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Meshinsky v. Nichols Yacht Sales Inc.

Decided: June 2, 1988.

PHILIP T. MESHINSKY, PLAINTIFF-RESPONDENT,
v.
NICHOLS YACHT SALES, INC., AND GERALD BERTON, DEFENDANTS-APPELLANTS



On certification to the Superior Court, Appellate Division.

For affirmance in part, reversal in part and remandment -- Chief Justice Wilentz and Justices Clifford, Handler, Stein, Pollock, O'Hern and Garibaldi. Opposed -- None. The opinion of the Court was delivered by Stein, J.

Stein

[110 NJ Page 466] This case primarily concerns the applicability of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to 8-20 (the "Act"), to a transaction involving the sale of a defective power boat. Plaintiff entered into an agreement to purchase a modified power boat from defendants. A defective engine prevented

the boat from performing in the manner anticipated by the contract. Plaintiff rescinded the contract and commenced this action alleging breach of contract and violations of the Act for which treble damages were sought. The trial court awarded plaintiff contract damages but rejected the Consumer Fraud Act claim. The Appellate Division reversed, in part, concluding that plaintiff's damages had been proximately caused by defendants' violations of the Act. The court also held that plaintiff should have been awarded cover damages and prejudgment interest.

We reverse so much of the Appellate Division judgment as declared the Act applicable. We affirm, however, the portion of the Appellate Division's judgment awarding plaintiff "cover" damages and prejudgment interest.

I

Meshinsky, a New Jersey resident, had owned two speed-boats and annually attended boat shows during the years prior to the transaction in this case. Defendant Gerald Berton is president of defendant Nichols Yacht Sales, Inc. ("Nichols"), a New York corporation wholly owned by Nichols Marina, Inc. Nichols uses the trademark "Hawk Racing Team" to publicize its business, which it describes as "exclusive distributors of high-performance boats in the New York, New Jersey, and Connecticut areas." The line of products Nichols sells includes boats manufactured by the Cigarette company and engines manufactured by Hawk Marine Power Company, a company otherwise unrelated to Nichols. Nichols also supplies the official pace boats for races sponsored by the American Power Boat Association and the National Racing Association. Defendant Berton has been an editor of Motorboating and Sailing magazine, and was involved in the design of the thirty-eight foot Cigarette at the center of controversy in this case.

Plaintiff met Berton in New York City at a Boat Show in January 1984. Berton introduced himself as president of the

"Hawk Racing Team," a title plaintiff was familiar with from boating magazine advertisements. Plaintiff told Berton that he was dissatisfied with the boat he then owned, a 1983 Scarab, and that he wanted to own a boat that would cruise at a speed of sixty to sixty-five miles per hour. Berton advised plaintiff to buy a boat that would reach eighty miles per hour as a maximum speed, so that the sixty to sixty-five miles per hour cruising speed could be attained without inordinate strain on the engines. Berton said that a Cigarette 38 boat, with modified and enhanced Hawk Marine Power engines, could achieve such performance. The sales price was set at $196,000. Plaintiff told Berton that he wanted some time to consider the purchase. A few days later Berton called plaintiff, who indicated he had decided to purchase the boat. Plaintiff and Berton met again at the Boat Show and reached an agreement that anticipated plaintiff taking delivery of the modified Cigarette 38 on May 1, 1984.

Plaintiff was allowed $80,000 credit on his trade-in Scarab boat and paid $11,000 cash as a down payment. The balance of the purchase price, $105,000, was secured through a bank loan. To obtain the loan, plaintiff provided Nichols with credit information and signed a retail installment agreement in blank. A bank officer gave deposition testimony that described the loan transaction as one in which the borrower applies through the dealer rather than the bank. The dealer and the borrower enter into the lending contract; the dealer then assigns the contract to the bank, and the bank forwards the funds directly to the dealer. The customer's credit standing provides the basis for the loan, and the customer's signature on the loan agreement evidences his receipt of the commodity.

Plaintiff requested that Nichols not proceed with the loan application until he had possession of the new boat. Contrary to this request, Nichols submitted the papers to the bank. The bank, unwilling to accept the trade-in boat as part of the down payment, rejected the loan application. Shortly thereafter, one of Nichols' employees forged plaintiff's signature on a second

application submitted to the same bank, which falsely represented that plaintiff had provided a cash down-payment of $80,000 and no trade-in. The bank approved this application and forwarded the funds to Nichols. Plaintiff received payment coupons from the bank before the boat was delivered.

In late May of 1984, the boat arrived at Nichols' marina in New York. Plaintiff took two test rides, one week apart, with Nichols' personnel. The boat failed to achieve eighty miles per hour on either occasion. In each instance plaintiff refused to accept the boat, and defendants attempted to make adjustments to improve the boat's performance. Following the second test run, defendants assured plaintiff that after the boat was broken in and operated for twenty-five hours, it would be able to reach eighty miles per hour. Based on this assurance, plaintiff accepted delivery of the boat.

After delivery, however, the boat's performance did not improve and mechanical defects in the engines became apparent. One of the engines burned an excessive amount of oil, a condition that resulted in severe internal damage to that engine. After repeated repair attempts and only eight hours operating time, defendants retrieved the boat and it was taken out of the water; the boat had never exceeded seventy-three miles per hour.

Throughout this period, the bank continued to demand payments on the loan from plaintiff. Plaintiff refused to make any payments and in July 1984 advised Berton that he was rescinding the contract. A TRW credit report prepared for plaintiff contained a reference to the unpaid installments. After plaintiff instituted this action, Nichols paid off the loan.

In November 1984 plaintiff purchased a slightly less powerful Cigarette 38 from a Florida distributor for a base price of $214,629.16, with additional costs for modifications to make this boat comparable to the first bringing the total expenditure to $220,200. Despite the higher price, evidence at trial established that the replacement boat had only "approximately 90%" of the

equipment and potential power of the boat ...


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