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Richards v. Avanti Powerboats, Inc.

A-2094-05T1 (N.J. Super. App. Div. 2006) (Unpublished)

CONSUMER FRAUD ACT; UNCONSCIONABILITY — Where a seller uses a consumer’s deposit, advanced in good faith for a specific purpose, as an interest-free loan to the business, it is a guilty of an unconscionable act that implies a lack of good faith, honesty of fact, and observance of fair dealing; therefore, the seller has violated the Consumer Fraud Act.

A customer bought a custom powerboat from a manufacturer. When the customer was dissatisfied with the boat’s performance, he and the manufacturer agreed to a “like kind” exchange of the boat for a smaller boat with a larger engine. The manufacturer, claiming that it had limited cash flow, took a “refundable deposit” from the customer specifically to “purchase the motor package for the new boat.” It appears that the boat was to be delivered by a certain date and that the money would be returned when the deal was complete. Shortly before the boat was to be completed, the customer visited the manufacturer’s showroom and discovered that little, if any additional work had been done to the boat. In fact, the new motor had not been ordered or received. The manufacturer claimed that the money was used to customize the boat and that it had been agreed that “the money was to be returned after [it] was able to sell [the customer’s] trade-in boat.”

Eventually the manufacturer returned less than half of the deposit. Thus, the customer sued for breach of contract and later alleged a violation of the Consumer Fraud Act (CFA). With respect to the alleged CFA violation, the customer claimed an ascertainable loss equal to the “balance of his refundable deposit that [the manufacturer] had retained, notwithstanding that [the manufacturer’s principal] had failed to purchase and install the motor package in the new boat as promised.” The lower court found the manufacturer guilty of violating the CFA and trebled the damages as well as awarding attorney’s fees. The manufacturer appealed, arguing that the buyer’s “claim should have been limited to breach of contract and damages under the Uniform Commercial Code ... [and that the buyer] failed to prove a violation of the CFA.”

The Appellate Division was “not persuaded by any of [the manufacturer’s] arguments.” It was satisfied that the buyer was justified in terminating the contract “due to dissatisfaction” with the manufacturer’s performance. It took special note that the manufacturer had “admitted that the money was intended by the parties to fund the purchase of the engine for the replacement boat because of [the manufacturer’s] limited cash flow.” The deposit was not part of the replacement boat, which was to be an even swap for the “trade-in.” Consequently, there was “no dispute the deposit was refundable.” Further, the Court thought it was “immaterial whether it was to be returned when the replacement boat was finished ... or when the trade-in was sold.”

The CFA provides, in part: “The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation ... in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, ... is declared to be an unlawful practice.” Further, according to the Court, “nconscionability has been described as ‘an amorphous concept obviously designed to establish a broad business ethic’ and implies a lack of ‘good faith, honesty in fact and observance of fair dealing.’” There was no question that the buyer was a consumer within the meaning of the CFA. Also, just because the manufacturer’s failure to return the deposit constituted a breach of contract, it did not limit the buyer to contract damages. The buyer “was also entitled to assert a CFA claim.” Further, it wasn’t necessary for the buyer to prove that the manufacturer “intended to deceive or commit an unlawful act. According to the Court, “[e]ssentially, [the manufacturer] used [the buyer’s] deposit, advanced in good faith for the purchase of the engine package for the new boat, as an interest-free loan to the business.” Consequently, the Court felt that this misuse of the buyer’s deposit “evidenced a substantial aggravating circumstance to trigger a violation of the CFA and warrant the imposition of treble damages and counsel fees.”

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