Kung Yan Shih No. 33: Returns and refund under the Supervisory Regulations Governing Multi-Level Sales, scope of deductions, and letters of approval after reporting
Case:
Kung Yan Shih No. 33: Returns and refund under the Supervisory Regulations Governing Multi-Level Sales, scope of deductions, and letters of approval after reporting
Reference:
Fair Trade Commission Decision of July 8, 1992 (the 40th Commissioners' Meeting); (81) Kung Ts'an Tzu No. 7849
Relevant Laws:
Article 5 of the Supervisory Regulations Governing Multi-Level Sales
Summary:
1. Request for explanation (1) Can a discretionary processing fee be charged for rescission of contract? (2) Does "return to the participant of the purchase price of all the goods and other consideration paid at the time [the participant] joined" include fees for information packets and monthly publications? If the information packet has been used or is incomplete, can the enterprise refuse to accept its return? Can the enterprise deduct fees for monthly publications that it has already given to participants? (3) The annual agreement renewal fee of NT$400 represents the cost of a monthly publication. If a participant terminates the contract, must this fee be refunded? Can the cost of issues already sent out be deducted? (4) If a participant leaves the organization but the deadline for the goods she returns has expired, must the enterprise refund the participant for these goods? If a good's packaging has been opened or a portion of the good has been consumed, can the good's value be deemed completely destroyed and therefore no refund should be given to her? Also, can the organization require the participant to present the original receipt with the returned goods in order to return goods? (5) After an organization reports to the Fair Trade Commission (the Commission), does the Commission issue a letter of approval?
2. The Commission explained that: (1)Article 5 of the Supervisory Regulations Governing Multi-Level Sales is intended to give the participating party the right to remain undecided. Consequently, when a participant rescinds, that participant is exercising his right to remain undecided for a certain period of time. If exercise of this right causes the multi-level sales organization to suffer injury, the rescinding participant does not incur compensatory liability. If it is agreed beforehand that the party exercising the right to remain undecided must refund all processing or other fees to his counterpart, then this agreement would be a special contract for a reliance interest and would not comport with the aforementioned right to remain undecided. To remain legally binding, standardized contracts drafted by multi-level sales organizations shall not include such terms or similar terms. (2)Information packets and monthly publication fees fall under the scope of Article 5(1)(ii) of the pre-amended Supervisory Regulations Governing Multi-Level Sales and must of course be returned. However, in the circumstances set forth in Article 259(1)(vi) of the Civil Code, an organization may claim compensation equal to the price of the information packet and monthly publication fee. (3)Termination of a contract takes force from the time of termination. Unlike rescission of a contract, there is no requirement that the original obligations be restored. Thus, with respect to what the letter terms monthly publication fees, a multi-level sales organization is required to refund only the portion for unsent issues at the time of termination. The organization does not need to refund fees for issues sent prior to termination of the contract because the mailings of such issues constitute acts completed during the period in which the contract was in force. (4)Article 5(1)(v) of the pre-amended Supervisory Regulations Governing Multi-Level Sales provides that "the multi-level sales enterprise shall buy back all goods in the participant's possession at 90% of the original purchase price; provided, bonuses or remuneration paid to participants on account of such goods, as well as decreases in the value of the goods, may be deducted." When the organization calculates the price of damaged retrieved goods, it should consider the nature and functionality of the goods in terms of trading. If in ordinary trading a given good is deemed to have no trading value or has lost its proper functionality, then that good falls within the scope of goods whose price may be deducted under Article 5(1)(v). What the letter to the Commission terms "expiration of the sell-by date" may be deemed loss of proper functionality; Article 5(1)(v) would apply in such a case. If a package has been opened but its contents have not been diminished or partially consumed, the nature of the good in trading should be taken into account to determine whether the good retains trading value and whether Article 5(1)(v) applies. Requiring participants to attach the invoice for the goods purchased as a condition for returning the goods falls under the scope of freedom to contract unless the organization uses this requirement to obstruct participants from withdrawing (5)A recordance system has been adopted for multi-level sales organizations. However, since the Commission does not conduct substantial review reports made under this system, it does not issues letters of approval in response to such reports. Once a multi-level sales organization has reported to the Commission, it may begin to operate. Summarized by Kuo An Chi; Supervised by Lin Ching Tarng