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Kugler v. Romain

Decided: June 28, 1971.


For affirmance as modified -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall, Schettino and Mountain. For reversal -- None. The opinion of the Court was delivered by Francis, J.


Acting under the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., the Attorney General instituted this action in the Superior Court, Chancery Division, against defendant Richard Romain individually and trading as Educational Services Co. Injunctive and other affirmative relief was sought based on charges that in connection with the house-to-house sale of certain so-called educational books defendant had engaged in business practices which violated Section 2 of the Act, N.J.S.A. 56:8-2. Section 2 provides in pertinent part as follows:

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale * * * of any merchandise, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice; * * *.

The specific authorization for this proceeding appears in N.J.S.A. 56:8-8:

Whenever it shall appear to the Attorney General that a person has engaged in, is engaging in or is about to engage in any practice declared to be unlawful by this act he may seek and obtain in an action in the Superior Court an injunction prohibiting such person from continuing such practices or engaging therein or doing any acts in furtherance thereof * * *. The court may make such orders or judgments as may be necessary to prevent the use or employment by a person of any prohibited practices, or which may be necessary to restore to any person in interest any moneys or property, real or personal which may have been acquired by means of any practice herein declared to be unlawful.

The Attorney General prayed for (1) injunctive relief barring the specific practices allegedly violative of N.J.S.A. 56:8-2; (2) a declaration that the price of the books printed in the form of contract was a transgression of the statute either because it constituted a fraud within the express

terms of N.J.S.A. 56:8-2 or because it was unconscionable under the Uniform Commercial Code, N.J.S.A. 12A:2-302 which he argued is implicitly included within N.J.S.A. 56:8-2; (3) restoration and remedial orders for all persons who were induced to execute such purchase contracts; (4) rescission of all contracts with purchasers listed on a schedule attached to the complaint; (5) imposition of civil penalties against defendant, as provided in the Act, N.J.S.A. 56:8-13, 14; and (6) an order restraining defendant from doing business in New Jersey until he registered his trade name as required by N.J.S.A. 56:1-2.

The relief sought was not limited to the 24 customers whose names were set out in the schedule referred to. The complaint asked for

(3) An order enjoining defendant from enforcing or collecting in any manner those obligations arising out of the contracts entered into with those consumers set forth in Schedule A and those consumers similarly situated.

(4) An order rescinding any and all obligations arising out of the purported contracts entered into by those consumers set forth in the attached schedule and those consumers similarly situated. (Emphasis added.)

After a plenary hearing, the trial court found that defendant violated N.J.S.A. 56:8-2 by using deceptive and fraudulent practices to induce the 24 customers named in the schedule to execute contracts for the purchase of an "educational package" of books and related materials. Accordingly, a judgment was entered in favor af the Attorney General granting certain specified injunctive, restorative and remedial relief which will be discussed more fully hereafter. Kugler v. Romain, 110 N.J. Super. 470 (Ch. Div. 1970). Believing that the relief granted was not as extensive as the circumstances warranted, the Attorney General appealed from the trial court's judgment. Defendant cross-appealed but abandoned his appeal before argument and limited his participation to a defense of the portions of the judgment attacked by the Attorney General. We certified the cause on

our own motion before the appeal was heard in the Appellate Division.

The trial court's reported opinion contains a substantial outline of facts and findings thereon, as well as a comprehensive discussion of the legal issues involved, with most of which we are in agreement. However, since we have concluded that full effectuation of the statute, N.J.S.A. 56:8-1 et seq., and of the remedies intended to be made available thereby to the merchandise-consuming public requires more extensive remedial application, it is necessary to set forth some factual background relating to defendant's business practices and methods of operation.

Defendant, a resident and member of the bar of the State of New York, was engaged in the installment sale of so-called educational books and related materials in New York and New Jersey. He operated under the trade name Educational Services Company from an office in New York City. The trade name was not registered in New Jersey as required by N.J.S.A. 56:1-2 as a condition to doing business here.

Sales solicitations were made exclusively through house-to-house canvass by defendant's employees. No advance appointments were made. The solicitors simply descended upon a selected section of a municipality and undertook by house-to-house calls to sell a package of books which was described in large type on the contract presented to the prospective customers as "A Complete Ten Year Educational Program." It was also indicated thereon that the package was the product of the "Junior Institute," and nearby was the plea "Give your child its chance." In engaging his sales personnel, defendant sought persons who were "sales oriented" and extroverted. They were trained by defendant and his sales manager. The sales force fluctuated in number depending upon the season; the number was greater in the summer, reaching 30-35 persons. Defendant's "crew leader" transported them by car to the New Jersey area to be covered.

The geographical areas to be the subject of sales solicitation were primarily the urban centers of Newark, Paterson, Elizabeth

and Rahway. They were chosen by defendant who was familiar with them and the class of people to be sought out by his sales force. Within these target areas, the sales solicitations were consciously directed toward minority group consumers and consumers of limited education and economic means. Persons with incomes of less than $5000 a year were favored; some buyers were welfare recipients. Sales among these people were thought to be "easier." Although the canvassing was door-to-door, ordinances in the municipalities involved in this case which required licensing or registration were ignored.

Defendant's educational package consisted of the following books and materials:

1. Questions Children Ask (1 Vol.)

2. Child Horizons (4 Vols.)

3. New Achievement Library (5 Vols.)

4. High School Subjects Self-Taught (4 Vols.)

5. Science Library (1 Vol.)

6. Play-Way French and Spanish Records (2 45 r.p.m. Records)

7. Tell Time Flash Card Set.

Additionally a "bonus" volume -- a Negro History, a World Atlas or a Bible -- was offered either along with the original package or after completion of payment.

The printed contract form marked "Retail Installment Obligation," which was presented to the customer for signature, consisted of a single sheet covered with printed matter on both sides. The cash and time sale prices were printed on the face of the contract, the former at $249.50, and the latter at $279.95, less a $9 down payment which was obtained whenever possible. Apparently no one paid the cash price.*fn1 Also printed on the face in small print was the statement: "This order is not subject to cancellation and set is not returnable."

On the reverse side under "Conditions" appeared certain payment acceleration and waiver of defenses clauses, including waiver of all exemptions and right to jury trial. It is noted also that on the face of the form in large print appears "Credit Life Insurance at no additional charge" and "Property Insurance Certificate at no additional charge." Moreover, in the sales price computation column, which likewise appears on the face of the contract, "Credit Life Insurance" and "Property Insurance" are listed again with the notation "No Add. Chg." But on the reverse side under "Conditions," it is noted in small type that the insurance is not provided unless a charge is made for it in the price computation column "on the face hereof."

The trial court found that the wholesale price for the basic package, including the bonus items, was $35 to $40. Thus the cash sale price was six or seven times the wholesale price. Defendant's sales personnel were paid on a commission basis, ranging from $16.50 to $33 per sale; the amount paid depended upon whether (1) he secured the $9 down payment; (2) he obtained the customer's home telephone number; (3) the customer was not self-employed; and (4) the customer had been employed for at least 1-I/2 years. In most cases the commission averaged $16.50. The crew leader also worked on a commission basis and additionally received an over-ride commission of $5 on every approved order of a member of his crew.

The Attorney General offered uncontradicted expert evidence that in view of industry-wide practices the maximum retail price which should have been charged for the entire package was approximately $108-$110. In the witness's opinion, the price charged by defendant was about two and one-half times the retail maximum, and he said that it was exorbitant. The trial court found that the price was exorbitant but held that such exorbitance per se did not constitute a fraud under N.J.S.A. 56:8-2. In its view, proof of deceptive practices was required in addition to the excessive price before a consumer's contract could be vitiated under the statute.

In deciding whether defendant, contrary to the statute, used any deception, fraud, false pretense, or misrepresentation, or whether he concealed, suppressed or omitted any material fact in connection with the sales to book purchasers, the price charged the consumer is only one element to be considered. If the price is grossly excessive in relation to the seller's costs, and if in addition the goods sold have little or no value to the consumer for the purpose for which he was persuaded to buy them and which the seller pretended they would serve, the price paid by the consumer takes on even more serious characteristics of imposition. Here the Attorney General offered persuasive evidence that the books had little or no educational value for the children in the age group and socio-economic position the defendant represented would be benefited by them.

The testimony showed that as to the New Achievement Library, three of the five volumes dealing with Nature, Science and Civilization, represented "very poor, watered-down articles which cover the * * * areas very superficially." They were of "extremely little use" or value as a means of raising the educational level of the children they were supposed to help. Another volume entitled "Getting Acquainted with Your Opportunities in Education" was extremely poor both in quality and content. Although the volume required a tenth grade reading level, it contained articles which the witness characterized as obsolete at the time it was being sold and irrelevant to 98% of its intended readers. "Child Horizons," consisting of four volumes and designed for children 6 to 10 years of age, was said to have no relevance to children whose unfortunate socio-economic conditions did not make them susceptible to the concepts and ideas reflected therein. It was, according to the expert, like giving calculus to a person who had never studied simple ...

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