Group Title: model statute to regulate unfair advertising and sales practices in Alabama
Title: A model statute to regulate unfair advertising and sales practices in Alabama
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 Material Information
Title: A model statute to regulate unfair advertising and sales practices in Alabama
Physical Description: xiii, 281 leaves. : ; 28 cm.
Language: English
Creator: Harris, James Robert, 1941-
Publication Date: 1973
Copyright Date: 1973
 Subjects
Subject: Consumer protection -- Law and legislation -- Alabama   ( lcsh )
Marketing thesis Ph. D   ( lcsh )
Dissertations, Academic -- Marketing -- UF   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Thesis: Thesis -- University of Florida.
Bibliography: Bibliography: leaves 266-279.
General Note: Typescript.
General Note: Vita.
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Bibliographic ID: UF00098375
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: alephbibnum - 000577614
oclc - 13996436
notis - ADA5312

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A MODEL STATUTE TO REGULATE UNFAIR

ADVERTISING AND SALES PRACTICES IN ALABAMA


















By

JAMES ROBERT HARRIS









A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY











UNIVERSITY OF FLORIDA

1973












ACKNOWLEDGEMENTS


The author wishes to express his gratitude and

appreciation to the members of his supervisory committee,

Dr. J. Donald Butterworth, Dr. Ralph H. Blodgett, Dr. John

H. James, Dr. Arvid A. Anderson, and Professor Jordan B. Ray

for their guidance and assistance in this work. A special

word of appreciation is due Dr. Butterworth for his patience

and encouragement during the lengthy process of researching

and writing this volume.

The members of the Alabama Legislature and those

administrators of consumer protective agencies who re-

sponded to the author's request for information likewise

deserve recognition for their willingness to assist in this

research endeavor. Special thanks go to Representative

Fred Gray of Tuskegee, Alabama, Tom Brassell in the Alabama

Attorney General's Office, Annie Laurie Gunter in the

Office of Consumer Protection, and Jack Kahn in the Atlanta

Office of the Federal Trade Commission who devoted their

time and effort in providing inputs vital to the conduct

of this research--all are deeply committed to the goal of

improving consumer protection legislation in Alabama.








The encouragement and support of the author's wife

and two children cannot go unnoticed. They provided both

the reason and justification for the long hours of work

spent on this task.

The time and skills of many people on the faculty and

staff of Auburn University likewise deserve recognition.

Susan Smith, secretary to the Departrent of Marketing and

Transportation, deserves thanks for her effort in typing

the preliminary manuscript. Liz D'Andrea also deserves

credit for her assistance in preparing the final copy.

Despite the generous giving of time and energy by

others to this work, no one can be blamed for errors

of omission or commission except this writer. As this

represents the product of his research efforts, the

responsibility for justifying the opinions and conclusions

presented here rests upon the author.














TABLE OF CONTENTS


Page

ACKNOWLEDGEMENTS ..................................... ii

LIST OF TABLES ....................................... viii

LIST OF CHARTS .......... ........................... x

ABSTRACT .................. ............................ xi


Chapter

I. INTRODUCTION ................................... 1

Need for Consumer Protection ................. 4
Nature, Scope and Purpose of Study .......... 7
Research Methodology ......................... 10
Chapter Summary .............................. 12
Notes ....................................... 15

II. NEED FOR STATE INVOLVEMENT ..................... 17

Historical Sketch of Consumer Protection ...... 17
Roman Law .............. .................... 18
English Law ............... ................. 20
American Law ............................... 24
The Role of Federal Agencies ................. 27
The Federal Trade Commission ............... 28
The Office of Consumer Affairs ............ 32
The Food and Drug Administration ........... 33
The Federal Communications Commission ...... 34
The Federal Alcohol and Tobacco Tax Unit ... 35
The United States Postal Service ........... 36
The Securities and Exchange Commission ..... 36
The Civil Aeronautics Board ................ 37
The Federal Deposit Insurance Corporation .. 33
Other Federal Agencies ..................... 38
Boundaries of Federal Jurisdiction ........... 40
Degree of State Involvement .................. 47
Notes ....................................... 53

III. PRESENT STATUS OF CONSUMER PROTECTION IN ALABAMA. 58

Avenues of Legal Action ...................... 58








Chapter Page

III. Existing Legal Environment .................. 60
Criminal Action ............................ 61
Civil Action ............................... 67
Action in Equity ........................... 75
Protective Action ............................ 80
Consumer Protection Office ................ 80
Office of the Attorney General ............ 83
District Attorneys ......................... 86
Private Action Groups ...................... 88
Better Business Bureaus .................. 89
Alabama Consumers Association ............ 90
League of Women Voters ................... 91
Community action groups ................. 92
Court Action ................................. 92
Process of Remedy .......................... 93
Lee County Circuit Court Cases ............. 95
Montgomery County Circuit Court Cases ...... 95
Greene County Circuit Court Cases .......... 98
Appellate and Supreme Court Cases .......... 100
Notes ... ..................................... 104

IV. RECOGNIZED AREAS OF NEEDED CONSUMER
PROTECTION WITHIN THE STATE .................. 108

Survey of State Legislators .................. 108
The Questionnaire ......................... 109
Methodology ............................... 114
Survey Results ............................ 118
Frequency of consumer complaints ......... 119
Attitudes toward selected consumer
legislation ............................ 121
Perceived problems and remedies in
protecting consumers ................... 132
Complaints of Existing Agencies .............. 134
Office of Consumer Protection .............. 135
Attorney General's Office .................. 137
Department of Banking ..................... 140
Department of Insurance ................... 142
Notes .......................................... 144

V. OVERVIEW OF CONSUMER PROTECTION IN THE FIFTY
STATES ........ .... .................. ... ...... 145

Survey of Legislative Action ................. 145
Recent Deceptive Trade Legislation ......... 148
State Initiated Action .................... 164
Private Remedies .......................... 164
Class Action Suits ........................ 166








Chapter Page

V. Cooling-Off Period ........................ 167
Holder in Due Course ...................... 168
Pyramid Sales and Warranty ................. 169
Bait and Switch and Going-Out-Of-
Business Sales .......................... 169
Referral Sales ............................ 170
Other Prohibited Practices ................. 170
Survey of Administrative Organizations ....... 172
Organization of Consumer Protection
Agencies ............ ............ ......... 178
Staffing of Consumer Protection Agencies ... 179
Funding of Consumer Protection Agencies .... 180
Complaint Activity ......................... 182
Perceived Problems in State Protection
Programs ................................ 183
Notes ....... ................................. 189

VI. RECOMMENDED LEGISLATIVE ACTION ................. 191

Proposed Code to Regulate Unfair
Advertising and Sales Practices ........... 192
Section 1 Short Title .................... 192
Section 2 Definitions as Used in This
Act .................................... 192
Section 3 Unlawful Acts or Practices ..... 193
Section 4 Pyramiding Devices Unlawful .... 194
Section 5 Requirement of Warranty ........ 194
'Section 6 Unlawful Going-Out-Of-
Business Advertising ..................... 196
Section 7 Bait and Switch Advertising
Unlawful ................... .............. 196
Section 8 Cancellation of Home
Solicitation Sales ...................... 196
Section 9 Referral Sales Plans
Unlawful ................. ................. 197
Section 10 Non-Negotiability of
Consumer Paper ........................... 197
Section 11 Interpretation ................ 198
Section 12 Exemptions to This Act ........ 198
Section 13 Duties of Attorney General,
Consumer Protection Officer,
District Attorneys and County and
City Attorneys ........................... 199
Section 14 Restraining Prohibited Acts ... 201
Section 15 Forfeiture of Corporate
Franchise ..... ............ ............ .. 201
Section 16 Powers of Receiver ............ 202
Section 17 Private and Class Actions ..... 202
Section 18 Assurances of Voluntary
Compliance .............................. 203








Chapter Page

VI. Section 19 Investigative Demands ......... 204
Section 20 Subpoenas, Hearings, Rules
and Regulations .......................... 204
Section 21 Service of Notice, Demand
or Subpoena .............................. 205
Section 22 Enforcement of
Investigative Demands .................... 205
Section 23 Civil Penalties ............... 206
Section 24 Severability .................. 206
Section 25 Repeal of Conflicting Laws .... 206
Origin and Discussion of Model Code Sections .. 207
Title and Definitional Sections ........... 207
Unfair Trade Practice Section .............. 207
Other Prohibitory Sections ................. 210
Interpretation and Exemption Sections ...... 214
Administrative Responsibility Section ...... 215
Administrative Remedy Sections ............. 218
Private and Class Action Section ........... 220
Procedural Sections ....................... 226
Civil Penalty Section ..................... 228
Concluding Sections ....................... 229
Passage of Proposed Code .................. 229
Suggested Method of Implementation ........... 231
Staffing and Funding Consumer Protection
Bureau ....... ........... .................. 232
Administrative Responsibility .............. 233
Consumer Education ........................ 235
Branch Offices ............................ 236
Suggestions for Further Study .............. 237
Notes ........... ............................. 238

APPENDICES

A. LEGISLATOR QUESTIONNAIRE ...................... 242

B. SUPPLEMENTAL LEGISLATIVE ATTITUDE PROFILES ..... 247

C. SUGGESTED LEGISLATION 1973: UNFAIR TRADE
PRACTICES AND CONSUMER LEGISLATION .......... 252

D. STATE AGENCY QUESTIONNAIRE .................... 262

SELECTED BIBLIOGRAPHY ............................... 266

BIOGRAPHICAL SKETCH .................................. 280














LIST OF TABLES


Table Page

I. Evolution of Major Supreme Court Decisions
with Respect to Interstate Commerce ......... 42

II. Cases Reported by Relevant Statutes Under
Study in Criminal and Civil Law Sections
and Equity in the Lee County Circuit by
Number and Per Cent of Total Cases Cited
1967 1971 ............... ................... 96

III. Cases Reported by Relevant Statutes Under
Study in Criminal and Civil Law Sections
and Equity in the Montgomery County Circuit
by Number and Per Cent of Total Cases Cited
1967 1971 .............. .................... 97

IV. Cases Reported by Relevant Statutes Under
Study in Criminal and Civil Law Sections
and Equity in the Greene County Circuit by
Number and Per Cent of Total Cases Cited
1967 1971 ................. ................. 99

V. Cases Reported by Relevant Statutes Under
Study in Appellate and Supreme Courts in the
State of Alabama by Number and Per Cent of
Total Cases Cited Since 1910 ................ 101

VI. Consumer Complaints and/or Suggestions
Received by Legislators Per Month by Number
and Per Cent ............................... 120

VII. Number of Current Complaints and/or Suggestions
Received by Legislators as Compared to a Year
Ago ......................................... 121

VIII. Profile of Legislators' Replies as to Their
Support of Specific Consumer Legislation in
Number of Responses Per Category and
Percentage ................................. 122

IX. Percentage of Respondents Indicating a Minus
One or Lower Response for Specific Consumer
Legislation ................................. 126


viii








Table Page

X. Additional Areas of Consumer Legislation
Suggested by Lawmakers ..................... 131

XI. Respondents' Proposed Remedies to
Deterrents of Consumer Protection ........... 133

XII. Consumer Protection Legislation Affecting
False and Misleading Advertising and Sales
Practices in the Fifty States ............... 151

XIII. Location, Staffing, Funding and Activity
Measures of State Consumer Protection
Agencies ........ ........................... 173

XIV. Areas of Consumer Complaint Most Frequently
Cited by Responding Consumer Protection
Agencies ............. ..................... 183

XV. Areas of Legislative Improvement Suggested by
Responding Consumer Protection Agencies ..... 186














LIST OF CHARTS


Chart Page

I. Modal Profile of Respondents' Attitudes as
to Support of Specific Legislative Areas ..... 123

II. Median Profile of Respondents' Attitudes as
to Support of Specific Legislative Areas ..... 125

III. Median Profile as to Universe Attitude Toward
Support of Specific Legislative Areas
Assuming Non Respondents Would Have Replied
Negatively ................................... 128

B-l. Median Profile of Attitudes Toward Support
of Specific Legislative Areas of Respondents
Receiving No Suggestions and/or Complaints
Per Month ................................... 248

B-2. Median Profile of Attitudes Toward Support
of Specific Legislative Areas of Respondents
Receiving 1 5 Suggestions and/or Complaints
Per Month ...................................... 249

B-3. Median Profile of Attitudes Toward Support
of Specific Legislative Areas of Respondents
Receiving 6 10 Suggestions and/or
Complaints Per Month ........................ 250

B-4. Median Profile of Attitudes Toward Support
of Specific Legislative Areas of Respondents
Receiving 11 or More Suggestions and/or
Complaints Per Month ........................ 251









Abstract of Dissertation Presented to the Graduate
Council of the University of Florida in Partial Fulfillment
of the Requirements for the Degree of Doctor of Philosophy


A MODEL STATUTE TO REGULATE UNFAIR
ADVERTISING AND SALES PRACTICES IN ALABAMA


by

James Robert Harris
August, 1973


Chairman: Dr. J. Donald Butterworth
Major Department: Marketing


The decade of the 70's has been described by many

as the "age of consumers." Indeed, much legislation has

.been passed in recent times at both the federal and state

levels aimed at broadening the scope of consumer protection.

Alabama has failed to keep pace with the current trend in

consumer legislation; thus, the purpose of this study was

to examine the extent of consumer protection afforded

citizens of Alabama and to design a model statute to regulate

unfair advertising and sales practices which will extend the

bounds of protection to compare favorably with current

consumer legislation in other states.

A search of secondary sources of information provided

data relative to the existing legal environment in Alabama

and helped to establish an understanding of the current

legislative trends in consumer protection in other states.

Members of the Alabama Legislature were surveyed by direct







mail to determine their attitudes toward specific legislative

areas and to develop insight into their perception of the

special problems associated with protecting the citizens of

Alabama in the marketplace. Administrators of consumer

protection programs in the other forty-nine states of the

Union were also surveyed by direct mail to ascertain the

legal basis of their programs and to determine the resources

devoted to their assigned tasks.

The examination of consumer protection programs in

other states revealed a common approach in dealing with

problems of consumer abuse. Since 1961, some thirty-seven

states have passed consumer legislation providing for civil

remedies as opposed to the traditional approach of utilizing

criminal proceedings as a means of combating fraudulent

business practices. The more lenient requirements of proof

of a misdeed and the restorative type of remedies available

under civil law have generally proven to be a more effective

means of protecting the consumer interest. The Attorney

General is given enforcement responsibility in the majority

of these states.

The survey of the Alabama Legislature revealed that

the majority of its members was cognizant of the problems

of consumer abuse in their home state and was in favor of

legislation which would expand consumer protection

activities. When questioned on specific legislative

items, the legislators gave a generally positive response








toward the enactment of civil remedies and procedures to

regulate unfair advertising and selling practices.

The model statute, the end product of this research,

was designed with the intent of receiving the support

evidenced by the survey of the legislature. The key section

of the proposed statute which generally defines unfair trade

practices is modeled after the Federal Trade Commission Act

and states that "false, misleading, or deceptive acts or

practices in the conduct of any trade or commerce are hereby

declared unlawful." The model code provides for several

types of civil remedies. The program administrator (the

code suggests that the Attorney General's office be given

the responsibility) may seek injunctions, restorative pay-

ments to injured consumers, and punitive damages to be

assessed against flagrant or repetitive violators. The

proposed statute likewise provides for private remedies

and the possibility of class actions.

This study should prove useful to the Alabama

Legislature in highlighting the current trends in state

consumer protection legislation as well as proposing a

model code which recognizes the special needs for consumer

protection in Alabama. Consumers in the State of Alabama

stand to benefit from this study if it is in some way

instrumental in influencing protective legislation.








xiii















CHAPTER I

INTRODUCTION


During the past decade, there has been increasing
concern both in the public and private sectors for
the rights and interests of the consumer. The
allegations made by consumer advocates are sharply
critical of business, particularly marketing
practices and performance of the marketing system.

The term "consumerism," which became attached to the

consumer movement in the mid-1960's, refers to "the widening

range of activities of government, business and independent

organizations that are designed to protect individuals from

practices of both business and government that infringe upon

their rights as consumers."2 The present emphasis on the

consumers' interest came into focus in the sixties with

numerous books and articles being written on the plight of

the consumer in the marketplace.3 Yet, this movement did not

emerge overnight; "efforts to protect health, safety and

economic well-being of the consumer have been undertaken for

several decades."4 An examination of the history of the

consumer movement reveals three major periods of consumer

unrest.

The first major movement in consumer protection occurred

at the turn of this century. Generally referred to as the

"muckraking era," it was fomented by such exposes of commer-

cial corruption as found in Upton Sinclair's book, The







5
Jungle. The Federal Pure Food and Drug Act was passed in

1906 as a direct result of this period of consumer unrest.

During that same period, impetus for the Printers Ink model

statute to deal with deceptive and fraudulent advertising

emerged from the business environment, and the Federal Trade

Commission was created to protect the consumer indirectly by

preventing "unfair methods of competition."

The second major period of consumer unrest came in the

mid-1930's. The most significant achievement of this period's

movement was the passage in 1938 of the Wheeler-Lea Amendment

to the Federal Trade Commission Act. This marked the first

real departure from the traditional assumption of caveat
6
emptor in consumer transactions. This act made it possible

for the Federal Trade Commission to prosecute for deceptive

advertising or sales practices without having to prove injury

to competition. That same year (1938) the Federal Food, Drug

and Cosmetic Act was passed to strengthen the previous pure

food law and extend its scope to cover cosmetics and thera-

peutic devices. Also related to this period of consumer

unrest was the passage of the Securities Act of 1933 and the

Securities and Exchange Commission Act of 1934. The infor-

mative policy set by these two bills established the prece-

dent for the more recent legislation--truth-in-packaging and

truth-in-lending.7

The third period of consumer activity began in the

early 1960's. Former President John F. Kennedy brought this

particular movement into perspective when he sent a special








message to Congress proclaiming the four basic consumer

rights--the right to safety, the right to be heard, the -
8
right to choose, and the right to be informed. The issues

in this most recent movement are numerous and varied as

compared to the two earlier periods o- unrest. Consumer

action and reaction point toward three persisting problem

areas:

(1) Ill-considered applications of new technology

which result in dangerous or unreliable products,

(2) Changing conceptions of the social responsibilities

of business and

(3) The operations of the dishonest fringe and occa-

sional lapses of others in the business community.

In terms of output of legislation, the current consumer

movement has been far more successful than the two earlier

periods. A close examination reveals that nearly three times

as much consumer legislation has been passed since the 1960's

as was legislated in all of the previous years of the

twentieth century combined.10 A brief summary of the major

legislation arising out of this more recent consumer movement

includes auto safety regulation, cigarette labeling, truth-

in-packaging, child safety, flammable fabrics, truth-in-

lending, toy safety, poison prevention, fair credit reporting,

and environmental protection legislation. In addition, the

President recently appointed a national commission to study

consumer protection.1








Need for Consumer Protection

The textbook approach to consumer economics places the

consumer on an equal and competitive footing with the vendor

with whom he deals. Such an "ideal" in information and

bargaining power is not readily found in the market environ-

ment. The underlying reasons for current consumer unrest can

be explained in terms of (1) an inadequate information base,

(2) the credibility gap between business, the consumer and
12
government, and (3) rising consumer expectations. The con-

sumer is becoming better organized and increasingly more vocal

in representing his interests and desires in the marketplace.

In sheer numbers, the volume of consumer complaints lodged with

protection agencies has increased dramatically.

In 1970, the 150 Better Business Bureaus located across

the United States handled slightly over seven million queries

and complaints pertaining to deceptive practices; moreover,
13
the number has spiraled since that time. It has been

estimated, however, that fewer than 20 per cent of the "calls"

made to the Better Business Bureaus are complaints about

products, services or unethical business practices. The

majority of the calls are requests for information to aid
14
consumers in the buying decision.4 The Federal Trade

Commission, with its eleven field offices, has a similarly

heavy number of consumer communications. During the

fiscal year ending June 30, 1972, the Commission received

approximately 13,500 telephone calls and written messages

concerning consumer protection.15 The Office of

Consumer Protection,recently shifted to the








Department of Health, Education and Welfare, likewise

processes a large number of complaints and inquiries.

Recent estimates place this number at between 800 and 1,000

per week.16

A similar pattern occurs in Alabama. The State

Attorney General's Office is now receiving approximately

350 complaints per month, as compared to roughly 300 per

month a year ago. The Governor's Office of Consumer

Protection, created February 17, 1972, by executive order,

processed approximately 2,000 complaints its first year of

operation.17 A survey of the members of the State

Legislature, to be presented later, also showed a substantial

number of complaints and/or suggestions being directed

towards the lawmakers. Some 62 per cent of the state

legislative body reported receiving between one to five

consumer messages per month.

The number of complaints arising out of consumer abuse

on a state and national level gives some idea as to the

magnitude and awareness of consumer problems. Surely, there

is duplication of complaints as well as evidence to suggest

that the number reported is far less than the injustices
18
suffered at the hands of unscrupulous merchants;18 but this

number does indicate the desire for assistance on the part

of the consumer or the demand from some of those injured to

take constructive action.



"Tom Brassell, Assistant to the Attorney General of the
State of Alabama, telephone interview, April 2, 1973.








A precise measure of the aggregate dollar loss to the

economic system due to fraudulent business practices as well

as an estimate of the externalized social costs to the

American society would strengthen the cause for greater

consumer protection. Unfortunately, there is no readily

available body of reliable data that would produce a

quantitative measure of the magnitude of unredressed
19
consumer grievances in the United States.9 Rough estimates

place the national loss due to fraudulent and deceptive

business practices in the millions of dollars annually.20

At the state level, Tom Brassell, who heads the Consumer

Services effort in the Attorney General's Office, conser-

vatively estimates the economic loss at five million dollars

annually.

It is obvious from the volume of complaints being aired

and the attendent emphasis being focused on the consumer's

plight that adequate means of redress and prevention of

consumer injuries are not presently available on a wide-

spread basis. Neither consumer self-help programs nor

voluntary compliance and mediation by the business

environment have been able to overcome consumer transac-

tional problems. Thus more governmental involvement in the

business of consumer protection is needed.21

The Federal government has traditionally exercised

the greatest influence in consumer protection; however,

many states are beginning to exert substantial influence


Brassell, telephone interview.








in this area. The states of Washington and Illinois appear

to lead in this move toward state involvement in consumer

matters. In 1961, both states passed extensive consumer

legislation which carried the Federal thrust toward

protecting the consumers' interest to the state level--

involving matters which are predominately intrastate in

character. Since 1961, some thirty-seven states have

enacted legislation designed to protect the consumers'

interest in the marketplace. However, the State of Alabama

has failed to initiate any action to extend protection in

the consumers' behalf. Too, the consumer protection agencies

which have been created in the state are hampered by limited

legal authority and small budgets. The primary role which

these bureaus play is to provide a local, centralized agency

through which complaints are channeled; in fact, mediation

is their main avenue toward remedying consumer problems.


Nature, Scope and Purpose of Study

The purpose of this study is to examine the extent of

consumer protection afforded citizens of Alabama and to

design a model for state legislation which will extend the

bounds of protection to compare with those of other states.

The scope of consumer protection activities is, however,

becoming kaleidoscopic in nature. Consumerism can be

broadly defined to encompass environmental questions, false

weights and measures, protection of one's health and safety,

package contents and quality assurances as well as to further

shield the consumer in his business dealings with vendors








who are not altogether honest. Because of this breadth

of activities, which are categorized under the heading of

consumer protection, this study concentrates upon unfair

advertising and sales practices. Such restriction is

deemed necessary in order to give adequate depth to this

investigation. Likewise, input from the Attorney General's

Office suggests that at the present time this is the area

of legislative action which is most deficient relative to

consumer protection.

The legal framework which provides individuals in

the State of Alabama protection from false and misleading

advertising and selling practices is presented and compared

with existing consumer statutes in other states. Protection

emanating from Federal legislation is likewise examined to

show the areas of parallel protection. Legislative enactment

is, however, only one part of the whole system of consumer

protection; administrative action and judicial interpre-

tations aid by giving expression to the laws governing

consumer abuse. Cases from both the state and Federal court

system pertaining to this area are presented to show the

trend and pattern of consumer protection afforded Alabama

residents.

Consumer protective agencies within the State of

Alabama were investigated to ascertain the boundaries of

their authority, the activities they are undertaking, and

the resources allocated to their task. Federally sponsored


Brassell, telephone interview.








programs which protect the citizens from abusive

advertising and sales practices are, likewise, outlined

to show the differences and similarities of the two

programs. Such an examination points to the need for

establishing the role of both parties in protecting the

interests of the consumer. Here, the experience of other

states in establishing their boundaries of protection and

the degree of Federal-state involvement should provide a

guideline in determining the need and extent of state

involvement.

Concern is directed towards specific problems which

are unique to Alabama in protecting the interests of the

consumer. Alabama's special needs in the area of consumer

protection are examined in both the agency study mentioned

above and in a subsequent survey of the state legislature.

Much attention is focused on the replies of the legislators

as it is assumed that they are representative of the

citizenry and are well informed concerning the complaints

which their constituents have regarding unfair advertising

and sales practices.

The end objective of this study is to design a model

statute to regulate unfair advertising and sales practices

within the state. This proposed code is based on the

legislative experiences of other states in the design and

implementation of consumer protection programs. Data

gathered in the legislator survey as to their degree of

acceptance and support of individual "pieces" of








legislation are likewise considered in the design of a

workable code. This model is then compared to the "ideal"

in consumer protective legislation as to its differences

and similarities and its usefulness in administering to

the public's need for protection.

The final phase of this study is to suggest means of

implementation of the proposed legislation should it pass

as drafted. Here again, the recent experience of other

states in funding and implementing their new programs for

protecting their citizens is examined. It is hoped this

study will be instrumental in providing a basic platform

for legislative enactment in the near future and that it

will give insight into the special problems with which

Alabama must deal in establishing and administering a

consumer protection program for the remainder of the

1970's.


Research Methodology

Secondary information provides a strong base for this

paper. Many of the secondary data which are presented here

come from the Ralph Draughan Library on the Auburn

University campus, the state Supreme Court Library located

in the Capitol, and the Law School Library at the

University of Alabama. Information pertaining to circuit

court cases involving false and misleading advertising

and sales practices was developed directly from the court

dockets located in the court houses of Greene, Lee, and








Montgomery counties. Secondary information on protection

programs in existence in other states and at the Federal

level is augmented by personal interviews with agency

directors such as the Regional Director of the Federal

Trade Commission, and the Attorney General of Alabama

and from oral and written communication with other

officers of importance.

Much information pertaining to recent legislation

on consumer protection at the state level is not yet

available from the updating services for the various

state codebooks. Results of a survey of the respective

program administrators in the other forty-nine states do,

however, present a current picture of consumer protection

legislation pertaining primarily to false and misleading

advertising and sales practices in force at this time.

Members of the Alabama State Legislature were

surveyed in two ways. Leaders in the area of consumer

protection were personally interviewed to determine their

interest in legislative enactment, observations of special

consumer problems in Alabama, and their opinions as to

the likelihood of passage of different facets of consumer

protection. The remaining members of the Legislature

were reached by a direct mail questionnaire designed to

determine their support or rejection of particular points

comprising a protection program and to note any specific

areas of needed consumer protection with which they were

familiar.


_ _








Chapter Summary

Chapter I introduces the reader generally to the fact

that consumerism is a growing force in the marketplace. It

notes that many states have taken constructive action to

increase the amount of protection afforded their citizens,

while Alabama, unfortunately, has not followed suit. The

purpose of this discourse is outlined along with a statement

of the research methodology utilized in this study.

Chapter II, which commences with a brief sketch of

consumer protective activities, gives an insight into our

common law heritage and the traditional methods of dealing

with false and deceitful representations. Next, the present

Federal protective agencies which deal with consumer abuses

are examined. The Federal Trade Commission and the

President's Special Advisor on Consumer Affairs are

particularly highlighted because of the important role which

they currently play in the Federal consumer protection

program. The second chapter concludes with a discourse on

the need for state involvement in consumer protection. Here

the boundaries of Federal responsibility and authority are

delineated in order to arrive at a conclusion as to the

degree of state involvement needed and desired within

Alabama.

The principal topic of Chapter III describes the

present legal environment which protects the interest of

Alabama's citizens in their dealings with unscrupulous

merchants. This section particularly contrasts the








criminal law and the private avenues of remedy available

to injured consumers. Protective action on the part of the

state is described to the extent that court briefs and

administrative records permit. Private suits for damages

under existing common law cannot be effectively summarized

because of the lack of data; however, the process of remedy

will be detailed.

Chapter IV deals with the specific problems of consumer

abuse found within the state. Here, the defined boundaries

of consumer protection are expanded to give the reader

insight into the breadth of problems encountered in

affording adequate consumer protection within the state.

Personal interviews with administrators of existing

protective agencies in Alabama are summarized to present

their views of the special problems which confront this

state. The administrators' views are then contrasted to

those held by the representatives of the people--the

legislators. The difference in perspective will provide

insight into the problems associated with the design of

effective consumer protection programs.

The consumer protective activities of the other

forty-nine states of the Union are summarized and presented

in tabular form in Chapter V. State legislation affecting

false and misleading advertising, sales practices and

associated areas are displayed to show the degree of legal

protection afforded citizens of each state. A

chronological listing of the effective date of passage of








new state legislation shows those states which first moved

to take action in the behalf of the consumer and the way

in which consumer protective legislative packages build

upon one another. The other half of legislative enact-

ment--a survey of administrative action--completes this

chapter. The various means of implementing and the man-

power assigned to enforcing consumer programs within

state boundaries are then discussed.

Chapter VI presents the end result of this study--

a model code for the state of Alabama to regulate unfair

advertising and sales practices. The product of other

states' legislative efforts has been reviewed by select

members of Alabama's Legislature and evaluated as to

applicability at home. The model code which emerges out

of this study is built upon the collective attitudes and

opinions of members of the state Legislature. Thus

theoretically, it should pass with the required approval

of both legislative bodies.

Possible methods of implementing the model code are

presented and briefly analyzed in order that a feasible

plan of application may be devised. Alternatives as to

organizing and funding agencies which mightlarise out

of this study are likewise explored. This study concludes

with the author's suggestions for further study in

areas meritorious of investigation.


__














NOTES


1Hiram C. Barksdale and William R. Darden, "Consumer
Attitudes Toward Marketing and Consumerism," Journal of
Marketing, Vol. XXXVI, No. 4 (October, 1972), p. 28.

George S. Day and David Aaker, "A Guide to
Consumerism," Journal of Marketing, Vol. XXXIV, No. 3
(July, 1970), p. 13.

3Richard J. Barber, "Government and the Consumer,"
Michigan Law Review, Vol. LXIV (May, 1966), pp. 1203-1207;
Raymond A. Bauer and Stephen A. Greyser, "The Dialogue
That Never Happens," Harvard Business Review, Vol. XLV
(Nov.-Dec., 1967), pp. 121-128; Carolyn S. Bell, "Consumer
Economic Power," Journal of Consumer Affairs, Vol. II, 2,
(Winter, 1968), pp. 155-166; Robert L. Birmingham, "The
Consumer as King: The Economics of Precarious Sovereignty,"
Case Western Reserve Law Journal, Vol. XX (1969), pp. 354-
362; Senator Warren G. Magnusom and Jean Carper, The Dark
Side of the Marketplace (Englewood Cliffs: Prentice-Hall,
Inc., 1968); Sidney Margolius, The Innocent Consumer vs.
the Exploiters (New York: Trident Press, 1967); Ralph
Nader, Unsafe at Any Speed (New York: Pocket Books, 1966);
Eric Schnapper, "Consumer Legislation and the Poor,"
Yale Law Journal, Vol. LXXVI (1967), pp. 745-768; Louis L.
Stern, "Consumer Protection via Increased Information,"
Journal of Marketing, Vol. XXXI, No. 2 (April, 1967),
pp. 47-53; "Symposium on Consumer Protection," Ohio State
Law Journal, Vol. XXIX (Summer, 1968), pp. 693-714;
Fred Trump, Buyer Beware (New York: Abingdon Press, 1965).

4Ralph M. Gaedeke, "The Movement for Consumer
Protection: A Century of Mixed Accomplishments,"
University of Washington Business Review, Vol. XXIX, No. 3
(Spring, 1970), p. 31.

5Upton Sinclair, The Jungle (New York: Doubleday,
Page and Company, 1906).

6William A. Lovett, "State Deceptive Trade Practice
Legislation," Tulane Law Review, Vol. XLVI, No. 4 (April,
1972), p. 728.

7Ibid., p. 729.








8U. S., Congress, House, Message from the President
.of the United States on Consumer Protection and Interest
Program, H. R. No. 364, 87th Cong., 1st sess., March,
1962, pp. 1-10.
Robert 0. Herrmann, The Consumer Movement in
Historical Perspective (University Park: Pennsylvania
State University Press, 1970), pp. 29-30.

10Rolph E. Anderson and Joseph F. Hair, Jr.,
"Consumerism: A Force to Be Reconciled," Mississippi State
Business Review, Vol. XXXIII, No. 10 (April, 1972), pp. 5-6.

11Mary Gardner Jones and Barry B. Boyer, "Improving
the Quality of Justice in the Marketplace: The Need for
Better Consumer Remedies," George Washington Law Review,
Vol. XL, No. 3 (March, 1972), p. 358.

12Anderson and Hair, pp. 6-7.

13"Consumers Fighting Back via Better Business
Bureaus," U. S. News and World Report, Vol. LXXXIII,
No. 25 (December 18, 1972), p. 58.

14H. Bruce Palmer, "Consumerism: The Business of
Business," Michigan Business Review, Vol. XXIII, No. 4
(July, 1971), p. 16.

15Annual Report of the Federal Trade Commission 1972
(Washington, D. C.: Government Printing Office, 1972),
p. 9.
"6Shift in the President's Office of Consumer
Protection," The Birmingham News, March 27, 1973, p. 6.

170ffice of Consumer Protection, Consumer Newsletter
(Montgomery: State of Alabama, February, 1973), p. 1.

18Federal Trade Commission Report on District of
Columbia Consumer Protection Program (Washington, D. C.:
Government Printing Office, 1968).

19Jones and Boyer, p. 359.

20U. S., Congress, House, President's Special Message
to Congress, A Buyer's Bill of Rights, H. R. No. 92-52,
92nd. Cong., 1st sess., February 25, 1971, p. 4.

21Jones and Boyer, pp. 382-386.














CHAPTER II

NEED FOR STATE INVOLVEMENT


The previous chapter generally established the fact

that many consumers are becoming dissatisfied with the

quality and performance of products and services they

purchase in the marketplace and the manner in which these

goods are sold to them. Chapter I likewise described the

periods of consumer unrest that our socioeconomic environ-

ment has undergone since the turn of the century. Today's

consumers are far more vocal in their dissatisfaction with

the existing production and marketing system than were

consumers in the past; yet the consumer's disadvantage in

the marketplace is not a recent phenomenon since history

points to the ancient maxim caveat emptor.


Historical Sketch of Consumer Protection

The basic rudiments of consumer protective measures

can be found in early biblical scriptures. Trade and

commerce were then looked upon as lowly professions with

the consumer needing protection in his dealings with

merchants. The following expresses the sentiment of the

times:

Many have committed sin for a trifle
And whosoever seeks to get rich will avert
his eyes.








As a stake is driven firmly into a fissure
between stones,
So is sin wedged between buying and selling.

In the book of Amos 8:5, written about 750 B. C., the vendor

is being warned, under penalty of thirst and famine, against

offering wheat for sale "deceitfully with false balances."

In Leviticus 19:35-6, a similar warning is made: "You

shall do no wrong in judgment, in measure of length or

weights, a just ephah, and a just hin: . ." Usury or

the charging of interest was likewise prohibited (Exodus

22:25, Deuteronomy 33:19, Leviticus 25:35-8) as it was

against the ethic of the time.


Roman Law

Early Roman law shows similar design. In 452 B. C.,

ten Roman magistrates, called decemvires, men who were

vested with absolute power for a year to carry on the

government, were charged with the responsibility to frame

a body of laws for the republic. The result of their work

has come to be known as the Law of the Twelve Tables.2

This work was not a strict code or body of laws in the

modern sense, but rather a compilation of the customary
3
law of the times. Also these laws were subject to the

effects of other cultures. "The Greek influence on the

code is undeniable because it was unavoidable. It came

as a result of the inspection of the Hellenic states."4

Embodied in this ancient code were legal provisions

affecting the sale and barter of movable goods and real








estate, even installment buying. "These laws were bound

up closely with deep-rooted religious rituals and were

often clumsy which must have slowed down transactions...."5

In Lex XII Tabularium, the eighth table pertained to

tdrtious wrongs. Tabula VIII, section 18, fixed the rate

of interest at one per cent per month, with quadruple

penalty for usury. Section 19 provided for double penalty

for breach of faith by a depository; and section 21 states

that if a patron is defrauded by his client, let the guilty
6
party be devoted to the gods.

When a person entered a contract, the sale of

merchandise was considered binding if consideration was

given. Buyers of that age had little recourse if they

examined merchandise on its own merit and were then

deceived; however, a fraudulent statement made by the seller

to entice the sale constituted grounds for the reversal of
7
the terms of the agreement. Some misrepresentations of

the product to be sold were open to question and had to be

judged on their own merits. In instances where bronze

was reported and sold for gold, the buyer had a remedy;

but when gold was mixed with other metals and sold for gold,

the lesser quality metal was still gold in the eyes of
8
the law.

The law of Rome was essentially personal--not

territorial. A man was afforded protection under Roman law

not because he happened to be within Roman territory, but








because he was a Roman citizen. Thus, if a man were not

a citizen of the state, he was at the mercy of state's

citizens. Roman law had no provisions to protect a non-

citizen from unscrupulous dealings with a citizen; however,

the opposite situation put the unscrupulous sojourner in

jeopardy of maltreatment, loss of property, and possible
9
enslavement.

Roman law formed the basis of the legal system on the

continent--in France, Holland, and Germany. In many other

parts of Europe, monarchs encouraged the acceptance of

Roman law at the expense of medieval customary systems,

but Roman law was never formally received in England, though
10
it was favored by Henry VIII and his descendants.0

The maxim of caveat emptor certainly suggests Roman

background; yet

No history has traced the expression back to
its origin; a lexicographer's search could tell but
part of the story. Its significance lies, not so
much in the changing meaning of the words as in the
developing marketing policy of which it is a graphic
symbol. No Roman author whose works survive seems to
have scribbled the two words down; yet, the latinity
of the phrase is beyond doubt . In the early
days, when commerce and piracy had not been clearly
distinguished, and an irregular trade was carried
on with a potential enemy, the words may have been
employed.1


English Law

The term caveat emptor is reputed not to "have come

into England by any reputable intellectual route. It is

quite alien to the spirit of civil law. In pastorial and







agrarian times, it is true, the purchaser had scant

protection; but sales were few and vendible wares were

just as scarce."12 As commerce grew in volume and

importance, it was subject to greater control by English

society. The term caveat emptor most likely came into

usage as a warning to consumers in dealing with the

"wayfaring palmer" with his relics and trinkets away

from the area of organized trade. "Surely a caveat emptor

may [have] emerged] from the folk thought of the despised

trades and stand without shame before judges as an ancient

maxim of common law."13

As early as the twelfth century, English merchants

and traders developed their own courts. The parties

involved in the commercial litigation were seeking quick

settlement, being too busy to await trial by jury or to

abide by the slow process of the existing legal system.

The procedure through which disputes were settled was

quite simple and straightforward. A party complained;

the other party denied tortious wrongdoings. An inquest

was ordered and agents of the courts were sent to gather

depositions concerning the truthfulness of the allegations

of the two parties in question. It became more of a test

of the subjects of the suits than a judgment of the case

itself. The issues were resolved, not by the law of the

land, but according to the customs and usage of the merchant-

men in the area. This vague body of rules is often referred

to as "The Law Merchant," which,in its time, governed civil
suits pertaining to commerce.14








In addition to "The Law Merchant" to deal with

tortious wrongs, the craft guilds of the time (formed

in England and elsewhere in Europe) gave some measure of

protection to the consumer in his business dealings. These

guilds were primarily a local phenomenon and their sphere

of influence did not extend much beyond the township. The

various craft guilds served as a vehicle of taxation,

regulation, and control. The guilds upheld the idea of

a just price and tended to fix prices at a level perceived

to be fair, both to stop the accumulation of great wealth

by the craftsman and to keep the market price from being

excessive. Each craft guild established and enforced its

own standards of quality. Furthermore merchants who used

false weights or measures, adulterated their goods, or were

otherwise guilty of deceit were fined and punished by their

guild. Besides establishing a code and standard of conduct

for their members, the craft guilds also served as a vehicle

to receive complaints and provide means of redress to
15
injured consumers.5

Even though the guild system and "The Law Merchant"

were functional in their combined operation, they were

gradually replaced by the common law as the stalwart for

protecting the consumer. The common law evolved during

the early part of the middle ages; however, it was not

until late in the fourteenth century that the chancery or

royal courts which enforced common law, began to exercise








independent jurisdiction.6 "It [the common law] shared

the domain of justice with the courts of custom, the

liberties of the towns, and special tribunals . 17

Later, during the period of reformation, "the common law

courts had acquired a larger share of the business of

justice."18

Even though common law does not find its origin in

Rome, a parallel in the common law and Roman law exists

concerning barter and trade. Striking similarity is found

in the laws governing deceit in the sale of merchandise:

It is said that a man is liable to action
for deceit if he makes a false representation
to another, knowing it to be false, but
intending that the other should believe and
act upon it, if the person addressed believes
it, and is thereby persuaded to act his own
harm ..

Common law goes further than moral law in stating that the

liability for truth goes beyond intent to defraud. If for

instance, the seller of a horse thinks his horse to be

five years old and represents him to the buyer as being of

that age when the horse is in fact thirteen, the seller can

be sued for deceit.20 However, as under the laws of Rome,

if the seller makes no express warranty about the goodness

of the item in question and the buyer purchased on the

value of his examination, then caveat emptor.21

Under common law, "the buyer who at the time of sale has

failed to exact positive assurances against future

contingencies deserves to take the consequences of his

slothfulness."22








Under common law, false advertising and deceitful

sales practices were subject to control through three types

of remedies: (1) civil suits by injured individuals naming

specific defendants; (2) civil action by competitors injured

by such unfair competitive practices; and (3) criminal

proceedings charged against offenders by an agent of the

state. In the first instance, legal requirements and the

necessity of invoidable proof of misrepresentation was

sufficient to dissuade all but the most persistent or

seriously injured consumer. The injured competitor was

required to demonstrate injury by actual diversion of

trade because of misrepresentations by others in commerce.

Criminal sanctions at common law which called for

prosecuting for the obtainment of money by false pretense

were ill-suited to combat false and misleading advertising

and sales practices.23


American Law

The American system of jurisprudence hails directly

from English common law, as modified by the English

statutes and decisions up to the time of the American

Revolution. Each state, with the exception of Louisiana,

has a "reception statute," adopting English common law as

the basis for its legal framework.24 "American courts,

while holding English precedents to be binding, do so only

to the extent that they are 'suitable to the American

conditions' or are 'not in conflict with American indigenous








law,' or where later changes in conditions have not made

them inapplicable."25

In one of the first cases in the American courts
26
involving the common law concept of deceit, the court

was asked to rule on the legitimacy of the sale of kelp

for barilla (a product used in the manufacture of soap).

The buyer, Sweet, purchased a cargo of kelp from factor

agents in New York who thought the product to be barilla.

The courts ruled that the description of the article was

an opinion of the seller, not a warranty, as kelp and

barilla are so much alike that only scientific analysis

can tell the difference. The buyer had bought the cargo

at his own risk and by his own inspection; therefore,

caveat emptor.

The common law heritage of American jurisprudence

concerning consumer protection was focused upon the tort

model of "the reasonable man." In describing this

fictitious being, Justice Holmes says

The law takes no account of the infinite
varieties of temperament, intellect, and
education which make the internal character
of a given act so different in different men.
It does not attempt to see men as God sees
them, for more than one sufficient reason.27

This reasonable and prudent man is described as being

"a hypothetical human being with fairly typical human
28
reactions."28 The attributes of this imaginary person

include

(a) The physical attributes of the actor himself.
(b) Normal intelligence and mental capacity.








(c) Normal perception and memory, and a minimum
of experience and information common to all
the community.
(d) Such superior skill and knowledge as the actor
has, or holds himself as having, when he under-
takes to act.29

From the above description of "the reasonable man" one can

readily see that the term "normal" would be subject to

wide latitudes in interpretation. Yet this concept of the

reasonable man has served as a basis for determining if

deceit and misrepresentation did indeed occur in dealings

with the consumer. As Prosser in his Handbook of the Law

of Torts says: "Sales talk, or puffing, as it is commonly

called, is considered to be offered and understood as an

expression of the seller's opinion only, which is to be

discounted as such by the buyer, and on which no reasonable
30
man would rely."

The common law rule of injury befalling the reasonable

and prudent man has been modified by the courts in present-

day usage. The extent to which the "state" should protect

the interest of its citizens is subject to question. The

works of authors such as Steward Henderson Britt, David

Caplovitz, Senator Warren G. Magnuson, Sidney Margolius,

Fred Trump, Mark Nadel, and Gaedeke and Etcheson strongly

protest that the poor and uneducated are easy prey for the

unscrupulous merchant. Just how these poor and uneducated

consumers differ from the tort model of the reasonable and

prudent man is subject to judicial interpretation from the

bench. The courts since the 1930's have been moving in








the direction of protecting the more innocent and trusting
31
consumers. Judge Augustus N. Hand, in ruling on a order

by the Federal Trade Commission against General Motors,

said that the Federal Trade Commission was to protect even

Isaiah's "wayfaring men, though fools."32 Federal Trade

Commission rulings which have been upheld in the courts

describe the protected consumer as being lured by the word

"free" so as not to read all of an advertisement or order

blank.33 In fact, in the Independent Directory Corporation
34
case, the consumer was afforded protection in instances

where the order blanks were given only a casual glance.

The question of where to draw the line in protecting

"wayfaring fools" from being deceived is perhaps best left

to the courts for interpretation. Surely the "state" needs

to intervene in the absence of other protective measures.

However, if the temper of protection afforded the "unthinking

and credulous members of the public"35 becomes too staunch,

a minute portion of the market, the deadbeats, as Judge

Lowell B. Mason describes them in the Book-of-the Month
36
Club c; might prevent a firm from honestly representing

its pr; .ts to the public by claiming false representation

of its products.


The Role of Federal Agencies

The historical picture of consumer protective measures

shows action being taken by several different entities to








protect the consumer in his business dealings. The common

law remedy seems to favor the complainant's action in civil

suit to redress the wrong done to him. However, as mentioned

above, such action is rarely taken unless an individual has

been greatly provoked or the deceit involves substantial

monetary damages. Some measure of protection is afforded

the individual consumer by the different levels of our

governmental structure. Since the turn of the century, the

Federal government has gradually exerted its dominance in

consumer protection, with the bulk of this protection being

preventive action directed against individuals or firms

violating the various codes or regulations, not redressing

the wrong done to specific persons.

As suggested earlier, defining consumer protection in

the broadest sense of the term would bring a multitude of

Federal agencies under consideration. However, the

primary emphasis of this investigation centers around the

sphere of deceit and misrepresentation in the sale of goods.

To this end, there are some twenty-one different Federal

bodies, in addition to the President's Special Advisor on

Consumer Affairs, which exercise some degree of control over
37
the advertising and sale of commodities in commerce.3


The Federal Trade Commission

The Federal Trade Commission has the broadest

jurisdiction over policing unfair and deceptive advertising

and sales practices of all the federal agencies. Created










by act of Congress in 1914, this body was originally

intended to police antitrust violations. In creating the

Commission and granting its authority, Congress coined the

phrase, "unfair methods of competition"38 which was

interpreted broadly to encompass deception of consumers in

the marketplace. "From the beginning, the courts agreed

that the Commission was empowered to prevent those forms

of false advertising that had an impact on competition,

.... 39 The Wheeler-Lea Act of 1938 extended the Federal

Trade Commission's authority to govern misrepresentations

concerning food, drugs, and cosmetics as well as to
.40
prohibit "unfair or deceptive acts or practices....40

This act removed the need for the Federal Trade Commission

to find practices anti-competitive and allowed them to act

directly in the interest of the consumer.

Cases or investigation proceedings by the Federal

Trade Commission may be initiated in one of three ways:

complaint by an injured consumer, complaint from a firm

against his supplier or competitor, or action arising out

of the Federal Trade Commission's own investigative

activities. The bulk of the cases which come before the

Commission originate from the first two sources; yet the

Federal Trade Commission is greatly expanding its

investigative efforts.41 The Commission is charged with

the specific responsibility of identifying violations of

law and issuing cease and desist orders.42 Beyond this

action the Commission is legally powerless; the Justice








Department is responsible for prosecuting violators of

cease and desist orders. The Commission disposes of

most cases on an informal basis, either by satisfying

itself that there was no serious violation of law

which constitutes public injury or receiving assurance

of discontinuance of the practice in question.43 This

assurance, in the form of a consent decree, may be held

as proof against a firm at a later date if the firm

continues the prohibited practice.

In addition, the Federal Trade Commission attempts

to provide some guidelines for action through its industry

guide programs, trade practice conferences, trade

regulation rules and advisory opinions. These tools,

along with the administrative treatment mentioned

previously, are used today more than formal methods because

the former are quicker, cheaper and often equally effective.44

The guide program attempts to outline the requirements

of law pertaining to the advertising and sale of

commodities. Guides such as the Guides Against Deceptive

Pricing or Guides Against Bait Advertising provide a

basis for the Commission's actions but they do not bind the

Federal Trade Commission against future interpretations of

the law. The trade practice conferences can originate

either by Federal Trade Commission efforts or through

requests from trade groups. The purpose of such conferences

is to establish trade practice rules to outline illegal








practices and establish a code of promotional conduct for

voluntary adoption. The trade regulation rule differs

from the other two programs in that it has a binding

effect in later litigation and may cross industry lines.

These rules, to date quite narrow in scope, have pertained
45
to specific abuses in individual industries. Since

mid-1971 the Commission has broadened its scope of

guideline activities by requiring that all major industries

provide substantive data to support their promotional
46
claims.46 The recent formal complaints filed against

American Home Products, Bristol-Meyers and Sterling Drugs

are an outgrowth of Commission action in this area of
47
substantiation.4

In formal adjucation, the cease and desist order,

which has most commonly taken the form of prohibiting future

use of an unfair or deceptive practice, has been criticized

often as an ineffectual sanction. Since 1967, in the
48
J. B. Williams Co. v. Federal Trade Commission case,

the Commission has employed affirmative orders to require

certain plaintiffs to perform specified tasks beyond mere

cessation of the proscribed practice. Four types of

affirmative orders are currently being issued: (1)

alteration of the sales contracts [Household Sewing Mach.

Co.; (1967-1970 Transfer Binder) CCH Trade Reg. Rep.

No. 18,882 (FTC 1969)], (2) corrective advertising--

negative disclosures [ITT Continental Baking Co., 3 CCH








Trade Reg. Rep. No. 19,681 (FTC 1971)], (3) corrective

advertising--confessions [Ocean Spray Cranberries, Inc.,

3 CCH Trade Reg. Rep. No. 19,477 (FTC 1971)], and (4)

orders for restitution [Windsor Distributing Co. v.

Federal Trade Commission, 437 F. 2d. 443 (3rd. Cir. 1971)].

These actions which have come from the desire for

innovativeness in the Commission rather than from

legislation extending its authority, are expressive of the

Federal Trade Commission's desire to expand the scope

of its activities.49


The Office of Consumer Affairs

The President's Special Advisor on Consumer Affairs

is perhaps the best publicized office with responsibility

to champion the public's interest. The Committee on

Consumer Interest, headed by the President's Special

Advisor on Consumer Affairs, and created by executive

order January, 1964, was given little authority to protect

the interests of consumers: the office is essentially a

focal point for consumer complaints. The petitions which

flow into this office are not acted upon by this group

beyond attempt towards mediation--they are either passed

on to appropriate Federal agencies with enforcement

responsibility in matters of clear violation of law or

forwarded to the particular business involved with a

cover form.

The executive order which created the Committee on
50
Consumer Interest charged this group with the








responsibility of coordinating Federal consumer programs

and advising the President on questions of policy relating

to consumer affairs. The Office likewise attempts to act

as a liaison between Federal agencies, the business

environment, and the consuming public. In addition, the

Committee is instructed by the executive order to work

closely with the states and local agencies in designing

effective consumer protection programs. The Office of

Consumer Affairs has just recently been shifted to the

Department of Health, Education and Welfare; yet it appears

that its duties and priorities will remain unchanged even

though its director will now report to a Cabinet Officer

instead of the President.1


The Food and Drug Administration

The Food and Drug Administration, also housed in the

Department of Health, Education and Welfare, is directly

involved in protecting the consumer's interest. Besides

ascertaining the safety and efficacy of certain food,

drugs, devices and cosmetics, the Food and Drug

Administration's powers pertaining to the marketing of

products lean heavily in the direction of mislabeling and

the requirement of truthful disclosure of ingredients and

quantity. It is empowered to restrict untruthful

advertising on the labels of merchandise and some point

of purchase materials. The Food and Drug Administration's

jurisdiction overlaps that of the Federal Trade Commission,








which controls the advertising of most products regulated

by the Food and Drug Administration. In a 1971 accord

between the two agencies this duplication of responsibility

was reconciled. The Food and Drug Administration assumed

primary enforcement responsibility for the labeling of food,

drugs, devices and cosmetics in interstate trade as well

as regulating false and misleading advertising of

prescription drugs, while the Federal Trade Commission

agreed to police the advertising of food, non-prescription

drugs, devices, and cosmetics.52

In actuality, the Food and Drug Administration

appears to be most concerned about the safety of those

type products for which it is responsible. Its

administration is geared more towards protecting the

public's health than towards testing the efficacy of

non-prescription drugs or adjudging the veracity of

labels.53 Yet the Food and Drug Administration is expanding

its activities by issuing guidelines concerning the

advertising of prescription drugs and enforcement of its

labeling requirements as evidenced by the proceedings in
54
the Label, Inc. v. Edwards case.5


The Federal Communications Commission

The Federal Communications Commission is given the

power to issue licenses to operators of broadcasting

media. Through this power of granting or revoking

licenses, it regulates the broadcaster rather than the








questionable advertiser. The Federal Communications

Commission's rules specifically bar lotteries, fraud,

and obscenity from the airways. The Federal Communications

Commission's action, which is most important to this study,

is the refusal to renew licenses to stations which

knowingly carry false and misleading advertising and

sales promotional messages. The Federal Communications

Commission also works in close liaison with other Federal

agencies so as to inform the broadcasting industry of

advertisements and sales schemes which have been banned
55
or are highly questionable.


The Federal Alcohol and Tobacco Tax Unit

The.Alcohol and Tobacco Tax Unit, a division of the

Bureau of Internal Revenue, holds the same type of threat

over the brewers of alcoholic beverages as does the

Federal Communications Commission over its broadcasters--

revocation of licenses; only here they deal directly with

the advertiser in interstate commerce. However, the

Federal Alcohol and Tobacco Tax Unit's authority extends

beyond the threat of revocation of a brewer's license.

It is specifically charged to "prevent deception of the

consumer with respect to the product advertised and to

prohibit statements that are disparaging of a competitor's

product or are false, misleading, obscene, or indecent."56








The United States Postal Service

The United States Postal Service is also involved

in protecting the consumer from fraudulent schemes

involving the mail or use of the mails to deliver

fraudulent advertisements. The Postmaster General is

directed by Congress to restrict

Any person or company [that] is engaged
in conducting any lottery, gift enter-
prise, or scheme for the distribution of
money, or of any real or personal property
by lot, chance, or drawing of any kind, or
that any person or company is conducting any
other scheme or device for obtaining money
or property of any kind through the mails
by means of false or fraudulent pre tnses,
representations, or promises, .

The postal department is armed with both criminal and civil

power to proceed against mail fraud. It has found that many

of its most persistent problems are in the food and drug

field and are principally handled through inter-agency
58
cooperation.5


The Securities and Exchange Commission

The Securities and Exchange Commission is vested with

the responsibility of assuring truthfulness in advertising

and oral statements concerning the sale of registered

securities. The Securities and Exchange Act of 1934

makes it

. unlawful for any person, directly
or indirectly, by the use of the mails or
any means of instrumentality of interstate
commerce, or of any facility of the
National Securities Exchange ... to make,
regarding any security registered on the
national securities exchange, for the purpose
of inducing purchase or sale of such








security, any statement which was at the
time and in the light of circumstances
under which it was made, false or misleading
with respect to any material fact, and which
he knew or had reasonable ground to believe
was so false and misleading.

This Act has been interpreted very broadly to allow the

Securities and Exchange Commission wide latitude in

ensuring truthful, accurate, and adequate advertising of

securities sold in interstate commerce. Section 18 of the

1934 Act provides that persons who relied on false

representations in the purchase or sale of securities are

entitled to sue in a court of equity for the recovery of

actual damages, attorney's fees, and court costs.


The Civil Aeronautics Board

The Civil Aeronautics Board is also involved in the

regulation of advertising, specifically, the sale of

airline services. Section 411 of the Federal Aviation

Act of 1958 places responsibility upon the Civil Aeronautics

Board to investigate upon its own initiative or upon

complaint and "determine whether any air carrier, foreign

air carrier, or ticket agent has been engaged in unfair or

deceptive practices or unfair methods of competition in

air transportation or the sale thereof."60 This provision

gives the Civil Aeronautics Board rather strict control

over the special promotions, contests and selling efforts

of the airlines or their agents and allows the Civil

Aeronautics Board to remedy problem situations by the

removal of certificates as a last resort.








The Federal Deposit Insurance Corporation

Advertising and sales promotional efforts by the

federally chartered savings and loan associations and

by those state-chartered banks whose accounts are

insured by the Federal Deposit Insurance Corporation are

controlled by the Federal Home Loan Bank Board and the

Federal Deposit Insurance Corporation respectively.

Their basic power to insure banks and savings and loan

associations has been interpreted to extend control

over their members' advertising and promotional policy

when a detrimental effect on the public is suspected.

These two agencies attempt to establish advertising

codes and trade practice rules for the banks and

savings institutions to follow.


Other Federal Agencies

The other thirteen Federal agencies which exercise

some measure of influence over advertising and selling

merchandise in interstate commerce are listed below:

1. The Agricultural Department controls false

advertising and statements concerning meat products,

seeds, and agricultural supplies such as fertilizers

and insecticides.

2. The Department of Commerce is involved in the

advertising and representations of products which are in

contravention with the guidelines established by the

Bureau of Standards.








3. The Customs Bureau is enjoined to regulate

certain claims made about the origin, quality, and

specific properties of imported goods.

4. The Defense Department is included on this

list because it limits and controls advertising by its

prime contractors, especially when they make exaggerated

claims of their involvement in special government

projects.

5. The Farm Credit Administration controls

fraudulent advertising concerning the provisions or the

attainment of Federal farm loans.

6. The Federal Power Commission is given the

responsibility of overseeing the advertising of public

utilities in respect to their rates and claims about

their service.

7. The Department of Interior has control over the

advertising of lands within its jurisdiction as well as

the advertising and sale of Indian arts and crafts.

8. The Internal Revenue Service exercises

indirect influence through adjudging the deductability

of certain advertising expense claims.

9. The Interstate Commerce Commission exerts

control over carriers' advertising of rates and services,

and false and misleading statements in relation to the

securities issued by the regulated carriers.








10. The Department of Labor is involved in regulating

advertising by employers and labor unions in instances

where they are involved in labor relations disputes.

11. The Narcotics Bureau exerts strong control over

the advertising of products containing narcotics.

12. The Patent Office establishes rules of conduct

and governs advertising by patent agents and attorneys.

13. The Treasury Department has restrictions over

the use of money, coins, stamps, bonds, and the like in

the presentation of an advertisement.


Boundaries of Federal Jurisdiction

In,the protection of consumers in the marketplace

there are broad questions as to who has privy--Federal,

state, or local governmental units. Indeed, all share

in some way the burden of protecting the consumer's

interest; yet Congress is vested with the authority "To

regulate Commerce with foreign nations and among the
61
several States and with the Indian Tribes."61 This

section of the Constitution, often referred to as the

commerce clause, provides the basis of authority for the

Federal government to regulate affairs of business among

the states, possessions of the United States, and foreign

nations.

Judicial interpretations of the commerce clause

have over the years expanded the meaning of the term, and









consequently the jurisdiction of the Federal government

in its ability to regulate trade among the several states.

Table I, presented on the next page, traces the evolution

of Supreme Court decisions with respect to the commerce

clause. The last two benchmark cases cited are

particularly significant in the context of the boundaries
62
of interstate commerce. In Wickard V. Fillburn, the

Supreme Court expanded the concept of interstate commerce

to include products which are intended for consumption

solely within a state where their consumption has an

economic impact on interstate commerce. The Katzenback

V. McClung63 case extended jurisdiction even further in

the application of the 1964 Civil Rights Act. The Supreme

Court upheld the lower court's decision that Ollie's

Barbeque purchased meat and supplies which originated

outside the state and were therefore considered within

the flow of commerce. Thus it was subject to Federal

jurisdiction.

The expansion of the court's interpretation of

the interstate commerce clause, in effect, gives the

Congress carte blanche authority to regulate practically

any business organization and could, conceptually,

invalidate any state laws which conflict with legislation

it might enact. Even though the Congress has the power

to regulate interstate commerce in the broadest sense

in addition to the responsibility to protect the public

interest, it has vacillated in granting this broad
















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power to regulatory agencies which it has created. The

specific wording of the legislative enactment establishing

an agency and defining the limits of its authority is

very important.

The two primary Federal regulatory agencies pertaining

to the particular area of consumer protection under study,

the Federal Trade Commission and the Food and Drug

Administration, are delimited in their authority to

regulate interstate concerns. The Food and Drug

Administration is specifically charged to prevent "The

introduction or delivery into interstate commerce any

food, drug, device, or cosmetic that-is adulterated or
64
misbranded." The Federal Trade Commission's authority

emerges from Section 5 of the Federal Trade Commission

Act as amended by the Wheeler-Lea Act of 1938 which

expressly states that "unfair methods of competition in

commerce, and unfair or deceptive acts or practices
65
in commerce, are hereby declared unlawful." Both

pieces of legislation expressly limit their respective

agencies to a narrow interpretation of interstate

commerce by specifically stating "into" or "in interstate

commerce" rather than granting them authority to regulate

matters "affecting commerce" as under the Sherman Act or

the Act creating the Interstate Commerce Commission.

Judicial interpretation of the United States v.

Sanders case66 in 1952 expanded the Food and Drug

Administration's authority to regulate firms


I








not actually or directly involved in interstate traffic

of goods but dealing with other firms whose goods would

subsequently flow into interstate commerce. Under-

standably, each particular case has its own special

circumstances; yet the Sanders case upheld the Food

and Drug Administration's jurisdiction over a firm whose pri-

mary dealings were in intrastate commerce. From this

precedent, the Food and Drug Administration may push even

further in judicial interpretations of the introduction

of food, drugs, etc. .. "into" interstate commerce.

The Federal Trade Commission, deemed the most

important of the twenty-one above mentioned Federal agencies
67
involved in consumer protection, appears to be more

restricted in its authority than even the Food and Drug

Administration. When Congress granted the Federal Trade

Commission its authority and when the Federal Trade

Commission Act was expanded in 1938, there was substantial

debate whether the Commission should be empowered to

regulate matter "affecting" interstate commerce or those
68
matters solely "in" interstate commerce. Its authority

to regulate interstate affairs extends only to matters in

interstate commerce. Even though Congress possesses the

power to grant the Federal Trade Commission wider

regulatory control, it chose at the time of its enactment

and revision specifically to limit its authority.







The landmark case pertaining to the boundaries of

authority of the Federal Trade Commission is Federal

Trade Commission v. Bunte Bros (1941).69 In this case

the Supreme Court found the difference in wording of

the Federal Trade Commission Act to be very important.

The Supreme Court maintained that the specific wording of

the Act, as amended, indeed limited the Federal Trade

Commission to matters clearly in interstate commerce.

The defendant in the case, Bunte Brothers Candy Company,

was operating solely within the boundaries of one state

(Illinois); yet it was competing with an interstate firm

by utilizing practices deemed by the Federal Trade

Commission to be unfair methods of competition. The

Court ruled, however, that the Federal Trade Commission

did not have jurisdiction. "As the words 'in commerce

among the several states' modify 'unfair or deceptive

acts' in the wording of the Federal Trade Commission

Act, the Commission may not regulate an unfair act in

interstate commerce because its perpetrator deals in

intrastate commerce or competes with interstate firms."70

The late Justice Frankfurter, in the majority opinion on

the Bunte Brothers case, stated that

The construction of Section 5 urged by the
Commission would . give a Federal agency
pervasive control over myriads of local
businesses in matters heretofore traditionally
left to local custom or local laws.

On the basis of the Bunte Bros. decision which still

stands uncontested in court, a firm servicing a one-state








market is immune to regulation by the Federal Trade

Commission.

A past chairman of the Federal Trade Commission,

Miles Kirkpatrick, at the time he directed the American

Bar Association's study of the Federal Trade Commission,

concurred with the opinion of the study group that the

Federal Trade Commission has exaggerated its jurisdictional

problems and could, if it were diligent in its task, expand

its scope of activities in the area of unfair and deceptive

practices.72 Others contend, however, that because the

Commission has avoided a precise definition of its

jurisdiction since the landmark case in 1941 it has

maintained its ability to bluff firms into voluntary

compliance in cases of questionable jurisdiction. They

feel that the likelihood is great that, if a test case
73
were pushed, the Bunte Bros. decision would be upheld.

Finally, it is doubtful that even if the Bunte Bros.

decision is reversed, that the Federal Trade Commission

possesses the ability and resources to give adequate

consideration to those cases in its expanded domain.

President Nixon, in a 1969 address to Congress

concerning the protection of the interests of the consumer,

attempted to rectify the jurisdictional question of the

Federal Trade Commission by asking Congress to amend the

Federal Trade Commission Act explicitly to grant the



Jack E. Kahn, Assistant Regional Director of the
Federal Trade Commission, Atlanta office, personal
interview, March 23, 1973.







Commission control over matters affecting commerce and

7to increase the Federal Trade Commission's funding so that
74
it might fulfill a broader protection role.74 Congress

has chosen to ignore several Presidential requests for a

change in the FTC's jurisdictional powers. It has refused

to enact such legislative change amid growing public

pressure for expansion of consumer protection activities on

the part of government. By Congressional inaction and the

apparent unwillingness of the Federal Trade Commission to

test the Bunte Bros. decision in the context of current

times, it appears that the Commission must decisively prove

a firm to be in interstate commerce before it has any legal

jurisdiction over the firm.

Degree of State Involvement

From the above discussion it may seem apparent that

the obvious solution to the question of jurisdiction and

problems involved in providing consumer protection is to

expand the scope of activities of the Federal agencies which

administer to the public's interest. From the Presidential

viewpoint, at least, it represents a step in the direction

of providing better protection to the consuming public

from unscrupulous sellers. President Nixon and the past

three Chairmen of the Federal Trade Commission have made

public their desire to expand the jurisdictional authority

of the Federal Trade Commission. These requests were not

directed toward the goal of simply expanding Federal
bureauracy; rather, the Commission's desire was to








eliminate the time-consuming and costly procedural task

of proving that a firm operated in interstate commerce

before the Federal Trade Commission can act in the public's

behalf. It is not the intent of the Federal Trade

Commission or its jurisdictional advocates to police
*
consumer matters on the local level.

As far back as 1966, former Chairman Dixon strongly

encouraged states to enact laws which were modeled after

the Federal Trade Commission Act to prevent consumer
75
deception and unfair competitive practices. Later,

Chairman Kirkpatrick (recently replaced by Lewis A. Engman)

promoted the same view by appointing a special officer to

direct Federal-state cooperation and to assist the states

in drafting legislation to bolster consumer protection.

In an address before the Council of State Governments,

Chairman Kirkpatrick encouraged the states to take

business away from the Federal Trade Commission and, in

so doing, allow more time for the Federal Trade Commission

to concentrate on matters of regional and national

importance.76 The present Chairman, Lewis A. Engman,

supports this type action by his continued emphasis on

the Office of Federal-State Cooperation and his recognition

that the Federal Trade Commission cannot effectively
**
police consumer transaction problems at the local level.


*Kahn, personal interview.

**Gale P. Gotschall, Council for Federal-State
Cooperation, Federal Trade Commission, telephone interview,
March 27, 1972.







It appears that the Federal Trade Commission has adopted

the logic of Ira Millstein when he earlier advised that

The Commission should occupy a primus inter
pares role with respect to the state agencies;
encouraging passage of needed legislation,
offering advice and possibly assistance in
litigation and the formulation of guides;
becoming a focal point of coordination among
state agencies to avoid inconsistencies;
referring complaints of an essentially local
nature to state agencies; and in general,
developing programs designed to urge and aid
state agencies to adopt a rational but
consistent approach to local advertising,
thereby relieving the Commission of a host of
essentially local matters.77

The states are in an excellent position and can

legally assist the Federal agencies in their task of

consumer protection. Even though there are many areas

of advertising and sales practices which are subject to

possible concurrent Federal and state control, the

question of preemption has historically not afforded
78
much trouble. There is little jurisdictional history

in this area of preemption; yet it seems unlikely that

Congress in creating Federal agencies to protect the

public interest would preempt the entire area of

consumer protection from control by other levels of

government. Indeed, requests such as those made by the

various chairmen of the Federal Trade Commission for

state aid seem to disavow this idea.

By volume, the vast majority of consumer trans-
79
action problems are local in character and origin.

Even if the questions of jurisdiction and staffing and








funding of the Federal Trade Commission were resolved,

there is good cause to consider a state in the "business"

of consumer protection. The mere fact that the

boundaries of Federal jurisdiction are enlarged may well

cause the states to react unfavorably to encroachment on

their assumed responsibilities. The 1969 study of the

Federal Trade Commission by the American Bar Association

concluded that ". . many consumer fraud schemes are

local in origin and effect and preferably should be dealt

with by local enforcement units rather than a Washington-

based Federal Bureauracy."80 Gale Gotschall, Chief

Council for Federal-State Cooperation at the Federal

Trade Commission, suggests that the states can correct

unfair and deceptive practices within their boundaries

more cheaply than by "shipping" local problems to
81
Washington. Protection at the state level not only

provides proximity to consumer abuse but also affords

the possibility for quicker detection and reaction to

problems related to consumer protection.

The Constitution of the United States in defining

the bounds of Congressional authority establishes Federal

law as supreme. From this basis, the Federal government

by its past legislative and judicial action has declared

the leadership role in providing the basis for consumer

protection. The states cannot encroach upon this authority

unless Federal law is repealed or authority is given-up

by administrative default. With the majority of consumer








abuses being suffered at the local level beyond present

jurisdiction of federal agencies, someone must act. State-

level action seems most appropriate, as contrasted to

strictly local agencies, because of the need for wide-

spread authority and uniform enforcement throughout the

state. A state agency can serve as a focal point for

consumer complaints and thus avoid duplication of efforts

in those instances where abuses are widespread throughout

the state. It can also prevent fraudulent vendors from

moving to another locality within a state to avoid

prosecution. For best results, an effective symbiosis

could exist between Federal and state agencies, each

operating as an information and referral system to the

other in matters not within their scope of activities.

This situation would allow federal agencies more time to

address themselves to regional or national matters leaving

the states to initiate action against fraudulent sellers

operating within their boundaries. Strictly local agencies

can easily fit within this system by acting as a "feeder"

for problems too large for them to handle and by

contributing to the banks of knowledge concerning fraudulent

operators.

The various states have viewed the responsibility for

consumer protection differently. Many, which have reacted

to the recent consumerist movement, have attempted to

update their approach to afford their citizens protection

from unscrupulous merchants; others have taken a rather






52


lackadaisical attitude toward extending protection over

those matters which are local (intrastate) in character.

As mentioned earlier, Alabama falls into this latter

category. The following chapter, which deals with the

present legislative environment in Alabama, presents the

legal and administrative basis for consumer protection

presently in existence.














NOTES


1
Sirach 27:1-2.
2
Charles Sumner Lobinger, The Evolution of Roman Law
(2nd ed.; Omaha: By the Author, 1923), p. 66.
Palmer D. Edmunds, Law and Civilization (Washington:
Public Affairs Press, 1959), p. 144.

Lobinger, p. 67.

Fritz M. Heicheleim, An Ancient Economic History,
(Trans. by Joyce Stevens, Leiden: A. W. Sijhoff, 1958),
p. 250.

Lobinger, p. 82.
7
W. H. Hasting Keleke, An Epitome of Roman Law
(London: Sweet and Maxwell, Ltd., 1901), p. 193.
Ibid.
9
James Murihead, Historical Introduction to the
Private Law of Rome (Edinburgh: Adam and Charles Black,
1886), pp. 107-108.
10
Arthur R. Hogue, Origins of the Common Law
(Bloomington: Indiana University Press, 1966), p. 228.

W1alton H. Hamilton, "The Ancient Maxim Caveat
Emptor," Yale Law Journal, Vol. XL, No. 8 (June, 1931),
pp. 1156-1157.
12
Ibid.

1Ibid., p. 1163.

1Ibid., pp. 1158-1159.
15
Shephard B. Clough and Charles W. Cole, Economic
History of Europe (3rd ed.; Boston: D. C. Heath and
Company, 1952), pp. 29-31.





53










6Hogue, p. 177.

1Hamilton, p. 1163.
18
18Ibid., p. 1171.
19
Oliver Wendell Holmes, The Common Law (Boston: Little,
Brown and Company, 1881), p. 132.

20Williamson v. Allison, 2 East's 446 (18021.

21Hamilton, p. 1173.

2Ibid., p. 1178.
23
2"Developments in the Law--Deceptive Advertising,"
Harvard Law Review, Vol. LXXX, No. 5 (March, 1967),
pp. 1016-1018.

2Miles O. Price and Harry Bitner, Effective Legal
Research, (Boston: Little, Brown and Company, 1962),
p. 305.

25Ibid., p. 306.

2Sweet v. Colgate, 20 Johnson's Reports 196 (1822).

27Holmes, p. 108.
26
George C. Thompson and Gerald P. Brady, Law in a
Business Environment (Belmont: Wadsworth Publishing
Company, 1963), p. 142.
29
William L. Prosser, Handbook on the Taw of Torts
(3rd ed.; St. Paul: West Publishing Company, 1964),
p. 124.

3Ibid., p. 738

3Gleb v. Federal Trade Commission, 144 F. 2d. 508,
582-3 (1944).

3General Motors Corporation v. Federal Trade
Commission, 144 F. 2d. 33, 36 (1940).

3Book of the Month Club, Inc., 48 F.T.C. 1297 (1952).
34
34Independent Trade Directory Corporation v. Federal
Trade Commission, 62,817 C.C.H. Trade Cases 64,405 (1951).








3Book of the Month Club, Inc., 48 F.T.C. 1297 (1952).

3Ibid., p. 1319.

3"Advertising v. Government: Why Some Laws Help,
Others Pose A Great Threat," Printers' Ink (December 4,
1959), p. 22.
38
38 Stat. 719 (1914).

39George J. Alexander, Honesty and Competition
(Syracuse: Syracuse University Press, 1967), p. 2.
4052 Stat. 114 (1938).

4Annual Report of the Federal Trade Commission 1970,
1971, 1972 (Washington, D. C.: Government Printing Office,
1970, 1971, 1972).
4252 Stat. 111 (1938).

43Earl W. Kinter, A Primer on the Law of Deceptive
Practices: A Guide for the Businessman (New York:
Macmillan Company, 1971), p. 25.

44Ibid.

45Ibid.

46Mark V. Nadel, The Politics of Consumer Protection
(New York: Bobbs-Merrill Company, 1971), p. 65.

47"FTC Issues Plaint Against Three in Analgesic Ad
Case," Advertising Age, Vol. XLIV, No. 12 (March 19, 1973),
p. 2.
48
4381 F. 2d. 884 (6th Cir. 1967).
49
Eleanor D. Acheson and Mark Tauber, "Limits on the
FTC Power To Issue Consumer Protection Orders,"
George Washington Law Review, Vol. XL, No. 3 (March, 1972),
pp. 498-505.

5U. S. President, Executive Order, "President's
Committee on Consumer Interests and the Consumer Advisory
Council," Federal Register, XXXII, 85 (May 3, 1967),
pp. 6759-6761.

51"Setup Changed but Consumer Safeguard Struggle
Continues," The Birmingham News, February 19, 1973, p. 29.








52
"FDA, FTC Agree on Enforcement Roles," American
Druggist, Vol. CLXIV, No. 7 (October, 1971), p. 22.

53James R. Adams, "Measuring the Worth of Consumerism,"
Wall Street Journal, Vol. CLXXX, No. 102 (November 24,
1972), p. 6.
54
Label, Inc. v. Edwards, 72 F. 2d. 1510 (March 1,
1973).
55
Kinter, pp. 28-29.
527 U. S. Code 205(F).

5739 U. S. Code 259.
58
5Kinter, p. 29.

534 Stat. 891.

6072 Stat. 769.
611 U. S. Code 8.

6Wickard v. Filburn, 317 U. S. 111, 63 S. Ct. 82, 87
L. Ed. 122.

6Katzenbach v. McClung, 397 U. S. 294. 85 S. Ct. 377,
13 L. Ed. 2nd. 290.
64
21 U. S. Code 331 (A) (Emphasis the Author's).
6515 U. S. Code 421 (Emphasis the Author's).

66U. S. v. Sanders, 196 F. 2d. 895, 73 S. Ct. 33,
97 L. Ed. 645, (1952).
67
Nadel, p. 46.

6Charles Wesley Dunn, Wheeler-Lea Act, A Statement
of Its Legislative Record (New York: G. E. Stechert & Co.,
1938), Chapters IV, V, VI, VII.
69
F.T.C. v. Bunte Bros., 312 U. S. 349 (1941).
70
"Jurisdictional Fetter on the FTC," Yale Law Journal,
Vol. LXXIV, No. 8 (July, 1967), p. 1690.
71nte Bros., 312 U. S. 349, 354 (1941).
F.T.C. v. Bunte Bros., 312 U. S. 349, 354 (1941).







72
American Bar Association, Report of the ABA
Commission To Study the Federal Trade Commission
(Chicago: American Bar Association, 1969), p. 53.

73"Jurisdictional Fetter on the FTC," p. 1697.
74
U. S. Congress, House, President's Message to
Congress Concerning the Protection of the Interests
of Consumers, H. R. 91-188, 91st Cong., 1st sess.,
1969, p. 6.

75"Chairman Dixon Encourages States to Enact State
Consumer Protection Laws," News Release: Federal Trade
Commission (July 7, 1966), p. 1.

76"Federal Trade Commission Endorses New Consumer
Protection Legislation," News Release: Federal Trade
Commission (March 25, 1970), p. 2.
77
Ira H. Millstein, "The Federal Trade Commission
and False Advertising," Columbia Law Review, Vol. LXIV,
No. 3 (March, 1964), p. 497.
78
"The Regulation of Advertising, Columbia Law
Review, Vol. LVI, No. 7 (November, 1966), p. 1073.
79
79"Advertising and the Public Interest," Advertising
Age, Vol. XLIV, No. 11 (March 12, 1972), p. 4-B, 78-B.
Others who support the fact that the majority of consumer
problems are in intrastate commerce are: Kinter, p. 409;
David A. Rice, "Remedies, Enforcement Procedures and the
Duality of Consumer Transaction Problems," Boston
University Law Review, Vol. XLVIII, No. 4 (Fall, 1968),
p. 605; Daniel J. Baum, "The Federal Trade Commission and
the War on Poverty," UCLA Law Review, Vol. XIV, No. 4
(May, 1967), p. 1073; Carol H. Katz, Law and the Low
Income Consumer (New York: New York University School
of Law, 1968), pp. 383-385.
80
8Report of the ABA, pp. 51-52.
81
8Gale P. Gotschall, "States Act To Protect Consumers
Against Deceptive and Unfair Trade Practices" (Speech
presented before the Consumer Protection Legislative Study
Commission of Arkansas, Little Rock, Arkansas, September 27,
1971), pp. 1-5.














CHAPTER III

PRESENT STATUS OF CONSUMER PROTECTION IN ALABAMA


An examination of the Code of Alabama indicates a

basic legal structure common to most states. Legal actions

can be categorized into three main types or divisions--

those having to do with criminal law; those concerning

civil law; and those cases in equity. Laws pertaining

to false or fraudulent advertising and sales practices can

be found within the three divisions of the legal framework,

each area having a specific intent or purpose. Generally,

the nature of the offense, its effect on the public, and

the origin of the complaint dictate the type of actions)

which will be brought to court.


Avenues of Legal Action

Criminal law in general represents that branch or

division of the law which defines crimes against the

public or the sovereign state. Prohibitory in nature, it

seeks to deter injury to the public at large through direct

means of punishment. Criminal law does not seek to redress

the specific wrong done to individuals; rather it is

administered to prevent further injury to the public.1

Criminal prosecution by the sovereign state does not bar








an injured party from bringing individual suit for redress

of a wrong he has suffered at the hands of a named

defendant.

Civil law basically defines the rights of individuals

in society. It deals with actions and "disputes between

persons in their private capacity--whether such matters

relate to the persons of the parties, or to their personal
2
or real property." Civil law "supports action which has

for its object the recovery of private or civil rights

or compensation for their infraction." Civil actions

may be initiated by a single injured party or by an agent,

such as the attorney general, in behalf of injured parties

for restorative, rather than for punitive, purposes.

Cases in equity came into use from the ancient English
4
court of chancery. Courts of equity are not inquisitorial

but remedial, such as those of civil law. It is not their

function to assist in creating causes of action where none

are specifically alleged: they exist for the correction of

those particular situations where the law is deficient.5

Suits in equity give protection to individuals where
6
adequate remedy cannot be had at law. Equity is often

defined as "the 'conscience' of the law . and leaves

the presiding judge reasonably free to order preventive

measures--usually in the form of a writ, such as an

injunction, or restraining order, designed to afford a

remedy not otherwise obtainable, and traditionally given

upon showing of peril."7








The common law is often intermixed with the statutory

law in establishing a guideline for judicial action.

"Common law is judge made, bench made, law rather than a

fixed body of definite rules such as the modern civil law

codes."8 It is based on precedents set down in the past

judgment of cases and "includes those principles, usages,

and rules of action applicable to the government and

security of persons and property, which do not rest for

their authority on any express and positive declarations

of the will of the legislature."9 The common law, as such,

is uncodified; yet the case-precedents which embody the

"essence" of the common law are used along with statutory

law in arriving at a judicial decision.


Existing Legal Environment

Alabama, like most other states, seems to have

developed haphazardly a number of specific prohibitions

concerning false and misleading advertising and sales

practices during its legislative history. The organization

of the Code of Alabama follows the general reference system

adopted nationwide, thus, citing specific type practices

produces a conglomeration of titles and sections. The

following examination of the legal environment categorizes

Sthe various laws affecting the advertising and sale of

goods in Alabama on the basis of the three major types

of remedial actions outlined above.








Criminal Action

Under the criminal section of the Code of Alabama are

found the express prohibitions against advertising in

certain professions and the making of certain claims per-
10
training to special classes of commodities. The law

specifically forbids the use of obscenity in any

advertisement, handbill, poster, etc. . and makes

such violation a misdemeanor. The use of any advertising

materials which appear to be a check draft or other

valuable paper is expressedly prohibited. Section 212

under Title 14 requires that advertising material appearing

in newspapers, magazines, and other periodicals be so

marked or plainly evident. The advertising of products

concerning VD, impotency, and prostatic troubles is

likewise in violation of the criminal code. Physicians

and chiropodist are subject to revocation of their license

and subsequent fine and/or imprisonment for engaging in

the advertising of their services beyond the office sign

and standard directory listing.1 More specific sections

of the Code prohibit false and misleading statements in

the advertising of mellorine, poultry products, optometry

supplies, insurance, and lending institutions, particularly

the small loan company. These latter regulations appear to

have arisen to protect special interests within the state

or were passed to curb flagrant abuse in the advertising

of the specified commodity.








Also the criminal statutes pertaining to fraud

generally are quite relevant to this study. Section 209

of Title 14 of the Code of Alabama states that--"Any

person, who, by false pretense or token, and with the

intent to injure or defraud, obtains from another any

money or other personal property, shall on conviction,

be punished, as if he had stolen it." The seriousness

of violation of this act (whether a misdemeanor or felony)

would depend upon the valuation of the object of fraud.

Under the above section of the criminal code, it is

necessary to prove intent to defraud, which is often quite

difficult. The falsity of the representation must be known

by the defendant and it must be proved that the accused

made such material misrepresentation with the intent to
12
defraud. Statements generally defined as trade puffing

or opinions as to fact or merely promises on the part of
14
the accused of something to be done in the future4 do

not constitute violation of this section. In Eaton v.

State, it was shown that misrepresentation by action or

deed ". . unaccompanied by the employment of false

representation of fact by word . although sufficient

to warrant a conclusion reached by the party parting with

the thing of value, it is not sufficient to bring the case

within the statute."15

Even though Section 209 of the criminal code can be

applied equally to both parties in a transaction,








examination of the appellate and supreme court cases in

the state of Alabama back to 1911 (construing section 209

as the point of law) shows prosecution favoring the

vendor in all situations where merchant and consumer were

at odds. The state had no bad check law within the

criminal statutes prior to 1951 and the majority of

false representation cases appear to have been initiated

to control this type practice.

Section 210 of the criminal code pertains to the

obtainment of services of another or the use of personal

property through false pretense, representation, or token.

Its applications and case precedents are construed

exactly as those of the preceding section. The penalty

assessed, however, is more precise--persons convicted

of violating this statute can be punished by a fine up

to five hundred dollars. There is no provision for

imprisonment for this section as there is for theft

prosecuted through section 209.

If a formal, written contract is involved in the

misrepresentation, then the complaining party may bring

separate action under section 213 of the Code. Again,

the plaintiff must show proof that the defendant clearly

intended to injure or defraud when the defendant

obtained the plaintiff's signature to any written
16
instrument. The use of false representation or token

in the obtainment of a signature to a contract is








interpreted as forgery in this section. Also the

defendant is punished as if he had forged the instrument--

imprisonment for not less than one nor more more than

twenty years.

The Printers' Ink model statute, which was adopted

by the state legislature in 1915, was amended in 1931.

Prior to its amendment, the court required that knowledge

of the falsity or untruth in an advertisement must be

proved before action could be taken. The deletion of

"knowledge of the untruth" from this section separates

it from the other provisions concerning fraud generally.

The model statute, section 211, reads as follows:

Untrue Advertising Prohibited--(a) No person, firm
corporation or association shall, with the intent
to sell or in anywise dispose of real estate,
merchandise, securities, services, or anything
offered by such person, firm, corporation or
association, directly or indirectly, to the
public for sale or distribution, or with intent
to increase the consumption thereof, or to induce
the public in any manner to enter into any
obligation relating thereto, or to acquire title
thereto, or an interest therein, make, publish,
disseminate, circulate, or place before the
public, or cause, directly or indirectly, to
be made, published, disseminated, circulated, or
placed before the public, in this state, in a
newspaper or other publication, or in the form
of a book, notice, handbill, poster, bill,
circular, pamphlet, or letter, or in any other
way, an advertisement of any sort regarding real
estate, merchandise, securities, service, or
anything so offered to the public, which
advertisement contains any assertion, representation
or statement of fact which is untrue, deceptive
or misleading. (b) It shall be deemed deceptive
advertising, within the meaning of this section,
for any person, firm or corporation, engaged in
the business of buying or selling new or second-
hand furs, wearing apparel, jewelry, furniture,








pianos, phonographs, or other musical instruments,
motor vehicles, stocks, or generally any form of
property, real, personal or mixed, or in the
business of furnishing any kind of service or
investment, to advertise such articles, property
or service for sale, in any manner indicating
that the sale is being made by a private party
or householder not engaged in such business. And
every such firm, corporation or association,
engaged in any such business, in advertising goods,
property or service for sale, shall affirmatively
and unmistakably indicate and state that the
seller is a business concern and not a private
party. (c) Any person, firm, corporation or
association engaged in any business mentioned in
subsection (b), or any other kind of business,
whether conducting such business in a store,
business block, residence or other building, shall
at all times keep a conspicuous sign posted on the
outside of his establishment and another
conspicuous sign in the salesroom which sign shall
clearly state the name of the association,
corporation or individual who actually owns said
merchandise, property or service which are being
offered to the public and not the name of any other
person; provided, however, that the exterior sign
shall not be required where the seller has no
control over the exterior or the premises where
such business is conducted. (d) No person, firm,
corporation or association shall, with the intent
to sell, or increase the consumption thereof, or
create an interest therein, make publish, disseminate,
circulate, or place before the public in this state,
or cause, directly or indirectly to be made,
published, disseminated, or placed before the public
in this state, in a newspaper or other publication,
or in the form of a book, notice, handbill, poster,
bill, circular or pamphlet, or in any other manner,
an advertisement of any sort regarding articles of
food, which advertisement contains any assertion,
representation or statement which is untrue,
deceptive or misleading. (e) It shall be unlawful
to advertise any dairy or other food product which
is of a grade or quality inferior to or less
valuable portion has been removed, without plainly
and conspicuously stating that the article advertised
is below and inferior to the usual and ordinary
grade. (f) Any person, firm, corporation or
association or the agent or servant of any other
person, firm, corporation or association violating
any provisions of this section shall be guilty of a








misdemeanor, and upon conviction thereof shall
be punished by a fine of not less than twenty-
five dollars nor more than one thousand dollars,
or be imprisoned in the county jail not more
than sixty days, or by both such fine and
imprisonment; and each sale, advertisement or
representation in contravention of this section
shall be deemed a distinct offense and shall
subject the offender to such punishment.

This section gives wide latitude for action against

untrue, deceptive or misleading advertising; however,

case precedents which specifically define the boundaries

of deceptive and misleading statements have yet to be

set within this state. The interpretations of the Federal

Trade Commission as to what constitutes untrue, deceptive

or misleading statements are taken as guidelines. The

construction of this section of the Code, specifically

part (a), indicates that it intends punitive action to be

brought against those persons, firms, corporations or

associations who receive material gain from the effects

of a "false" advertisement; yet, judicial decisions seem

to rest upon the intent of the defendant rather than upon

its effect on the consuming public. Thus, rather than

utilizing a rigid interpretation of the model statute, the

courts have followed a pattern of prosecution similar to

that relating to false pretenses, even in light of the

1931 amendment to this act. This pattern perhaps stems

from the fact that a crime (and thus criminal prosecution)

is defined in the eyes of the law as consisting of both
17
the act and an intent to act.








Civil Action

The civil law, which defines the basic rights of

individuals in society, likewise affords protection to

the defrauded consumer. Under civil actions an

individual's rights are more loosely defined than the

prohibitions of the criminal code. Moreover, the courts

are given a freer hand in defining the bounds of protection

of an individual's rights. The Uniform Commercial Code,

which comprises a part of the civil codes, and which

became effective within the boundaries of Alabama on

December 31, 1966, generally outlines the propriety of

business dealings.

In those instances where a formal contract is utilized

in fraudulent business dealings, the injured party might

seek satisfaction through the execution of the unconscion-

able contract or clause provision, if such unconscionability

is present in the formal agreement. This clause specifically

grants the court the right to void a contract or limit its

application if it finds the contract "to have been unconscion-
18
able at the time it was made."8 The basic test of

unconscionability is whether the clauses contained in the

written instrument are so one-sided as to unduly curtail

the rights of the signee in light of the general trade

provisions of the industry or area of operation.19 Obviously,

this section of the Code is subject to a great deal of

latitude in court interpretation as it depends upon how








the court determines what the general trade provisions

are within a particular industry. Trade practices

themselves could well be traditionally discriminating

against the purchaser of a generic product. A parallel

might be found in the automobile industry where the

traditional express warranty given buyers is said to

limit severely the responsibility of the seller.

The unconscionability section of the Uniform

Commercial Code is limited in the protection afforded

because it fails "to define or differentiate between

procedural and substantive unconscionability."20 In

short, the proscribed behavior during the bargaining

process is not admissible as evidence (procedural

evidence); it is the unconscionable provisions of the

written contract (substantive evidence) alone which is

at issue in this section.

Civil actions may also be instituted by the injured

party where no formal contract exists under the provisions

of the law concerning fraud, misrepresentation, deceit,

and suppression of the truth. Section 107 of Title 7 of

the Code of Alabama, which defines civil remedies and

procedures, states that--"Fraud by one, accompanied with

damage to the party defrauded, in all cases gives a

right of action." This section, which essentially

clarifies the injured party's right to action, requires

proof of actual damage to the plaintiff before relief or

restitution is given.








Section 108 defines legal fraud--"Misrepresentations

of a material fact, made willfully to deceive, or recklessly

without knowledge, and acted upon by the opposite party, or

if made by mistake and innocently, and acted upon by the

opposite party, constitutes legal fraud." In establishing

a right to action the complaining party must show that the

misrepresentation which initiated action was indeed

significant.21 As in criminal law, trade puffing or mere

opinion given by the defendant in the bargaining process
22
does not constitute misrepresentation of a material fact.2

However, if the defendant is deemed to be giving an expert

opinion by the nature of his particular knowledge or

profession, his opinion, which is considered to be a

material fact, comes within the provision of fraud.23

Even though fraud, as defined in this section, can

be achieved through "willful action or by mistake and/or

lack of knowledge" or by "mistake and innocently," action

is confined to recovery of actual damages and/or recision

of the contract in part or all. However, if it can be

proved that the seller acted with intent to deceive

through malicious, gross, or oppressive action, punitive

damages may be awarded.24

This statute makes it clear that the intent to

deceive need not be proved for satisfaction to be obtained

by the injured party; nor is the court interested in the

fact that the defendant has acted in good faith. In








Jordan and Sons v. Pickett, the court stated that the

law imposes the burden of ascertaining the truth or

veracity of a material statement upon the maker; also, the

law demands, in the case of conscious omission of

important facts, that the misrepresentation be corrected

or satisfaction given.

Supression of the truth where "the obligation to

communicate material facts may arise from the confidential

relations of the parties, or from the particular

circumstances of the case," is dealt with specifically

in yet another section of the law of civil remedies

(Title 7, Section 109). In the Metropolitan Life

Insurance Co. v. James case, the court stated that

This statute is declaratory of the common
law. In dealings between persons standing in
confidential relations or positions of trust,
the law imposes the obligation on the part of
the one to safeguard the interests of the other
with the same fidelity he safeguards his own,
and charges him with knowledge of such duty.
Withholding facts, material to be known, is a
breach of legal duty, regardless of intent to
deceive, as is a legal fraud.26

In Mudd v. Lanier,27 the court ruled that, where

both parties are reasonably intelligent and dealing at

arm's length, no duty to disclose material facts exists

where information is not requested. In this sense,

silence does not constitute fraud under this section of

the Code; yet where a fiduciary relationship exists,

the party is obliged to communicate the material facts or

be in violation of this section.








The relation of trust and confidence in the sale

of automobiles is limited to the need for the seller to

communicate to the buyer information as to the physical

condition of the car, not its "true" value or worth or
28
other similar information.28 Confidential relations,

likewise, exist between most professionals in their

business dealings. This relationship also extends into

banking, where the bank is responsible to its depositors
29
when it acts in an advisory capacity. No confidential

relationship is said to exist among all parties bargaining
30
at arm's length. This statute (Title 7, Section 109)

in reverse, charges individuals to exact positive

statements and assurances from those with whom they deal

to avoid the loophole of omission or suppression of the

truth where a confidential relationship does not exist;

otherwise--caveat emptor.

Section 112 of Title 7 of the Code of Alabama is

basically a definitional section and defines deceit as

The suggestion, as a fact, of that which
is not true, by one who does not believe it is
true; the assertation, as a fact, of that which
is not true, by one who has no reasonable ground
for believing it to be true; the suppression of a
fact, by one who is bound to disclose it, or who
gives information of other facts which are likely
to mislead for want of communication of that fact;
or, a promise, made without any intention of
performing it.

This section is often cited by the plaintiff in conjunction

with other specific sections concerning fraud or deceit in

bringing civil action against a named defendant.








The preceding section defined the right to action

in the case of deceit as "one who willfully deceives

another with the intent to induce him to alter his position

to his injury, or risk." The individual found guilty of

deceit is liable to any damages on the part of the

deceived party as well as the right to recovery of actual

injury suffered or recision or modification of the

contractual relationship.

Deceit as defined in the civil remedies section of

the Code differs substantially from fraud generally or

the legal definition of misrepresentation and suppression

of the truth. The principal difference relies on the

necessity of proving willful misrepresentation and the

intent to deceive. Section 110 of Title 7 states that

Willful misrepresentation of a material fact,
made to induce another to act, and upon which
he does act to his injury, will give a right
of action. Mere concealment of such a fact,
unless done in such a manner to deceive and
mislead, will not support an action. In all
cases of deceit, knowledge of a falsehood
constitutes an essential element. A fraudulent
or reckless representation of facts as true,
which the party may not know to be false, if
intended to deceive, is equivalent to
knowledge of a falsehood.

As in other sections reviewed earlier, the facts which

were misrepresented must be material and acted upon by the

injured party to constitute violation of this section. It

is plainly stated in this section that it must be proved

that the defendant intended to mislead and injure another

by his action; scienter must be present. The benchmark








case on this point is Hockinsmith v. Winton31 where the

court stated that the proof of bad faith is absolutely

essential for relief to be granted under this act. In the

same case, the court went further in saying that "expressions

of opinions will not support an action of deceit, unless

they are knowingly false or made with intent to deceive

and are so acted upon."32

Under this section, punitive, as well as restorative,

remedies are available. As pointed out in Kilby Locomotive

& Machine Works v. Lacey & Son, persons injured by willful

misrepresentation or deceit are "entitled to all the

damages within the contemplation of the parties, or which

are necessary, or natural and proximate consequences of

the fraud."33 Nor is the injured party required to

rescind the transaction: he may elect to retain that

which he has received and seek to recover such damages
34
as he can. Promises for the completion or fulfillment

of certain actions at a future point in time do not

constitute violation of this section unless it can be

proved that there was no intent of fulfilling this promise

at the time it was made.35 To say the least, this

situation would be most difficult to prove in a court

of law.

In all cases of deceit, misrepresentation, and

suppression of the truth there is the common necessity to

prove that the facts must be material to the case in point

and must be acted upon by the injured party, not







introduced as an afterthought. Likewise, it must be

shown that the "party acting upon deception must be

ignorant of the falsity of the misrepresentation made or

the opinions expressed by the other party.36 This

judicial opinion indicates that the defense would have

grounds for acquittal if it could be shown that the

injured party believed, or had reason to believe, that

the material misrepresentation was untrue. In such

instances the claimant would have acted upon some material

fact known to be false and he would have no grounds for

action--caveat emptor.

Civil remedies relative to consumer protection are

also found in other sections of the Code. Of particular

interest in this study is the right of civil action

granted to persons injured by insurance frauds. The

rights of citizens are protected through administrative

action initiated by the Superintendent of Insurance; yet

individuals also have the right to pursue civil remedies

for injuries spelled out in the law regulating insurance

firms. Section 18 of Title 28 of the Alabama Code

prohibits fraudulent advertising generally and the posing

as an insurance firm unless licensed to do business within

the state. Section 26 makes it unlawful for insurance

firms or their agents to issue statements, either verbal

or written, which misrepresent the terms of their policies.

The Federal Trade Commission's "model code" is found

under the laws regulating insurance firms within this






75

state. It is modified somewhat to fit its application for

specialized use. The state outlaws "unfair or deceptive

methods of competition or an unfair or deceptive act or
37
practice in the business of insurance." It is the

responsibility of the Superintendent of Insurance to

ascertain what constitutes unfair methods of competition

or unfair or deceptive acts. The primary guidelines,

although not mandatory, are the Federal Trade Commission's

rulings defining the bounds of the above terms.


Action in Equity

It was mentioned earlier that the public turns to

equity proceedings when adequate remedies are not available

at law. Equity, which exists as a holdover from the courts

of chancery, does not give the courts many codified

proscriptions to follow in handling the business of

justice. Shuman and West explain a person's reason for

turning to equity proceedings:

In actions at law, if successful, the
plaintiff recovers a judgment which orders the
defendant to pay a certain sum of money. In
an equity action, besides money damages,
the plaintiff may get wholly different relief.
For example, the court may order that the
defendant has defaulted in the performance of a
contract, instead of ordering that he pay
damages the court may order him to specifically
perform the contract.38

Thus, in instances where monetary remuneration alone is

not an adequate remedy, other tools such as the injunction,

mandamus, or the prohibition may provide a more equitable

solution. Injured persons may elect to pursue a case in







the equity courts where the award of money alone will not

place them in the same position they were prior to injury.

Equity solutions are particularly beneficial in dealing

with unique property where other such goods are not

interchangeable in the marketplace. This view is

exemplified in material goods, such as land, or in tangible

goods having a brand name. Money damages alone may not be

adequate restitution for fraudulent possession of land or

for injury to one's brand name. In both instances

adequate relief may be obtained only with specific

injunction or prohibition in conjunction with monetary

damages placed upon the defendant.

The extent of the law of equity in Alabama rests

upon a limited number of statutes which create the right

to and establish the procedure for equitable remedies.

Section 289 of Title 7 of the Code states that

The Alabama Equity rules adopted by the
supreme court for equity practice in the
courts of this state are hereby recognized;
and the supreme court is empowered to adopt,
from time to time, rules of pleading, practice
and procedure in suits and proceedings in
equity, and to amend the same, and said
court may disregard any statutes, and rules
of court or decisions inconsistent therewith,
insofar as the same may be done agreeably to
the Constitutions of Alabama and of the
United States.

Section 290, likewise, recognizes the rules of equity

practice adopted by the Supreme Court of the United States

as the prevailing guide to suits in equity.








The equity rules, numbering some one hundred and

twenty in all, concern themselves particularly with

matters relating to the conduct of the court in the

collection of information relative to the case at hand and

the powers of the court in commanding justice. Of

particular interest to this study are rules number 96,

108, and 118. The first of these formally adopts the

power of injunction for the equity court. This power

allows circuit court judges to grant injunctions returnable

into any circuit court in the state. The injunctive tool

allows the court to command action or restrain such

action which the court deems "contrary to equity and
"39
good conscience."39 Rule 108 relates to the situation

where suits may be instituted at law and in equity for

the same claim. Upon the initiative of the opposite

party, the court may require the plaintiff to elect

between an action at law or a suit in chancery; otherwise,

two actions may be sustained until adequate remedy is

obtained by the plaintiff. Rule 118 formally adopts the

rules of the English Courts of Chancery as part of the

common law of Alabama. Specifically, it states that

Cases not covered by these rules, nor by
decisions of the supreme court of Alabama,
nor by statute, the practice in effect in
the English Court of Chancery prior to the
Judicature Act of 1873 (but not afterward)
may be followed so far as it can be reasonably
applied. .

The state also has the right to bring suit in

circuit court for an equitable remedy. Such suits are








governed by the same rules as between private individuals,

and,if unsuccessful, the state is liable for court costs

as are private citizens. As the law presently reads,

the Governor of the State is the one who must initiate

court action. He must direct the state's attorney, in

writing, to initiate equity proceedings against the named

defendants) in behalf of the citizens of Alabama.40 The

state may elect actions in equity with the intent of

obtaining specific prohibitions or remedies which the

defendant could not otherwise obtain in a case at law.

The 1972 passage of the "Mini Code" through the

state legislature gave rise to other actions in equity.

The "Mini Code" generally sets the legal rate of interest

and regulates lending institutions operating within the

state. It eliminates the holder in due course doctrine

for consumer paper except in instances where an agreement

to the contrary is signed. The "Mini Code" expressly

prohibits referral sales and also provides for a three-

day waiting period for cancellation of credit sales

resulting from home solicitations. Section 324 of this

act specifically states that

A buyer has the right to cancel a home
solicitation sale until midnight of the
third business day following his execution of
an agreement or an offer to purchase . .
The seller must deliver to the buyer and obtain
his written signature tc a written agreement or
offer to purchase designating as the date of the
transaction the date on which the buyer actually
signs and containing the following under








conspicuous caption: "BUYERS RIGHT TO CANCEL."
"If this agreement was solicitated at your
residence and you do not want the goods or
services, you may cancel the agreement by
delivering or mailing a notice to the seller.
The notice must say that you do not want the
goods or services and must be delivered or mailed
before midnight of the third business day after
you sign this agreement. This notice must be
delivered or mailed to:
,41 (insert

name and mailing address of seller)

This act charges the Superintendent of the Banks of the

State Banking Department with the responsibility of

administration of this and other sections of the "Mini

Code." The administrator may seek injunction for temporary

relief against such respondents guilty of fraudulent or

unconscionable conduct until final determination of

continuance of license. Private citizens may likewise

initiate action on their own in a court of equity for

relief from situations set out in this act.

From the above examination of the legal structure

pertaining to this study one can see that there are

several courses of action which a defrauded consumer may

take depending on the circumstances of the incident, the

knowledge of the citizen of his rights, and his desires

as to remedy. The various acts and interpretations thereof

constitute the range of remedies available in retort

to false or misleading advertising and sales

practices.








Protective Action

Legislative enactment and judicial interpretations

of those acts provide the foundation for protection of the

consumer from false and misleading advertising and sales

practices. Yet legislative enactment by itself does not

guarantee adequate protection for the consumer. Con-

structive action initiated by or in the behalf of the

injured consumer is a necessary adjunct to legislation

and, within limits, seems to act as a deterrent against

future consumer abuse.

As indicated earlier in this chapter, there are

several alternatives available to the injured consumer in

seeking satisfaction. He may initiate action in his own

behalf either in a court of law, in equity, or through

his own bargaining. The injured consumer may also turn

to administrative officers at the Federal or state level

to assist him in obtaining a remedy to his problem.

Finally, the injured party may enlist the aid of one of

several independent agencies which are concerned with the

business of consumer protection.


Consumer Protection Office

On February 17, 1972, the Governor signed an

executive order which established an Office of Consumer

Protection within the executive branch of the state

government. The Consumer Protection Officer who heads

this division is an appointee of the Governor and is








charged with the responsibility of advising him on matters

affecting the interests of consumers within this state and

Whenever he receives, from any source,
complaints or other information disclosing a
possible violation of any law of the United
States or any rule or order of any Federal
agency concerning consumer interest or any law
of the State of Alabama affecting such interest,
the Consumer Protection Officer shall promptly
investigate said complaint through and by his
agents. If said investigation reveals illegal
conduct then said Consumer Protection Officer
shall immediately initiate such criminal
proceedings as are allowed by law and go
forward with such prosecutions as are permissible
under the applicable laws in concert with
proper prosecution officers. To further the
aims and purpose of this Order the Consumer
Protection Officer and his duly appointed
agents shall be, and are, officers of the law
with power of arrest.42

The Office of Consumer Protection has formally

adopted the basic case procedure utilized by the state
43
of Florida and outlined in its Procedures Manual.4

This procedure essentially establishes a filing system

which will give the immediate disposition of the

complaints coming into the office. It also prepares

copies of different form letters to accompany complaints

sent to the "offending" concern and replies to the

injured parties.

Protective action emanating from the Office of

Consumer Protection is geared heavily towards voluntary

solution of problems between buyer and seller. The

director (Annie Laurie Gunter), three field investigators,

two secretaries and an information officer comprise the








entire staff of the Office of Consumer Protection. At

the time of this writing, the Consumer Protection Office

does not employ legal counsel. Such a position is

budgeted, but not filled. The Director envisions that this

position will be advisory in nature rather than punitive

of lawbreakers. Likewise, there is some question as to

the constitutional authority of an appointee of the

Governor to initiate court action. In those instances

where mediation cannot be effected and where there is

clear violation of law, prosecution is initiated through

the district attorney in the area where the problem

occurs or in the Attorney General's Office if the

matter involves a state-wide violation.

The operating budget for fiscal years 1972-1973

and 1973-1974 is $150,000 for the two years combined.

The majority of the first year's budget was allocated

for fixtures, equipment and salaries. It was intended

that heavy initial expenditures for operating equipment

would free funds in future years to expand the staff

and fund programs to deal with the anticipated growth in

the number of complaints being lodged with this Office.

Thus the staff could later effectively carry out their

perceived informative and educational responsibilities.

During the first year of operations, the Office of

Consumer Protection processed slightly over 2,000

complaints.44 The pace of complaints received by the








Office has been greatly influenced by the receipt of a

toll free telephone number and the attendant publicity

surrounding this Office's activities in the second half

of 1972. Complaints which flow into the Office of

Consumer Protection are handled in one of two ways--they

are either acted upon directly by an investigator with

voluntary compliance or mediation as the objective or

referred under a cover letter to another agency in

instances where the complaint clearly falls within its

jurisdiction. It is estimated that fewer than fifteen

per cent of the incoming complaints are referred
*
elsewhere.


Office of the Attorney General

On a state-wide basis the Attorney General's Office

is charged with the responsibility of representing the

interest of the public at large. The Attorney General

is the chief law officer of the state and the head of

its legal department. He or his representatives

. may institute, conduct and maintain all
such suits and proceedings as he deems
necessary for the enforcement of laws of the
state, the preservation of order, and the
protection of public rights. He is generally
charged with the duty of representing the
people of the state in all cases in which the
state is a party or is interested, or in
which the wrong or injury complained of affects
the public generally.



*Annie Laurie Gunter, Consumer Protection Officer,
State of Alabama, personal interviews, May 18, 1972, and
April 5, 1973.







The Attorney General's Office is neither authorized nor

required to sue or defend on behalf of a municipality

or county except in the case of special circumstances.

Likewise, this Office, or its representatives, is

prohibited by law from maintaining an action for the

vindication of private grievances in which the public

has no interest. But in the situation where an "offense"

constitutes a public and a private injury simultaneously,

the Attorney General may initiate an action in respect
46
to the public injury.

The Attorney General is required by statute to

give written opinions on any question of law connected

with the interest of the state and to prepare all legal

contracts and writings in relation to state matters.

Principally, the Attorney General "must attend, on the

part of the state, to all cases pending in the supreme

court and court of appeals and to all civil suits in
47
which the state is a party in the same courts."47 As

the chief legal officer of the state, he may direct the

prosecution in criminal cases in any of the courts of

this state. Likewise, the Office of the Attorney General

has the power to direct and even command the district

attorneys in any circuit within the state to investigate
48
and prosecute any cause in which the state is interested.

The Attorney General has an appointed attorney

within his office to handle all matters regarding consumer

protection. The Assistant Attorney General in charge of








this duty, Tom Brassell, relates that he has been given

a carte blanche to protect the interest of the consumer.

Even though the Office of the Attorney General is

restricted to prosecuting only those cases involving the

public interest at large, it has assisted many

individuals with strictly private injuries in receiving

satisfaction on their claims. The procedure utilized

when a private grievance comes before the Consumer

Services Bureau is to investigate the situation to

ascertain if the same action constitutes a public injury.

If such can be determined, he will first seek voluntary

compliance to the law and attempt to obtain restitution

for the private injuries with which he is knowledgeable.

If the lawbreaker's offense is flagrant or if he refuses

to comply voluntarily, and if the case is clearly

actionable, the Attorney General's Office will prosecute

in behalf of the state. If the individual's complaint

cannot be shown to affect the public interest, the only

legal remedy will be through private action. The Chief

of Consumer Services will, however, advise the injured

party of his right to action and attempt, through the power

of his office, to effect mediation between the two parties

at odds.

The Consumer Services Bureau created a little over

a year and one-half ago has recently been receiving

approximately three hundred and fifteen complaints per

month. Of these complaints, approximately one-third are







passed on to other administrative officers within the

state system as the basis for petition clearly fall

inside other agencies' jurisdiction. Those cases

remaining are subject to investigation either by the

Attorney General's office or by a district attorney who

has been directed by the Attorney General to investigate

the complaint and prosecute if necessary. Less than 10

per cent of the investigated complaints are found to be

groundless; and approximately 40 per cent of the cases

which come into the office deal with solely private

injuries. It is estimated that 98 per cent of the valid

complaints handled by this office or investigated indirectly

through a district attorney are solved through mediation--

either by voluntary compliance to the law or by settlement

between the two parties at odds. The record of ninety-

eight out of one hundred valid complaints being settled with-

out initiating suit compares favorably with the general

average of approximately 80 per cent of all claims being

settled out of court.


District Attorneys

The district attorneys are more local in their

representation of the public than is the Attorney General.

Their duties are generally confined to the districts for

which they are elected. However, the Attorney General can,



*Tom Brassell, Assistant to the Attorney General of
the State of Alabama, personal interview, May 23, 1972.




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