A & A Leasing Company v. Bixler

A-6951-96T2 (N.J. Super. App. Div. 1998) (Unpublished)
  • Opinion Date: July 16, 1998

CONSUMER FRAUD ACT; CONTRACTS—The sale of a business can be covered by the Consumer Fraud Act.

An individual investor purchased a single office of a resume writing business on an installment basis and by taking over its lease obligations. The installment sales contract was in the form of a 37 month lease agreement for equipment, furniture, and file drawers of resumes and client lists. An addendum to the lease agreement allowed the buyer to terminate the lease within a given time, but upon such a termination, the individual buyer was required to sell the goodwill of the business, including the clients, client lists, client resumes, and work in process back to the lessor for a nominal sum. The addendum also included a non-competition agreement in favor of the seller/lessor.

In the first three months of the lease, the new business owner discovered that several former managers of the business that she had purchased were operating resume services (under arrangement with her seller) quite near to her own office. The seller either refused or was unable to resolve these competition problems. In addition, the new business owner had problems with equipment she was leasing under the lease, especially with the copier. With this as background, the new business owner complained, alleging that the lessor/seller was in breach of its lease agreement by allowing other customers to have resume businesses in violation of their own agreements not to compete; by allowing those competitors to remove and use files, documents, and disks that had been in the office that was purchased; and by misrepresentations about the projected monthly income and the ongoing nature of the operation. When the seller filed suit against its buyer-lessee for failure to make the monthly payments and for failure to return the property in “first-class condition,” the new business owner responded with a denial of the allegations and with a counterclaim and third-party complaint against parties related to the seller. She alleged that she responded to a newspaper advertisement “offering the lease/purchase” of an established business, the office “of a national resume writing company.” After a jury trial, the seller/lessor was found to be responsible for the transaction; to have made fraudulent statements to the buyer to induce her to enter into the lease agreement; and to have violated the Consumer Fraud Act.

On appeal, the seller/lessor argued that the Consumer Fraud Act did not apply to the purchase of a business. After analysis of the statute and the relevant case law, the Appellate Division concluded that the Act did apply. The Act deals with certain fraudulent acts in connection with the sale or advertisement of any merchandise or real estate. “Merchandise” is defined as “any objects, wares, goods, commodities, services, or anything offered, directly or indirectly to the public for sale.” “Rentals” are included in the definition of the term “sale.” In the Court’s view, office furniture and equipment, together with the client lists and resumes, qualify as objects, wares, goods or anything offered to the public for sale. Even though the seller/lessor characterized the transaction as the sale of a business or franchise, the Court pointed out that the parties’ lease agreement covered only the items listed on a schedule consisting of furniture, equipment, client lists and resumes. The Court also concluded that even if the sum of the furniture, equipment, client lists and resumes is considered a business, the transaction was still covered by the Consumer Fraud Act. The case law is clear that “the application of the Act to non-retail transactions has stood unchallenged” for quite some time. Although the term “franchise” is not included within the definition of “merchandise,” it is subsumed within the terms “commodities, services” or “anything offered, directly or indirectly to the public for sale.” Under prior case law, the New Jersey Supreme Court felt that the definition of “merchandise” in the Act was broad enough to include the sales of both credit and insurance policies. Consequently, the Appellate Division believed that it should give a liberal or generous construction to the phrase “anything offered ... to the public for sale.” Lastly, unlike statutes in many other jurisdictions, the coverage of the New Jersey Consumer Fraud Act is not limited to goods or services intended for personal, family or household purposes.