Civil
judgment in an appeal by Ambassador Resorts Ltd. regarding a violation of
the Fair Trade Law
Chinese
Taipei
Case:
Civil judgment in an appeal by Ambassador Resorts Ltd. regarding a violation
of the Fair Trade Law
Key Words:
resorts, sales tactics, door-to-door sales, rescission of contract
Reference:
1999 Civil Judgment of the Taipei District Court (88) Chien Shang Tzu No.
469
Industry:
Management Consulting (7402)
Relevant
Laws:
Articles 24
of the Fair Trade Law
Summary:
- According to the appellant:
(1) The effectiveness of the Membership Agreement (the "Agreement")
signed between the two parties:
(i) The Agreement is a sales agreement. The purchasers [husband and wife Chien
Chih-you and Wu Ts'en-hsi] are the appellees and the seller is the appellant.
The subject matter is timeshare rights in the Jimbaran Hills Club resort on
Bali Island, Indonesia. The appellant's obligation under the contract is to
deliver to the appellees a membership certificate conferring membership qualifications;
the appellees' obligation is to pay the purchase price.
Articles 1 and 2 on the front and back of the Agreement explain that approximately
10 weeks after paying up all the membership fees, the consumers will receive
a Jimbaran Hills Club membership certificate entitling them to membership
rights at the resort. When members wish to exercise membership rights, they
must fill out a form detailing their arrival time and flight number and send
it to the resort. The resort will then schedule their vacation. Article 3
provides that the consumers have a subsidiary obligation to pay ongoing membership
fees. Article 4 further provides that by purchasing the Jimbaran Hills Club
membership, the consumers will also obtain membership rights to RCI and ITC50.
(The appellant also promised to pay the appellees membership fees for the
initial two years of RCI and initial year of ITC50 membership.) As a result,
the appellees would not only have the member privileges for RCI but also would
have the right to swap resort time.
The remaining terms and conditions of the Agreement comprises either explanatory
provisions or boilerplate clauses that are irrelevant to the rights and obligations
of both parties, or provisions that are applicable to both parties and therefore
are neutral in effect. Nothing unfair or against the principle of good faith
could be found in those provisions. Even if the appellant (as intermediary)
were not considered a party to the agreement between consumers and the resort,
this fact would not adversely affect the consumers in any way. Article 6 of
the Agreement provides, "This Agreement is legally binding and may not
be repealed, cancelled, or invalidated; and the fund that has been paid may
not be refunded." This provision, however, equally restricts the appellant's
and the appellees' rights to repeal or cancel the Agreement, and is thus not
unfair or unreasonable. Even if Article 6 were deemed to have violated the
principle of good faith, been obviously unfair to the appellees and, therefore,
were void, it would not affect the validity of the rest provisions in the
Agreement.
(ii) The subject matter of the Agreement is clear and unambiguous. The Agreement
specifies such matters as the resort name, vacation periods, maximum weeks
of vacation time, type of condominiums, and maximum number of residents. Other
matters such as the resort's location, facilities, and services, and membership
rights and privileges were explained in details by the appellant to the appellees
prior to signing, and are also stipulated at length in the Jimbaran literature
provided by the appellant to the appellees. Hence, there is no need to spell
them out in the Agreement. Also, although the Appellant signed the Agreement
as the "representative of the Resort," it is clearly stated in the
Preface of the Agreement that the appellant is referred to as the "Resort"
in the Agreement. The appellant is ipso facto a party to the Agreement. Thus,
the court of first instance was clearly misguided in its opinion that the
content of the Agreement was unfair to the consumer because "there is
some question as to whether the Agreement is binding upon the defendant [i.e.,
the Appellant]."
(iii) Granted, the Fair Trade Commission found in disposition 88 Kung Ch'u
Tzu No. 035 that the appellant, when selling the resort memberships, had utilized
obviously unfair sales tactics to interfere with its trading counterparts'
ability to make reasonable trading decisions, in violation of Article 24 of
the Fair Trade Law, and ordered the appellant to immediately cease the obviously
unfair acts. The Agreement itself, however, is not invalidated by that disposition.
(2) Does the sale fall in the category of door-to-door sales?
Article 2(9) of the Consumer Protection Law (CPL) defines "door-to-door
sales" as "purchase and sale as a result of sales activities by
business operators at the domiciles/residences of the consumers or other locations
without invitation." The "other locations" should be construed
as locations similar in nature to the "domiciles/residences of the consumers"
referred to in the forepart of the same subparagraph, i.e. as limited to premises
that business operators cannot enter on sales calls except if invited by the
consumer, rather than as generally referring to any and all other places.
Otherwise, the Article could have defined "door-to-door sales" simply
as "purchase and sale as a result of sales activities by business operators
at any location where there are consumers." Clearly, that was not the
original intent of the legislators.
In this case, the appellant ascertained through a telephone call that the
appellees were willing to participate in a travel information seminar, and
then mailed them an invitation to the seminar. The invitation clearly stated
that participants would be awarded gifts, and repeatedly emphasized that no
cost or purchase was required. The appellees merely had to stay for the entire
seminar and listen to the latest travel information presented by professional
[sales] personnel representing the appellant's resort. Thus, based on the
phone call and the invitation, the appellees should reasonably have anticipated
that the purpose of the seminar was to introduce the apellant's products.
Namely, the appellees should have known well before attending the seminar
that the appellant would be promoting its products there. It was not as if
the consumers, i.e., the appellees, entered into the purchase agreement with
the appellant on the spur of the moment without having had any opportunity
to consider the matter. In addition, the seminar was held at the appellant's
place of business and, therefore, the transaction obviously was not "door-to-door"
sales under the CPL.
From the wording of the provisions concerning door-to-door sales in the CPL,
it is evident that a judgment of whether a transaction falls in this category
should be based on the location where it occurs rather than whether the consumer
is at a psychological disadvantage or whether he has had an opportunity to
evaluate the deal in advance. To construe otherwise would mean that any purchase
and sale resulting from sales activities by business operators at any location
where there are consumers could be considered "door-to-door sales."
Such a reading is beyond the limit of legal interpretation and is tantamount
to the creation of a new law.
(3) The appellees did not legally repeal the contract:
(i) The appellees signed the Agreement on August 22, 1998. On October 1 of
the same year the appellees requested in writing that the appellant changed
the way it issued the invoice and asked the appellant to provide more information,
both of which had demonstrated that the appellees had fully read through the
Agreement's content after signing it, and were willing to be abide by the
Agreement. It was not until February 10, 1999 that the appellee Chien Chih-you
notified the appellant in writing that he would repeal the Agreement. This
obviously runs against the principle of good faith, and should not have the
effect of repeal. Moreover, the purchasers consist of the two appellants.
Were the appellants deemed to have had the right to repeal the Agreement,
the repeal would have been treated as invalid pursuant to Article 258-2 of
the Civil Code because the repeal was not made jointly by the co-appellants,
Wu Ts'en-hsi.
(ii) If the Agreement were deemed a "door-to-door sale" agreement
- which under the CPL a consumer may repeal unconditionally within seven days
of receipt of the product - and the appellees were therefore entitled to repeal
the Agreement at any time until seven days after the two-year period in which
the membership fees were paid up, then the legal relationship between the
parties would remain in an inderepeal state for that entire period. Therefore,
even if the transaction were deemed a door-to-door sale, the period during
which the consumer is entitled to repeal the agreement should be shortened.
At the very least, the provisions of the Civil Code concerning mistaken expressions
of intent should be analogously applied to this case. That is, the right of
repeal should be exercised within one year. In this case, it should be completed
by August 21, 1999. Although the appellant Chien Chih-you expressed the desire
to repeal the agreement on February 10, 1999 and asserted that spouses have
the power to act as each other's agent, the exercise of such power is limited
to ordinary household affairs. The agreement between the parties does not
fall within this category and, therefore, the provisions of the Civil Code
concerning spouses' power to act as each other's agent are inapplicable here.
Accordingly, the agreement is not legally repealed. Although the two appellees
had jointly repealed the agreement on October 18, the one-year period for
the exercise of the right of repeal had already expired by that time. Based
on the principle of good faith and the balancing of the rights and interests
of both parties, the notification of repeal is not effective.
(4) Concerning the appellees' request for punitive damages:
The phrase "in litigation brought pursuant to this law" in Article
51 of the CPL refers specifically to litigation brought pursuant to Articles
7(3), 8, or 9 of the CPL. It does not extend to all disputes arising from
the relationship between enterprises and consumers. "Injuries" in
the same article extends only to injuries suffered by consumers or third persons
because the goods or services provided by the enterprises posed health or
safety hazards, or the enterprises failed to label hazardous goods, pursuant
to Article 7 of the same law. Unlike compensatory damages, punitive damages
are intended to punish intentional, immoral, or egregious acts. They are tantamount
to criminal punishment, and should only be imposed after being strictly scrutinized.
In this case, the appellant did not maliciously deny the request to repeal
the agreement by intentionally violating the CPL. In particular, the case
was brought as a civil case concerning the issue of restitution after the
agreement was repealed; it was not based on Articles 7(3), 8, or 9 of the
CPL. Furthermore, as has been explained previously, repeal of the agreement
was unlawful. Therefore, the appellant's denial of the appellees' right to
repeal the agreement does not constitute negligent or intentional act, and
Article 51 of the CPL is inapplicable in this case.
(5) The appellees paid only seven installments and did not complete the payments.
According to Article 2 of the Agreement, the consumer is entitled to the membership
rights - and to obtain a membership card - only after the fees have been paid
up in full. Not to mention that the appellant received the documented registered
letter of repeal from the appellee Chien Chih-you on 20 October 1999.
- According to the appellees:
(1) The agreement was entered into by both parties on August 22, 1998 in which
the appellees have the obligation to pay the membership fee on 24 installments
but they can not enjoy any membership privilege during that period. Although
one of the appellees unilaterally repealed the agreement on February 10, 1999
after paying the seventh installment, both appellees are husband and wife,
who share a single membership No. JA1893/SR, they obviously have the power
to act as an agent for each other. Their joint intent to repeal the agreement
was borne out by their second request to repeal signed by both of them on
October 18, 1999. The agreement has in effect been legally repealed. Moreover,
they have not yet received a membership card.
(2) In the original call that the appellees received from a telemarketer in
late August 1998, the caller offered a free trip to Singapore as inducement
to attend the "travel seminar." The appellees did not know that
the seminar would be four hours long; nor were they aware of that it was a
promotional tactic to sell overseas resort memberships. When they attended
the seminar four days later, they were not psychologically prepared, and ended
up signing the contract out of lack of experience, personal persuasion, embarrassment,
and pressures of time and the atmosphere at the site of the sale. They did
not have the opportunity to deliberate over the terms of the agreement. Although
the agreement was signed at the appellant's business address, the transaction
in nature is clearly a door-to-door sale.
(3) The contract specified only the rights of the appellant not of the appellees,
which makes it a very unfavorable agreement to the appellees. Therefore, the
restriction on the right to repeal stipulated in Article 6 of the agreement
would affect only the appellees because the appellant would not have any reason
to repeal an agreement that is drawn up by and more favorable to it. Also,
it was already inappropriate for the appellant to fail to provide the pertinent
information before the agreement was signed. Therefore, by asserting that
it is not necessary to specify those information in the agreement, it is quite
obvious that the agreement drawn up by the appellant is an adhesive and unfair
contract. Despite the repeated oral and written requests from the appellees
to provide the information, the appellant simply ignored all those requests.
(4) The term "suits brought under this law" described in Article
51 of the CPL should include all litigation that are relevant to the application
of the CPL, not just those concerning Articles 7(3), 8, and 9. The appellant's
intentional injury to the appellees by its refusal to refund their payments
after the agreement was repealed should of course expose it to the liability
of treble punitive damages in the amount of NT$220,000.
- 3. Reasons of this judgment:
(1) First of all, as both parties' rights and obligations under the disputed
membership agreement outlined in 1(1)(i) above had been clearly described
in the agreement, it is obviously a sales agreement.
(2) The focuses of the dispute in this case are as follows: (i) Does the transaction
fall into the category of "door-to-door sales," which were a type
of specific sales agreements regulated by the CPL? (ii) Are there grounds
to invalidate the Agreement? (iii) Are the appellees entitled to repeal the
Agreement? (iv) Are the appellees entitled to seek punitive damages?
(3) Is the case a door-to-door sale?
(i) Door-to-door sales defined in Article 2(9) of the CPL refers to uninvited
transactions occurred at the consumers' residence or other places. It is a
new sale strategy that is quite different from the traditional selling methods.
As promotional tactics via modern media have been growing increasingly complex
and varied, consumers in a door-to-door sale frequently signed the agreements
without adequate psychological preparation or opportunity for thorough consideration.
Such a concern explains the provisions in CPL specifically enacted to addresses
the disputes that could arise from door-to-door sales.
(ii) Article 18 of that subchapter provides that "Enterprise operators
engaging in...door-to-door sale shall inform consumers of the terms of purchase
and the seller's name, title, responsible person, and office or residence."
Articles 19 and 20 concerning the repeal of contract, return of goods, and
compensation for injury in transactions of sales of "goods" obviously
is applicable to "services" as well. This legislative intent is
plain in light of prevailing commercial, judicial, and administrative practice
and the inclusion of "services" in the law's definition of "consumer"
in Article 2.
(iii)The elements of door-to-door sales in Article 2(9) of the CPL are (1)
the seller promotes the product uninvited by the consumer; (2) the sale occurs
at the domiciles/residences of the consumers or other locations. "Other
locations" in article 2(9) refers to any place where the consumer lacks
the opportunity to deliberate over the transaction. In this case, the seller
made an unsolicited telephone call to the consumer's home, and set up an appointment
to attend a "travel seminar" at its place of business four days
later. The consumers were entirely unaware that the purpose of the seminar
was to induce them to sign the agreement, and they were psychologically unprepared
for a four-hour sales pitch, not to mention any opportunity to compare the
product/service with other competing products/services in the market. Clearly,
the transaction was one of door-to-door sales.
(4) Are there grounds to invalidate the Agreement?
(i) The Agreement is clearly an adhesive contract. The appellant drew it up
in advance with the intention of entering into it with multiple, unspecified
counterparts. The appellant itself acknowledges it to be an adhesive contract.
(ii) In its disposition (88) Kung Ch'u Tzu No. 035, the FTC found that the
appellant had utilized patently unfair sales tactics to interfere with its
trading counterparts' ability to make reasonable trading decisions in violation
of Article 24 of the Fair Trade Law. The disposition, however, addressed the
appellant's sales tactics rather than the content of the Agreement. Furthermore,
the function of the Fair Trade Law is to regulate overall business competition
in the market rather than to directly protect the rights and interests of
individual enterprises and consumers. Therefore, the validity of the adhesive
agreement in this case must be determined by a review of its specific terms
and conditions for the transaction.
(iii) Under Article 258(2) of the Civil Code, an expression of intention to
repeal must by made by or to all parties on either side of the agreement.
The power of husband and wife to act as agent for each other under Article
1003(1) of the Civil Code is limited to daily household affairs. Therefore,
Chien Chih-you's letter of repeal is invalid.
(5) Article 19 of the CPL provides that "Consumers of a mail order or
door-to-door sale, if unwilling to purchase the goods received by them, may
return the goods or notify the business operators in writing to repeal the
purchase contract within seven days of receiving such goods, without the need
to provide reasons or paying any expenses or the purchase price. Article 18
of the CPL Enforcement Rules further provides, "Prior to receiving the
goods, a consumer may repeal the sales contract by informing the enterprise
operator in writing pursuant to the provisions of Article 19(1) of the CPL."
These provisions are clear and unambiguous; no loophole in law has existed
that would call for applying analogously the provisions in the Civil Code
concerning the repeal of mistaken expressions of intent, including the time
limit for the exercise of the right to repeal, to this case. Neither party
in this case denies that the appellees, to this day, have not received the
membership card or entitlement to use the services provided by the resort.
Therefore the appellees' joint expression of intent to repeal signed on October
18, 1999 and served on October 20, 1999 is valid. Under Article 259(1) of
the Civil Code, "unless otherwise provided for by law or contract, each
party must, in case of repeal, restore the other party to his original legal
status." Article 259(1)(ii) further provides that if the restoration
consisted of the return of money, interest is to be added, calculated from
the time when the money was received. Therefore, the appellees' request that
the appellant return the total of NT$76,779 it had received, plus interest
calculated at an annual rate of five percent from 10 February 1999, is reasonable.
(6) Whether the appellee may claim punitive damages:
Article 51 of the CPL provides, "in suits brought under this law, a consumer
may request punitive damages up to three times the amount of actual damages
as a result of injuries caused by the intentional misconduct of enterprise
operators; however, if such injuries are caused by negligence, punitive damages
up to one time the amount of the actual damages may be claimed." Article
51 is applicable to all consumer compensation suits, whether brought by individuals
or by consumer protection groups in their own name pursuant to Articles 49
or 50 of the CPL.
Note, however, that Article 51 was drafted with reference to legislative precedent
in the United States and South Korea and is intended to reinforce consumer
safety policies and to prevent operators from abusing their power. (These
points are stated by the legislature in its "Reasons" for passing
the law.) Punitive damages, which had just been introduced into Chinese Taipei's
legal system recently, should not be misconstrued as a mechanism for compensation
or remedy for the consumer. The existing contract and tort laws already provide
such mechanisms. With regard to door-to-door sales in particular, the CPL
provides ample mechanisms to protect consumers by vesting them with strong
powers to deny the validity of the contract they entered into or to repeal
those contract. The applicable scope of punitive damages should therefore
be narrowly confined.
Under the CPL, then, the punitive damages in Article 51 should apply only
in cases involving actual endangerment to consumer health or safety (under
Article 7), in which enterprise operators provide hazardous products or fail
to properly label hazardous products. They should not apply to door-to-door
sales of the kind in the present case (involving issues of contract performance
and right of rescission and restitution rather than hazards to consumers).
Therefore, no legal basis exists for the appellees' request for punitive damages
of NT$220,000.
(7) In summary, the appellees have sufficient reasons to request the appellant
to return the total of NT$76,779 it received, plus interests calculated at
an annual rate of five percent from 10 February 1999, based on their right
of rescission of contract and restitution. Any claims beyond this are groundless
and are denied.
Summarized by Ch'iu Shu-fen
Supervised by Hsu Chao-ying
Appendix:
Ambassador Resorts Ltd.'s Uniform Invoice Number: 96971539
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