act the finance rate of a mortgage has to be precisely worked out and included’ ■in the mortgage contract.

If a Mr and Mrs Smith decide to sell their house and leave part of the sale price on mortgage to the buyer they will have to employ someone to determine the finance rate of repayment applicable to the mortgage.

"If Mr and Mrs Smith make a mistake in their calculations, if indeed the rate can be calculated al all. not only will their mortgage be unenforceable but they could even be liable to forfeit to the borrower three times the amount of the

interest paid." said the report. Or Mr and Mrs Smith make an unconditional sale of their house and the settlement date is set for one month later. The buyer has arranged his'finance and the Smiths enter a, contract to buy a new house. The two settlement dates are to coincide. A week before the settlement the buyer's finance falls through and the two transactions are held up while he tries to find an alternative source of money. Two days before the deadline date he manages to find a loan company prepared to lend him the money.

Because this contract of loan is a controlled credit contract under the act the buyer must wait three days before he can pick up the monev.

In the meantime the deadline for settlement for both contracts passes and both contracts' fail, "not because of lack of credit finance but because of the Credit Contracts Act." the report says.

The new law, intended to reform lending and other finance, is "unreasonably expensive and so complex’ that it is beyond the understanding of most people." say the lawvers. ■

Its introduction should be postponed until submissions from banks, insurance companies. building societies, real estate agents, and the Consumers' Institute can be considered and reforms and amendments to the legislation made? they say.