Deceptive, Unfair and Unconscionable Sales Acts or Practices

What constitute deceptive acts or practices

An act or practice is deemed deceptive “whenever the producer, manufacturer, supplier or seller, through concealment, false representation of fraudulent manipulation, induces a consumer to enter into a sales or lease transaction of any consumer product or service.”[1] Without limiting the scope of the definition of what constitutes a deceptive act, the act or practice of a seller or supplier is deceptive when it represents that:[2]

  1. A consumer product or service has the sponsorship, approval, performance, characteristics, ingredients, accessories, uses, or benefits it does not have;[3]
  2. A consumer product or service is of a particular standard, quality, grade, style, or model when in fact it is not;[4]
  3. A consumer product is new, original or unused, when in fact, it is in a deteriorated, altered, reconditioned, reclaimed or second-hand state;[5]
  4. A consumer product or service is available to the consumer for a reason that is different from the fact;[6]
  5. A consumer product or service has been supplied in accordance with the previous representation when in fact it is not;[7]
  6. A consumer product or service can be supplied in a quantity greater than the supplier intends;[8]
  7. A service, or repair of a consumer product is needed when in fact it is not;[9]
  8. A specific price advantage of a consumer product exists when in fact it does not;[10]
  9. The sales act or practice involves or does not involve a warranty, a disclaimer of warranties, particular warranty terms or other rights, remedies or obligations if the indication is false; [11] and
  10. The seller or supplier has a sponsorship, approval, or affiliation he does not have.[12]

Prohibition against deceptive sales acts or practices

Deceptive sales acts or practices by a seller or supplier in connection with a consumer transaction are prohibited whether it occurs before, during, or after the transaction.[13]

What constitute unfair or unconscionable sales acts or practices

Unfair or unconscionable sales acts or practices are committed “whenever the producer, manufacturer, distributor, supplier or seller, by taking advantage of the consumer’s physical or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or surroundings, induces the consumer to enter into a sales or lease transaction grossly inimical to the interests of the consumer or grossly one-sided in favor of the producer, manufacturer, distributor, supplier or seller.”[14] To determine if there is such a violation, the following circumstances are to be considered:

  1. That the producer, manufacturer, distributor, supplier or seller took advantage of the inability of the consumer to reasonably protect his interest because of his inability to understand the language of an agreement, or similar factors;[15]
  2. That when the consumer transaction was entered into, the price grossly exceeded the price at which similar products or services were readily obtainable in similar transaction by like consumers;[16]
  3. That when the consumer transaction was entered into, the consumer was unable to receive a substantial benefit from the subject of the transaction;[17]
  4. That when the consumer was entered into, the seller or supplier was aware that there was no reasonable probability for payment of the obligation in full by the consumer;[18] and
  5. That the transaction that the seller or supplier induced the consumer to enter into was excessively one-sided in favor of the seller or supplier.[19]

Prohibition against unfair or unconscionable sales acts or practices

Unfair or unconscionable sales acts or practices by a seller or supplier in connection with a consumer transaction are prohibited whether it occurs before, during or after the consumer transaction.[20]

Aowa Electronic Philippines, Inc. v.
Department of Trade and Industry

G.R. No. 189655, 13 April 2011

Plaintiff Department of Trade and Industry (DTI) initiated a case against defendant Aowa Electronic Philippines, Inc., for violations on the prohibition against deceptive sales acts or practices and unfair or unconscionable sales act or practices under the Consumer Act. From 2001 to 2007, plaintiff received around 273 consumer complaints against defendant. Thus, plaintiff initiated an investigation and subsequently found defendant liable. Plaintiff ordered, among others, for defendant to cease and desist from operating its business, the cancellation of its certificates of business registration, and payment of administrative fine of Php300,000.00. On appeal, defendant challenged the authority of plaintiff to initiate the case against the former.

HELD: Plaintiff was authorized by law. “It is indubitable that the DTI is tasked to protect the consumer against deceptive, unfair, and unconscionable sales, acts, or practices, as defined in Articles 50 and 52 of the Consumer Act.” After receiving the numerous consumer complaints against defendant Aowa, DTI properly initiated this case.

Further, plaintiff correctly held defendant liable. Defendant committed unfair or unconscionable sales act or practices when they enticed consumers “into purchasing their products by taking advantage of the latter’s physical or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or surroundings. This is done by misrepresenting to the consumer that he/she has won a gift or is to receive some giveaways when in truth, these gifts can only be claimed or received upon purchase of an additional product or products, again misrepresented by [defendant to] be of high quality.  This is how [defendant] operates its business, and not simply as a means of promotional sale.”

Chain Distribution Plans or Pyramid Sales Schemes

Chain distribution plans or pyramid sales schemes are prohibited to be employed in the sale of consumer products.[21]

Best Legal Practices

Devise a legitimate multi-level marketing strategy supporting a business – Due to the numerous complaints involving Chain Distribution Plans or Pyramid Sales Schemes, legitimate multi-level marketing strategies are mistakenly associated with such schemes. The strategy of selling products through multi-level marketing is neither prohibited nor illegal. The primary aim of such marketing strategy should be to support the development of a business. If the strategy is meant only to enrich the marketer, it may be considered as a fraudulent scheme.

Home solicitation sales

Before conducting any home solicitation sale of any consumer product or service, a business entity is required first to obtain a DTI permit. After due notice and hearing, such permit may be denied, suspended, or revoked upon cause as provided by DTI rules and regulations.[22]

When conducted

Home solicitation sales may be conducted only between the hours of 9:00 am 7:00 p.m. of each working day.[23] However, such solicitation sales may be made outside the prescribed hours where the person solicited has previously agreed to it.[24]

By whom conducted

Home solicitation sales are only to be conducted by a person who has the proper identification and authority from his principal to make such solicitations.[25]

Receipts for home solicitation sales

Sales generated from home solicitation sales are to be properly issued receipts in compliance with existing laws, rules and regulations on sales transactions.[26]

Prohibited representations

Salesmen doing home solicitation are prohibited from representing that: (a) the buyer has been specially selected; (b) a survey, test or research is being conducted; or (c) the seller is making a special offer to a few persons only for a limited period of time.[27]

Referral sales

Referral selling plans may only be used in the sale of consumer products when the seller executes in favor of the buyer a written undertaking that will grant a specified compensation or other benefit to said buyer, in return for each and every transaction consummated by said seller with the persons referred by said buyer or for subsequent perfected sales that said buyer has helped the seller.[28]

 

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[1] Ibid. Article 50.

[2] Ibid. Paragraph 2, Article 50.

[3] Ibid. Paragraph 2(a), Article 50.

[4] Ibid. Paragraph 2(b), Article 50.

[5] Ibid. Paragraph 2(c), Article 50.

[6] Ibid. Paragraph 2(d), Article 50.

[7] Ibid. Paragraph 2(e), Article 50.

[8] Ibid. Paragraph 2(f), Article 50.

[9] Ibid. Paragraph 2(g), Article 50.

[10] Ibid. Paragraph 2(h), Article 50.

[11] Ibid. Paragraph 2(i), Article 50.

[12] Ibid. Paragraph 2(j), Article 50.

[13] R.A. 7394 (Consumer Act of the Philippines), Article 50.

[14] Ibid. Paragraph 1, Article 52.

[15] Ibid. Paragraph 2, Article 52 (a).

[16] Ibid. Paragraph 2, Article 52 (b).

[17] Ibid. Paragraph 2, Article 52 (c).

[18] Ibid. Paragraph 2, Article 52 (d).

[19] Ibid. Paragraph 2, Article 52 (e).

[20] Ibid. Paragraph 1, Article 52.

[21] Ibid. Article 53.

[22] Ibid. Article 54.

[23] Ibid. Article 55.

[24] Ibid. Article 55.

[25] Ibid.  Article 56.

[26] Ibid. Article 57.

[27] Ibid. Article 58.

[28] Ibid. Article 59.