Household Sewing Machine Co., Inc

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IN THE MATTER OF HOUSEHOLD SEWISG MACHINE CO" INC. , ET AL. OFDER, OPINION , FTC. , IN REGARD '1'0 THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT TJockPt s:'c: ramri!rzinl, A'!L so, UUjS- Dccisio' , AI,tg. 1969 * CI1':ler requiring,Q an -arlington, VD.., marketer of sewing machines to cease tsing bal an, - "":Lcli Ladies, misrepresenting the age, model or identity of any machine, !:oaking fDlsp. saving:; claims, lH,;ing deceptive names. af' means to cooled "bills, falsely gual' nt.eling any of its products, using prizes or a\.vards deceptively, failing to dLclose that its sales contracts may be sold to a finance company, and failing to notify signers of sale:. contl'r1ds and proHii,;SG1' Y :notes that uch instruments n1..y Dr, ;' scinded '\within .1 d"y.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of tbe authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Household Sewing Machine Co. , Inc. , a corporation, and Wiliam R. Clark, individually and as an offcer of said corporation, and William R. Seeger, individually and as a former offcer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in tbe public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Household Sewing Machine Co., Inc" is a corporation organized, existing and doing business under and by virtue of the laws of the District of Columbia, with its principal offce and place of business formerly located at 910 Ninth Street, N, , Washington, D. , and presently located at 2420 Wilson Boulevard, Arlington, Virginia, odjfied by Commission s order of Sept. 1. 19iO , by adding parag-raph 17 to Part I which forbids respondents from failing to maintain adequate re'2ords upon which its prices and savings to customers are based.

, ,, Complaint 76 F.

Respondent William R. Clark is an offcer of the said corporate respondent. He formulates, directs and controls the acts anrl practices of the corporate respondent, including the acts and practices hereinafter set forth. IIis business address is the same as that of the corporate respondent.

Respondent 'Villiam R. Seeger formerly was an oflcer and was the manager of said corporate respondent. Along with responrlent Clark. he formulated. directed and controlled the acts and practices of the corporate l'€sponoent, including the acts and practices hereinafter set forth. His business address was the smne as that of the corporate respondent, and cUl'entJy is 910 Ninth Street X\\'" Washington, D. here he sells sewing machines for another company.

PAR. 2. Respondents are now, and for some time Jast past have been, engaged in the advertising, offering for sale, and distribution of sewing machines to the public.

PAR. 3, In the course and conduct of their business, respondents maintained their place of IJlsiness wholly within the geographical confines of the District of Columbia and for some time last past caused their said products, when sold, to be shipped from their said place of business in tbe District of Columbia to purchasers thereof located within the District of Columbia and in various States of the United States. and respondents stil maintain. and at all times mentionect herein have nlaintained, a substantial course of trade in said products in commerce, as "commerce " is defined in tbe Federal Trade Commission Act, PAR. 4. In the course and conduct of their business, and for the purpose of inducing the purchase of their products, respondents have made various statements and representations in classified advertisements in newspapers of general circulation ami in direct mail literature, of which the following are typical and illustrative, but not all inclusive tbereof:

SEW 1IACH. Elna Supermatic, repa.

Ral. p4. 10, $(; per mo.

Dealer. Call Credit IJept. , EX 3-0540 aft. 6, CH 8-4481.

SEW MACH. Singer port. '66 w/zig-zag attach. , left in laya\vay. Bal. $22.50. free home demo. Dealer, EX 3-0540; aft. 6, 248-4184. SEW iVIACH.- Singer 66. Zig-zag & button hole, left in layaway. Bal. $27.10. Dealer. Call for free home demo. EX 3-0540 aft. 6, 248.4484. ..

HOUSEHOLD SEWING MACHINE CO" INC., ET AL. 209 207 Complaint SEW ::IACH. Sing:er port., w/zig-zag :1ttach. , left in ln awa;.T. Ral. S24.R8. Call HouspJ-wid Credit Df'pt. ;J98- 4G93 aft. f!, 248-4484. ALL :lIACHI 'n;S AHE GL\HANTEl';!J A,,!J SEHVICEII BY YOUH LOCAL FACTORY Al'THOnJZElllO,'lUHUTOIl: HOU,J.HOLD SEW- ING :lIACHlNE CO., INC.

PAR. ;"). By and through the use of the ,1foresaid statE'meJlt and l'€presrntnti()lls, and others of similar import and meaning Hot specifkal1;\' set out herein, selln.ratel - ;11H1 in C(HllPdioll with the oral statements and representatioJJs uf tllpil' sale,o.nwll, l'pspoJldents have represented, dil'Pr.l; or hv impliention: 1. That respondents ;n'p making 11011a fide (lffers to sell the aclvertise( sewing machines un the ter11S .-md conditiuns stat.ed. 2. Through the llse of t.he 1igUH's 6t) and \words or statements of similar import, thflt the Rid sf-wing- mac:hines are lTIodels which have: lJee1l1lilJlufaetlln'o in the par 19(;6. B. Through the use nf the ,,'ords or abbreviations "left in layawa:'' 1'epo. " and " Ba1. " ;1l1d won1.5 Ol' statements of similar import, that sewing machines which ,yel'€ p1-rtial1y paid for by predous pUITna,"el' are \iting offcrt:rl f(Jl' the unpaid balance of the purchase price, affoJ'will.R .savjng in the amount paid on the merchandise ' the ple:\-ious purchase!' 4. Through the use of the names "Cre,lit Dept." and "Household Credit IJept.. " that their principal business is that of lending money and setting and collecting accounts, 5. That said products are unconditionally guaranteed by respondents.

PAR. 6. In truth and in fact:

1. Respondents were not making bona fide offers to sell the advertised sewing machines on the terms and conditions stated. Said offers were made for the purpose of obtaining leads as to persons interested in the purchase of sewing machines. After obtaining such leads through response to said advertisements, respondents or their sale.-:men called upon slich per:-()ns but TI1ade no effort to sell the advertised se",ing: machines. Instead. they exhibited "' hat the ' repre f-nted to be t.he adverti. pd e,,illg' machines which, iJeeause of their POUy appearance and condition, were usually rejected nn sight by the prospective purchaser. Concurrently a higher priced machine of superior appearance and con,Jition was presented, which by comparison disparaged and demeaned the advertised product. By these and other tactics purchase of the :lllvel'tised machine was disc(Juragen, and 1'e- 210 FEDERAL TRADE COMMISSIO;\ DECISIONS Complaint 76 F.

spondents through their salesmen attempted to and frequently did sell the higher priced machine.

2. The said machines were not models manufactured in the year 1966. Some of them we,'e manufactured more than twenty years ago.

3. Said sewing machines were not partially paid for by a previous purchaser, were not being offered for the unpaid balance of the purchase price, and the represented savings were not afforded to purchasers.

4. Respondents' principal business was not that of lending money or setting or collecting accounts, 5. Said products were not unconditionally guaranteed by respondents, Such guarantee as may have been provided was subject to numerous terms, conditions and limitations ,vhieh were not disclosed in the advertisements.

Therefore, the statements and representations as set forth in Paragraphs Four and Five hereof were and are false, 111misleading and deceptive.

PAR, 7. In the course and conduct of their business, and for the purpose of inducing the jJurchase of their jJroducts, respondents held ostensible "drawings" in which persons were invited to register their names and addresses for the chance to win a free sewing machine and other prizes. The participants in ,said "drawings later received further promotional material by mail. Typical but not al1 inclusive of the statements and representations made in said promotional material are the follmving: COJ'GRATULATIONS! YOUR J\A IE WAS SELECTED FROM THE TICKETS TAKEX AT THE RECENT SEWING MACIINE DRAWIKG TO RECEIVE ONE OF THE SECOND PRIZE AWARDS. YOU HAVE WON A $50.00 DISCOUNT CERTIFICATE, THIS CERTIFICATE ENTITLES YOU TO A BRAND NEW 1966 NEW HOME SEWING MACHINE. MODEL #103. THIS MACHI;\E IS :\NATIONALLY ADVERTISED FOR $89. , SO WITH YOUR CERTIFI- CATE ALL YOU PAY IS $39.95! THIS IS AN ADVERTISING PROMO- TW:\. ALL WE ASK IS TELL YOUR FRIENDS ABOUT YOUR J'EW H01!E SEWING MACHINE.

PAR. 8, By and through the use of the statements and representations set out in Paragraph Seven, by oral statements of respondents or their salesmen, and by other written statements of similar import and meaning not specifically set out herein, respondentshave represented, directly or by implication, that they conduct bona fide drawings and that recipients of said merchan- HOUSEHOLD SEWING MACHINE CO., INC" ET AL. 211 207 Complaint dise certificates have won a valuable prize entitling them to a discount in the amount stated on the certificate, which constituted a reduction from the price at which such products were usually and customarily sold.

PAR. 9. In truth and in fact, respondents did not conduct bona fide drawings. Their purpose in having persons register for drawings was to obtain leads to prospective purchasers of sewing machines. The recipients of such certificates did not receive a valuable prize since the amount of the award certificate was deducted not from the usual and customary price of the product but from a higher price, and consequently the prize was ilusory, Therefore, the statements and representations as set forth in Paragraphs Seven and Eight hereof were and are false, misleading and deceptive, PAR, 10. In the course and conduct of their business, respondents have failed to disclose certain material facts to purchasers including, but not limited to the fact that, at respondents' option conditional sale contracts, promissory notes, or other instruments of indebtedness executed by such purchasers in connection with their credit purchase agreements may be discounted, negotiated or assigned to a finance company or other third party to whom the purchaser is thereafter indebted and against whom defenses may not be available.

Therefore, respondents' failure to disclose such material facts both orally and in writing prior to the time of sale, was and is false, misleading and deceptive, and constituted and now constitutes an unfair or deceptive act or practice. PAR. 11. In the conduct of their business, at al1 times mentioned herein, respondents have been, and now are, in substantial competition, in commerce, ,with corporations, firms and individuals engaged in the sale of sewing machines of the same general kind and nature as those sold by respondents, PAR. 12. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of respondents' products by reason of said erroneous and mistaken belief. PAR. 13. The aforesaid acts and practices of respondents, as herein alleged, were and are al1 to the prejudice and injury of the public and of respondents' competitors and constituted, and now 212 FEDERAL TRADE COM:VIISSJON DECISIOKS Complaint 76 F, constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act. MT. William E. Entr and MT. Dwight H. Oglesby supporting the complaint.

Peldmnn, Cole and Walsh by MT, J. Robert Walsh for Household Sewing Machine Co. , lnc" and M'(, Will,:"m R. ClnTk and Mr. John W, Norwood for Mr. William R. Seeger, Washington, D. INITIAL DECISION BY WILLIAM K. JACKSON, HEARING EXAMINER DECEMBER 20, 1968 This proceeding was commenced by the issuance of a complaint on April 30, 1968, charging the corporate respondent and the two named individual respondents, individually and as offcers of said corporation, with unfair and deceptive acts and practices and unfair methods of competition in commerce, in violation of Section 5 of the Federal Trade Commission Act by making false and misleading representations in the sale of sewing machines, In particular, it is alleged that respondents violated Section 5 by (1) deceptive advertising of their products; (2) misrepresenting the terms and conditions of their guarantee; (3) engaging in bait and switch practices; (4) conducting bogus drawings; (5) and through failing to disclose that conditional sale contracts might be negotiated to a finance company or other third party, After being served with the said complaint, the corporate respondent and William R. Clark filed separate answers admitting a number of the specific allegations in the complaint, but denying generally any violation of law, Respondent Clark specifically denied that he "formulated, directed or controlled the acts and practices of the corporate respondent complained of in the complaint." Respondent William R. Seeger also filed an answer admitting all the material allegations of the complaint, but denying that he formulated, directed and controlled the acts and practices of the corporate respondent, including the acts and practices set forth in the complaint.

A prehearing conference was held on July 9, 1968, at Washington, D,C" to discuss the date and place of the hearing, the exchange of lists of witnesses and documents, requests for admission and the simplification and clarification of the issues, Responses to requests for admissions of fact served upon the re- HOUSEHOLD SEWING MACHINE CO., INC" ET AL. 213 207 Initial Decision spondents by counsel in support of the complaint served to substantially narrow the factual issues in this matter. These requests and the admissions thereto were received in evidence as probative of the factual allegations. The request for admissions of fact upon respondents Household Sewing Machine Co. , Inc., and William R. Clark was received in evidence as CX 35 and their responses thereto were received in evidence as CX 36 and CX 37. The request for admissions of fact upon respondent Wiliam R. Seeger was received in evidence as CX 38 and his response thereto was received as CX 39.

Hearings were held at Washington, D.C., on September 10, 12 , 17, 18 and 24, 1968, at which complaint counsel adduced evidence in support of the complaint. Respondents elected not to put in any defense (Tr. 568), Proposed findings of fact, conclusions of law and briefs have been submitted by complaint counsel, the cOI'porate respondent and Wiliam R. Clark. No submissions were received from William R. Seeger. Al1 these proposals have been considered and those proposed findings not herein adopted, either in form or in substance, are rejected as not being supported by the record or as not being necessary; and the hearing examiner having considered the entire record, makes the following findings of fact, conclusions drawn therefrom, and order. FINDINGS OF FACT 1. Respondent Household Sewing Machine Co" Inc" is a corporation organized, existing and doing business under and by virture of the laws of the District of Columbia, with its principal offce and place of business formerly located at 910 9th Street Northwest, Washington, D. , and presently located at 2420 Wilson Boulevard, Arlington, Virginia (Ans, par. 1), The corporate respondent was organized by respondent Wiliam R. Clark on January 3 , 1966, for the purpose of selling sewing machines at retail (Adm. 1, 2 , 5, 28; CX 35 and CX 36; Tr. 15, 112, 122, 142 177).

The capital of the corporation was provided by respondent William R. Clark (Tr. 112, 142, 177), The offcers of the corporation at the time of its formation were William R, Clark, president and treasurer, William R. Seeger, vice president, Mary E. Clark, wife of William R, Clark, secretary (Adm . 8 , 9, 10: CX 35 and CX 36). The corporation commenced business at a store located at 910 9th Street, Northwest, Washington, D. C, (Tr. 14, 113). Initial Decision 76 F, Prior to January 3 , 1966, the predecessor corporation Household Sewing Machine Co. , Inc., incorporated under the laws of the State of Delaware, was engaged in the sale of sewing machines to the public from the same store at 910 9th Street, Northwest, Washington, D. C. (Tr. 12, 140), This business, however was dissolved prior to the incorporation of the corporate respondent in this matter. Upon dissolution of the predecessor company, the respondent corporation purchased its assets including the good wil, furniture, fixtures and inventory, and assumed the corporate name (Tr. 122, 139). The employees, but not the principals of the predecessor Household Sewing Machine Co. , Inc" joined the respondent corporation upon its incorporation (Tr. 140). Among those employees of the predecessor company who joined the respondent corporation, was individual respondent herein Wiliam R. Seeger, who had been the general manager of the predecessor company and who assumed the same position in the respondent corporation (Tr. 10, 12-14), The business of the respondent corporation from the time of its incorporation to the present, has been the selling of new and used sewing machines to the public (Adm, 28, 31; CX 35, CX 36). In the year 1967, respondent corporation sold a total of 414 sewing machines of which 297 were new machines and 117 were used machines (Adm. 34; CX 35, CX 37), The respondent corporation sells sewing machines principal1Jy through salesmen who demonstrate the sewing machines in the homes of prospective customers (Adm, 29; CX 35, CX 36). These salesmen have sold sewing machines to residents of Virginia, Maryland and the District of Columbia (Adm, 30; CX 35, CX 36). Prospective customers are solicited by advertisements placed by the corporate respondent in the classified sections of the three metropolitan newspapers (Adm. 40-45; CX 35, CX 36). The names of the prospective customers responding to the classified advertisements are turned over to salesmen of the corporate respondent who contact the prospective customers in their homes (Tr, 49, 50, 187), The corporate respondent maintained its principal place of business at 910 9th Street, Northwest, Washington, D, , from January 3, 1966, to December 1, 1967 , when it relocated at 2420 Wilson Boulevard, Arlington, Virginia (Tr. 143, 144). 2. The individual respondent Wiliam R. Seeger participated in the daily business of the respondent corporation from the time of its incorporation in January 1966 until March 1967 (Tr. 11). HOUSEHOLD SEWING MACHINE CO. , INC. , ET AL. 215 207 Initial Decision During the period of January through October 1966 he acted as general manager of respondent corporation (Tr. 11). In November 1966, he was relieved of his position as general manager by the president of respondent corporation, Wiliam R. Clark (Tr. , 118), Thereafter until March 1967, respondent Seeger continued in the employment of Household as a salesman (Tr. 11), Respondent Seeger was also vice president of respondent corporation from the time of its incorporation unti November 1966 at which time he relinquished that title (Tr, 18 22). Seeger at no time owned any stock of the corporate respondent although it appears that he did have an option to purchase 24 percent of the corporation stock, which he also relinquished in November 1966 (Tr, 24 118). After leaving the respondent corporation Seeger joined United Appliances, a business also engaged in the sale of sewing machines to the public, where he is now employed as general manager (Tr. 9, 10), The principal place of business of United Appliances is the former place of business of the respondent corporation at 910 9th Street, Northwest, Washington, D. C. (Tr. 10). 3. From the time of Household's incorporation in January 1966 unti the relocation of its store to 2420 Wilson Boulevard, Arlington, Virginia, on December 1 , 1967 , the individual respondent William R, Clark did not maintain an offce at Household's place of business at 910 9th Street, Northwest, Washington, D.C. (Tr. 21), Clark maintained his offce at 2420 Wilson Boulevard, Arlington, Virginia, where he operated a business titled WRC Enterprises (Tr. 145, 159). After December 1 , 1967, both the respondent corporation and WRC Enterprises occupied the same premises (Tr. 144-145, 153). From January 1966 until December 1967, while Household's store was located in the District of Columbia, respondent Clark participated in the conduct of Household' s business through frequent visits to the store, daily telephone contacts and other activities as wil be hereinafter discussed (Tr, 46, 52), William R. Clark has continued as president and treasurer of the corporate respondent and his wife, Mary E. Clark, has continued as secretary of the corporate respondent since its incorporation (Adm. 8 , 9, 10; CX 35, CX 36), Mr. Clark and his wife have been the only corporate offcers of Household since William R. Secger relinquished his position as vice president in November 1966 (Tr. 115), Mr. Clark owned 76 percent of the stock of respondent corporation from the time of its incorporation until N vember 1966 and now holds 80 percent of its stock (Tr. 22, 24 Initial Decision 76 F, 118). Although Mrs, Clark has been secretary of the corporate respondent since its inception (Adm. 10; CX 35, CX 36), she has held that position in name only and has never participated in the conduct of the corporation s business in any way (Tr. 170-179). Actually no individual other than respondent Wiliam R. Clark has ever acted in the capacity of a corporate offcer (Tr. 17-19, 124, 126-128, 170-179), 4. Respondent William R. Clark, in addition to being the organizer, principal stockholder, and president and treasurer of the corporate respondent, as found above, also participated directly 1966 throughin its management and operation. From January November 1966, Clark regularly visited the premises of Household' s store at 910 9th Street, N,W. several times a week (Tr, 46). Clark maintained daily contact with the general manager of Household by telephone (Tr, 42, 52). During these regular visits to the 9th Street store of Household, Clark conferred with respondent Seeger, the general manager, on credit, sales, promotional and advertising policies (Adm, 22, 23 , 26, 27; CX 35, 36; Tr, 36- , 53) . During these visits Clark inventoried Household' sewing machines (Tr, 47), examined and routed conditional sales 47), co-contracts (Tr, 46), examined invoices and bils (Tr. 46, signed payroll checks and checks for expenses (Adm. 24; CX 35, CX 36; Tr, 46, 137, 138), disseminated information and instructions to the general manager and salesmen (Tr. 46, 48), and discussed advertising (Tr. 46). In addition, Clark maintained extensive records in the nature of sales sJips, ledger books and records of leads obtained from newspaper advertisements in order to keep abreast of the daily business of Household (Tr. 51). During his daily telephone conversations with Seeger, Clark discussed sales and financing, but the emphasis was placed upon the daily advertising (Tr. 52). Clark read each advertisement placed by respondents when it appeared in the newspapers and contacted the general manager for reports as to the number of leads obtained through specific advertisements and how many of these leads had resulted in sales (Tr. 52). Clark and Seeger composed the text of the advertisements which respondents published and a11 advertisements had to be approved by Clark before their publication (Tr. 53). Clark also hired, fired and demoted employees and established their salaries and rates of commission (Tr. , 51, 136, 137, 185), After the corporate reorganization of Household in January 1966 , Clark arranged a change in finance companies so that the HOUSEHOLD SEWING MACHINE CO. , INC. , ET AL. 217 207 Initial Decision same finance company which accepted conditional sales contracts executed by WRC Enterprises, thereafter handled conditional sales contracts for Household (Tr. 38, 39), Clark also originated the "Singer ' 66" advertisements, hereinafter discussed, over the objection of respondent Seeger (Tr, 36-38), Clark initiated, after his takeover of the company, the sales practice of providing a gift such as Regalware, stereo sets, or sterling silver in closing a sale. The Regalware used by Household was obtained from WRC Enterprises and transported to Household's store in Clark' s car (Tr. 39-40), Clark likewise implemented other sales techniques and practices in the conduct of Household's business which were common to WRC Enterprises (Tr. 42-45).

Clark devoted equal attention to routine policies of the corporate respondent, such as terms and conditions of the guarantee and special promotions, such as drawings, hereinafter discussed. In this regard, Clark proposed to limit the duration of the guarantee and imposed a service charge as an additional consideration (Tr. 45). Clark approved the drawings conducted by Household and in fact he organized the drawing conducted at Rockvile Maryland. Clark together with Seeger prepared the purported gift certificates which were sent to the participants to these drawings (Tr. 75, 80, 81; CX 2), Clark who is 41 years of age (Tr, 164), has been engaged in the sale of products to the public since September 1964 when he organized WRC Enterprises as a sole proprietorship upon receiving a franchise to sell Kirby vacuum cleaners (Tr, 145, 163), The method of selling Kirby vacuum cleaners utiized by WRC Enterprises through home demonstrations is remarkably similar to that employed by Household in the sale of sewing machines, Conditional sales contracts are utiized, WRC salesmen are paid on a commission basis, promotional gifts are provided customers of WRC (Tr, 159-164), and presently both Household and WRC are located at the same address and the operations of the two companies to a large degree are commingled and conducted by the same personnel (Tr. 145, 152-158). On the basis of the foregoing evidence, it is concluded that respondent Wiliam R. Clark formulates, directs and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter discussed and that in order to be effective any order which wil issue against the corporate respondent herein must also include the individual respondent Wiliam R. Clark.

5. As hereinabove found, respondent Wiliam R, Seeger was an Initial Decision 76 F.

offcer and manager of the corporate respondent along with respondent Clark. He participated in the formulation, direction and control of the acts and practices of the corporate respondent, including the acts and practices hereinafter discussed, Seeger admitted that he participated in the organization of Household and during 1966 participated in the formulation of sales, promotion, and publicity policies of Household, As general manager Seeger conferred regularly with Clark concerning daily business practices, advertising, credit and promotional policies of Household (Adm. 4 , 7 , 8, 10-13; CX 38, CX 39), Seeger, in his position as n1manager, instructed salesmen on sales practices and in conjunction with respondent Clark determined the sellng price . sewing machines, discounts that salesmen were to allow and the 48commissions that salesmen were to receive (Tr. 41 , 42, responsible for all of87-89). Respondent Seeger was primarily the drawings conducted by the respondent corporation and together with Cbrk prepared tbe purported gift certificates (Tr, , 80, 81; CX 2). Finally, the record shows that Seeger has been continually engaged in the business of selling sewing machines to the public in the capacity of either a salesman or manager of a store from 1952 to date (Tr. 10-14), As previously indicated, he is presently the manager of United Appliances which is located at the former business address of Household and engaged in the sale of sewing machines (Tr. 9, 10). In these circumstances, it is concluded that any order which wil issue must also include respondent Seeger.

6. Respondents are now, and for some time last past have been engaged in the advertising, offering for sale, sale and distribution of sewing machines to the public (Respondent Household's Ans. par. 2; see also Findings Xos. 4 and 5, supnl; Respondent Seeger s Ans. par. 2), 7. In the course and conduct of their business, respondents from January 3 , 1966 , to December 1 , 1967, maintained their place of business wholly within the geographic confines of the District of Columbia and during that period caused their products, when sold, to be shipped from their place of business in the District of Columbia to purchasers thereof located within the District of Columbia and in various States of the United States, and respondents stil maintain and at all times mentioned herein have maintained, a substantial course of trade in their products in commerce, as "commerce" is defined in the Federal Trade Com- HOUSEHOLD SEWING MACHINE CO" INC. , ET AL. 219 207 Initial Decision mission Act (Respondent Household's Ans, pal'. 3), Although the corporate respondent admitted the alleg,lio,lS uI Paragraph Three of the complaint, it denier! however that it maintained a substantial course of trade in commerce. " During 1966 , the respondent corporation had gross sales of $50 000 to $64 000 (Tr. 26) and sold approximately 414 sewing machines (Adm. 34; CX , CX 37) to residents of Virginia, Maryland and the District of Columbia (Adm. 30; CX 35, CX 36). Gross sales in 1967 were approximately $60 000 (Tr, 166). It is concluded that the foregoing establishes that the respondents have maintained a substantial course of trade in comnlerce as IIcommerce" is defined in the Act. (Survey Sleep Products, Inc. Docket No. 8695, April 3, 1968 (73 C. 523), in which sales of $5 000 per year in interstate commerce were held suffcient.

8. In the comse and conduct of their business, and for the purpose of inducing the purchase of their products, respondents have made various statements and representations in classified actver. tisements in ne;,vspapers of general circulation, of which the following are typical and illustrative (Household's Ans. par. 4; see Admissions 66, 67, 68, 69; CX 35, CX 36) : SEvY l\IACH. Elna Supermatic, repo. Bal. $74. 10. $G per mo. Dealer. Call Crf'dit Dept. , KX 3-0540 aft. 6, CH 8-4484. SEW MACH. Singer port. '66 w;'Zig-zag attach. , left in layaway. Bal. $22. 50. Free home demo. Dealer, EX 3-0540; aft. 6 , 248-4484. SE\V :\IACH. Singer 66. Zig-zag & button hole, left in layaway. Bal. $27.10. Dealer. Call for free home demo. EX 3-0540 aft. 6 248-4484. SEW ::IACH. Singer port. , w jzig-zag attach., left in layaway. Bal. $24.88. Call Household Credit Dept. 393-4693 aft. 6, 248-4484. In addition to the advertisements set forth above, respondents have admitted placing the following advertisements, among others, in newspapers of general circulation during the first six months of 1966:

SEW. MACH. Singer '66 walnut console wjzig-zag. Bal. $27. Free home demo. Dealer, EX 3- 0540: aft. 6, 248, 4484. (Admission 70, CX 35 , CX 36. SEW. MACH. Singer port. '66 wjzig-zag attach., left in layaway. Bal. S24.88. Free home demo. Dealer, EX 3-0540; aft. 6, 248-4484. (Admission 71, CX 35, CX 36.

, Initial Deri ion 70 F.

SE'V. l\IACH. Singer ' (if) \Val cons w/zjg zag. Ba1. $20. Free home demo. Dealer, EX ; ()G' 1fI; aft. G 24R.4484. (Admission 72 , ex 35, ex 8(t) SE'V. MACH. Singer ()(i wal cons \\'/ZZ; Ral. $27. Frep home demo, Dealer, EX 3-0ii40; aft. fi, 248- 4484. (Arlmis"ion ex 35, ex 36. SEW. :\lACH. Singer port. ' fjG w/zig--zag attach. left in la away, Bal. $22.50. Free home demo. nealer, 393. (1;")-1; aft. Il, CH 4484. (Admis;.ion 74, CX 35, CX 30.

SEW. MACH. Singer '66 \Val. cons. w/ZZ; ba1. $26. Dealer. Free home demo. EX 3-0540; aft. 6 , 248- 4484. (Admission 75, ex 35 , ex 36. SEW. ACH. Sjnger port. '66 w/zigzag attach. left in layawa . Bal. $24.88. Dealer. Free home demo. 393-0541; aft. 6, CH 8-4484. (Admission 76, ex 35, CX 36.

SEW. MACH. Singer port. '66 w/zig-zag attach. , left in, dealer, layaway. Bal. $22.50. Free home demo. EX 3-0540 aft. 6, 248- 4484. (Admission 77 , CX . CX 36.

SEW. MACH. G6 Singer zig-zag auto. , bal. $51.10. Call Credit Dept., EX 3-0540 aft. 6. CH 8-4484, (Admission 78, CX 35, ex 36. SE\V. MACH. 66 Singer zig-zag auto., bal. $51.10. Call Credit Dept., Dealer, EX 3-0540; aft. 6, CH 8-4484. (Admission 79, ex 35, CX 36. SEW. MACH. 66 Singer. Walnut console. Left in layaway. Bal. $38.10. Dealer Credit Dept. EX 3-0540; aft. 6, CH 8.4484. (Admission 80, CX 35, CX 36.

SEW. MACH. SINGER- 66 zig-zag, left in layaway. Bal. $56.40. $7 per mo. Also 1966 cabinet model, left in layaway, Ral. $47.40. Call Credit 1 ept. Free home demo. 39; 4693 or aft. 6, CH 8-4484. (Admission 81, ex 35, ex 36, SEW. MACH. 66 zig-zag machine. Buttonhole and f:l1cy stitch, no attachment needed. Bal. $62. , 88 per mo. Call Credit Dept. 393- 0540 aft. 6, 248. 4484. (Admission 82, CX 35 , ex 36.

SEW. MACH. Sin G6 zig-zA.g", left in layaway. Bal. $!14. 10. $7 per mo. Call Credit Dept. , 303-4093 or aft. 6, CH R 4484. (Admission 83, CX Sf), CX 36.

HOUSEHOLD SEWING :WACHINE CO" INC. , ET AL. 221 207 Initial Decision 9, By and through the use of the statements and representations as set forth in Finrling Ko, 8, anrl others of similar import and meaning, separatel v and in connection with the oral statements and representations of their salesmen. responrlents have represented, directly or by implication, that they are making bona fide offers to sell the advertised sewing machines on the terms and conrlitions stated (Household's Ans. par, ii, subparagraph 1 as chargerl by responrlents' counsel at prehearing conference; record of prehearing conference, Tr, p. 14), 10. As previously founrl, respondents' principal method of rloing business is through home demonstrations of sewing machines by salesmen from 1earls phoned into respondents' store in response to the aforesairl classified ads (Tr. 50, 51, 187, 188), Six consumer witnesses ' were called, all of whose testimony followed a similar, if not almost irlentical. pattern. In short, these six witclassifiednesses testified that they each saw one of respondents' advertisement in a newspaper. However, only one of these witnesses, Rogene Jones, was able to identify the text of the specific arl to which she responrled (Adm. 67; CX 35, CX 36; Tr. 409-410). The other five could only remember the price of the sewing machine in tbe ad or some other aspect of the ad such as the name of the company. But none of these five could recall the entire ad or specifically irlentify the text of the ad from the exhibits in evidence. In the case of all six witnesses they called the telephone number listed in the ad and as a result thereof one of responnents' salesmen came to their home in a day or so and brought with him into the house the sewing machine which had been advertised. Upon the basis of this testimony, the hearing examiner finds a suffcient nexus between the advertisement set forth in Finrling Ko. 8 above and the testimony of the six witnesses. :\loreover, inasmuch as the text of their classified advertisements was stipulated. it was not incumbent upon complaint counsel to prorluce the physical newsprint version of the ads or to show actual injury. Capacity to deceive as well as potential injury to consumers or competitors is suffcient. C. v. Rulnr!um Co" 316 U. S, 149 (1942). The hearing examiner therefore fmds respondents' objection to his refusal to strike the advertisements to be without merit, 1 EJla May Austin. Tr. 327-335: Leroy O. HOt180n, Tr. 395-403; Rogene Jones, Tj'. 40,,-414; Mrs. William J. Murchison, Tr. 444-451; Susie L. Stanfield, Tr. 453- 9; Mrs. Helen Anger, Tr. 483-472.

Initial Decision 76 F, Each of the witnesses testified that they were attracted by the low price of the machine set forth in the advertisement and did not expect, because of the Jaw price, a new machine (T1' 338). However, almost without exception each of the six witnesses testified that the ar1vertised machine appeared to be 15 or 20 years old, but that the machine "was in about as good a condition as you would expect from a machine that age" (Tr. 399). Generally the machine was a black Singer model. Some witnesses testified that the "machine was clean but it was quite old and had a few marks and sClatches on it." (Tr. 399. ) Another witness stated that "it was pretty ' vell beaten up. " (Tr, 410. ) Another witness testified that the machiCle locked al1 right but "didn t have a cover " and that she ,vasn t intef'osted in a machine without a cover (1'1' 456"--457), Ene i'l an cases it appears that the machines would fOYIJ the functions detailed in the advertisements.:! In all but one case, the witnesses unequivocally all olmost immediately upon viewing it rejected the advertised machine. The one witness, lVI's, Wilham J. Murchison who was interested in the advertised machine, however, did not actually make a definite offer 1:0 pnrehase it. Mrs. Murchison testified: Well, after I sa\.. it, I stil 'W8.3 interested. I was gonna buy it, hut he kept talking, and he said that h2 had something ne..y model. I could get one of the new model ones.

T told him I \vauld not be able to; J ,vas not working, and I would have to see what my husband would say about it. (Tr. 448. Although the salesman mentioned the fact that he had a new model machine, he did not bring it into the house that day and the witness did not actually see it. The visit that day terminated on this note, as testified to by Mrs. ;VIurchison: Well, after he brought the old one; first, and he told me that he has some new model one, and how they could zig-zag and se\v and all that, so he said that he would bring me one of those out. I told him not to bring them out, because I wasn t \vorking; and I would have to talk to my husband before I would be interested in getting anything. (Tr. 449, Brockelba.nk, a forme). salesmRll of I'respondents. testified ('II' 192): Q. When you showed the Singer 66 sewing machine to your leads what was their initial reaction to it generally speaking 1 A. Well, they wanted to Ree it sew, and this was done. Q. \Vhat did they think about it generally? A. The ones--some bought them. The ones that didn t buy them were actually looking for a newer machine.

HOUSEHOLD SEWING MACHINE CO, , INC. , E'l AI" 223 207 Initial Decision It appears from her testimony that the salesman returned the next day with the new model machine and Mrs. Murchison purchased it at that time, In the case of the other five witnesses, after they had unequivocally rejected the first machine, the salesman would then offer to show a new New Home machine to the customer and after they agreed, he would go to his car and bring the machine in (Tr. 330 399 , 410 , 456- , 466-67). These were new machines and the witnesses almost invariably purchased them and testified on cross-examination that they were satisfied with their purchases. On the basis of this testimony, the hearing examiner finds that no witness made a clear-cut offer to buy the advertised used machine; that no salesman made any actual or implied disparaging' remarks with regard to the old used machine; and that no salesman refused to sell any of the witnesses the used machines nor is there any indication that had there been such an offer it would have been refused. As a matter of fact, as hereinabove found, respondent corporation sold 117 used sewing machines in 1967 out of a total of 414 machines 0,: roughly 30 percent of its sales were used machbies. The hearing exan1iner further finds that no new nlachine was den1onstrated 01' bY01light into the customer s house until the \vitness h;' : 1i,;_ expH :sed in clear and unambiguous terms that they did ",it want to purchase the advertised used machine.

It appears t lJ.t respondents' salesmen received either no commission (Brockelbnk, Tr. 193) or only 10 percent (Seeger, Tr. 60) on the :"\ale of a used s€\ving nlachine, but received an average commission of 20 percent on the sale of a new New Home Sewing l\lachine (Tr . 59, 194), In the absence of some showing that respondents' salesmen refused to sell a used machine whenever possible or that the number of used machines sold was insubstantial, the fact that respondents' salesmen received a smaHer com1Ylission on used machines is inconclusive. Likewise, the fact that respondents did not regularly advertise new New Home Sewing Machines (Adms. 57, 59, 61-65; CX 35, CX 36; Tl' 35), but did advertise used sewing machines on a daily basis (Tr, 33), is of little significance, in the absence of a similar showing of refusal to sell or that the number of used machines sold was insubstantial.

3 There is sume testimony in the record that "most of the used sewing: machines ,..:€Te sold in the stores rather than th,' ough home demOilsh'htions " althuugl, 110 IJ)(Tis€ figUHo'S all. given (1'1'. 27).

Initial Decision 76 F.

In a recent opinion involving a comparable factual situation Chairman Dixon speaking for the Commission stated: It is the opinion of the Commission that respondent' s practice closely resembles the classic " bait and switch" technique, (citations deletedJ but that there are certain deficiencies in the evidence which prevent an affrmance of the examiner s finding of a violation. In past cases, we have always found that the advertisement in question did not present a bona fide offer of sale of the product therein described. The evidence in this case fails to establish that respondent was not making a genuine effort to sell the old Singer machines. To the contrary, the evidence is consistent .with the theory that the respondent \vas making a bona fide offer to sell these machines and that only when it became apparent that no sale of one of them could be consummated was an attempt made to demonstrate other models. There was positive testimony that respondent was in the business of selling, inter alin used Singer machines. There is nothing in the record to show that respondent did not sell these machines whenever possible or that the number sold was insubstantial. Further, the evidence is silent on the question of whether or not these old machines had, as represented in the advertisements, been repossesscd. Since it affrmatively appears that these machines had been reconditioned and would perform the functions detailed in the classified advertisements, there has been no showing that the advertisements were not literally concct. Although the advertisements failed to disclose a fact which might be considered material-the age of the machines-this omission standing alone is not a suffcient predicate for a finding that the offer to sell the old machines was not genuine. 11moreover, as respondent points out, its salesmen did not disparage or downgrade the old machines in an attempt to "switch" the customer s interest to other models and in fact did not even offer to demonstrate other machines until after the witnesses had voluntarily expressed their displeasure with the older machines. (In the Matter of Clarence Soles nniJldividllal, t?'ndinq (('rid dO/lig Im.'iiles, as Midwest Sewing Ce'rder Docket No. R(j()2, December 3, 19f4, page 3 L6li F. C. 1234 , 1249-1250); Cf. In the 11,Intc/' of Leul! A. Tnshof, trndinu w; !\7ew YQ?'lc .Jewel?' y Company, Docket Xo. 8,14 , Dec. 2, 19G8 , p. 12 , footnote 2 L74 F. C. 1388, n. 1 J, citing the Midwest case as authority for " the Commission finding illegal bait and switch"

Accordingly, the hearing examiner finds that the allegations of subparagraph 1 of Paragraph Five of the complaint alleging that respondents were not making a bona fide offer to sell the advertised sewing machines has not been sustained and must be dismissed.

11. We now turn to subparagraphs 2 , 3 and 4 of Paragraph Five of tbe complaint alleging specific misrepresentations affrmatively made in respondents' advertisements set forth in Finding No. , above.

(a) Through the use of the figures "' 66" and words and statements of similar import (Admissions 67, 70, 71 , 72, 73, 74, 75, 76 83; CX 35, CX 36), it is found that respondents have represented that the adverti ed sewing machines are \\ , \\ ()pp() HOUSEHOLD SEWING :IACHINE CO" INC. , ET AL. 225 207 Initial Decision models which were manufactured in the year 1966. Although it is clear that the hearing examiner and the Commission in their expertise are capable of examining a written actvel'tj ement and deunder'stanrl from its terms (Ze-termining what a reader might liith Radio Corjioration v. H3 F. 2d 2 , 31 (7 Cir. 1944)), tt:stimony of 1\11';. Rogene Jones, a commuter witness, amply demt)'ates that the use of the term " Sing' pl' ' 6f) ('nnve s the im- 1110delJ1rt: si()n that the respondent l're advertising a HH)h Singer sewing machine (Tl'. 46). In truth ami in fact some of the mndels arivel'tiserl and designated as Ii Singer '66" were not manu- LJctl1ed in the ,'ear 1966 and the nse of the figures 66" had l1nthing" tn no with the year of Illanufactul'€, hut said machines weJ'e (\l'ualJ ' manufactured 15 01' 20 year ago (see testimony of ':/ljJ/"; see alsocoJ)sumer witnesses eiterl in footnote 1, pagp 1, tt,t-tirnoJj ' of l'€sponoent Set'ger, Tl' . 87 :1k and Bl'ockellJank, Tr. )o). As indir' ated abnve, responrlent Seegf'r ed respondent Jark' s llse of this type of mislearling advertising and testified as follows (Tl'. 87-38) :

Q. WJ1Y were you against running this particular ad A. It 'was ver ' misleading.

Q. In what way? A. It gin' .. tht, iln)lrf's.'ior! that the se\vil1g mat'hinf' was a 1986 model. tl. Wl' l". Ihl',.t' jn fact l Jif; model; A. No, Q. \\" hat. modpls were they? A. :\l"del o. tif; Singers.

Q. Wht' ll \\'PI' I: they manufactured? A. Al1ywJwn. frum 1!J to 41\ years ago.

(b) Through the use of the words or abbreviations "Left in laya,\yay" (Adms. 07 , oR , G9, 71 , 74 , 7G, 77 , KO, HI , Kg; ex :35, ex 6), " I:epo." (Adm. 6G; ex 3;';, ex ;)6), " Bal." (Adms. 66-83; , it isex :30, ex :3) and words or statements of similar import found that respondents represented that the se'\ving machines so advert.ised were partially paid for by a previous purchaser and e1'e 1Jeing offered for the unpaid balance of the purchase price therehy affording savings in the amount paid on the merchandise by the previous )Hll' chaser. In truth and in fact the merchandise so advertisect by resptmdents bact not been "Left in layaway, nep()s sec1" aIltl were not being sold for the " unpaid balance due thereon. The investigating attorney in this matter, \Villiam S. S;mg"er, ,Tr. sas called ;tnrl testifit'd that in June 19f;h he interyi"\Yt,d J'JSpIJJdPllt \\"iJham H. St' t'gel' , \\J\() was manager of Ih)11 d101cl at that time, nftt.l' faiJiI1' : to ohtain an intel'' iew with ) 226 FEDERAL TRADE CO IMISSION DECISIONS initial Decision 76 F.

respondent Clark (T1' 24 , 230 231). Prior to that interview, Sanger prepared typewritten copies of respondents' classified advertisements pbcing each ad on a single sheet of paper together with the nutation of the date the advertisement ran (Tr. 270-272). As he questioned Seeger with respect to each and everyone of these advertisements, he made handwritten notes of Seeger s responses (Tr. 271 , 308-310 , 346). At the hearing, complaint counsel originally commenced to question Sanger concerning his investigation by handing him a copy of his "Summary of Report of Interview with Mr, Seeger " a rather lengthy document (Tr. 231). Objection by respondents' counsel was made to this procedure and upon inspection of the Report of Interview by the hearing examiner it was ascertained that the Report of Interview merely contained broad general summaries in Sanger s own words of his interview with no spedfics concerning the individual ads. Actually, attachments to his Report identified as Sanger Exhibit 1, pp. 1 through 88, were the sheets containing the advertisements. However, these exhibits were not included with the Report when he took the witness stand, The hearing examiner sustained the objection, but ordered tbe attachments to the Report of Interview i. e" Sanger Exhibit 1, pp, 1 through 88, to be jJroduced for his inspection (Tr. 288-290). While the hearing examiner was inspecting Sanger Exhibit 1 pp. 1 through 88, which were typed copies of Sang' s original notes, Sanger produced from his briefcase the original sheets upun which were his handwritten notes (Tr. 286-287). After examining the sheets with the handwritten notes, the hearing examiner permitted Sanger to refer to these documents in order to refresh his memory while testifying. ' In addition, tbe hearing examiner briefly questioned Mr. Sanger to determine the procedure he followed in interviewing Mr, Seeger. Mr. Sanger testified that at the outset of the interview he asked M1' Seeger to produce all books and records of respondent corporation pertaining to "laya\vays, repossessions, " and any material shmving i(balance due" on such merchandise (T1' 349, 350). Sanger further testified that he received and examined the active layaway fle and what purported to be the inactive layaway file (Tr. 350). He also testified that respondents did not have a repossession file as such and that the only way you could tell that a machine had been repossessed \vas if they had entered it on a sales slip. Furthermore, -I 1:0 the hearing ex.:mi,Jer s j-Hlgment these notes wu' eliaLle i:nd iho11ative .,nJ oinh' he.' were made eO!lteiil'Orane()u Jy with his interview were accurate. , ;.

HOUSEHOLD SEWING MACHINE CO" INC. , ET AL, 227 207 Initial Decision it was Mr. Sanger s testimony that Seeger told him that respondents very rarely repossessed any machines (Tr. 351; see also testimony of Seeger, Tr, 55, 56). It therefore was developed by the hearing examiner that before Mr, Sanger commenced questioning Mr. Seeger with respect to the specific ads he had placed on the sheets he brought \"with him, all of respondents layaway" and repossession " records, if any, were on the table in front of him and Mr. Seeger (Tr, 351), and as he questioned ;VIr. Seeger concerning a specific ad all of the records in existence were readily available on the table for Mr. Seeger s use (Tr. 352).' To summarize, Mr. Sanger testified as follows:

By Hearing Examiner Jackson:

Q. Well OU asked him if he had his records? A. Rig1l, he had his records.

Q. He said all his records were there? A. That is correct, sir.

Q. SO that if there was no record he couldn t point to a record. Then we must assume that he had no such record. Is that correct? A. That is correct, sir (Tr. 350-354).

Upon further questioning by complaint counsel, Mr, Sanger testified that the advertisement set forth in Adm. 78; CX 35, CX 36 did not in fact have a balance due of $51.10 but had been received as a trade-in (Tr, 355), Similarly, Mr, Sanger was questioned concerning the terminology used in the other advertisements run by the respondents and after consulting his sheets of paper and handwritten notes made at the time of the interview, testified concerning the use of various terms such as "layaway, balance due " etc., contained in these ads. It is clear from Mr. Sanger testimony that in most instances Mr. Sceger could locate no records to support the terminology "left in laymvay, repossessed" or "balance due " set forth in the various advertisements run by respondents (Tr. 362-373; see also testimony of lVr. Seeger, Tr. 55-58 corroborating the foregoing), It must be inferred that tbe machines so described were not in truth and fact " left in layaway, repossessed" or had a "balance due. (c) Throllgb the use of the terms " Credit Department, " and Household Credit Department" (Adms. 66, 69, 78, 79, 80, 81, 82 103; CX 3f), CX 36), it is found that respondents represented " Trw \waring e" mi1wr finding are primarily u se,l on the f:1ct at the time of SanR'er interview, Mr, SE'Pger ('ould prr.rluce no record in support of most Df the )1ecif1C ads in question, Since,. rf' p(1n(k' dinse to put in no defense, it must be ,1assumed that no such records exi 228 FEDERAL TRADE COM),ISSJON DECISIONS Initial Decision 76 F.

in their advertisements that they operated a credit department and they they were in the business of lending money and settling and collecting accounts. In truth and in fact respondents did not maintain a " Credit Department " and "..rere not principally engaged in the lending of money and settlng and collecting accounts. Seeger testiied as follows:

Q. Did Household ar1ua1!y ha\'e a formal credit department? A. No.

Q. \Vould you explain yuur answer, please? A. 'Veil, I worked out the application" for the finance company, called them in to the finance (' (1mIJfI1 , etc. 1 had to do with credit dealings in the store. \Ve did not. have a credit department as such (Tr. 56). It is clear from the foregoing that through the use of the terms Credit Department" :lui " Household Credit Department" in their classified adh-' rti ements in the context of their advertisements and in l'(JJjUJl(tioll \,- ith the terms " left in lanlW(l re- 1Josse:-sed " and " !JaJaJil'€ due, " l'Psponc1ents representee! that the sewing- machines ad\'el'ised were being offered at a spec:inll reduc;ed Price becau:-e of the circumstances descl'iber1. Accordingly. the bearing examiner finds that the statements and representatioll contained in Paragraph Five, suparngraphs , 3 and 4 of the complaint, "'ere and are false, misleading and deceptive and should be prohibited.

12. III the ('mll' e and conduct of their business and for the purpose of inducing the plll'ch \se of their products, respundents have made various :-Lttements and representations in r1irel' mail litel'atUl' , of \d1ich the f(,llo\ving- is typical and iJIustl'ati\'e: ALL MACHI:\ES ,,1'1: l;(:. 'dlANTEED AND SEnVIC1:lI BY YUCll LOCAL FACTOllY ALTHORTZElJ DJSTRIRUTOR, HUl'SEHOLD SEW- ING l\IACHI:\E CO. IXC. (Am;. par, 4; Adm. 97; CX :i5, ex 3fi, ex 2). The abo\" qlwterl ttltpilellt is made in ex 2 \\' hieh is an advertising promotional ,",cJleme designed to promote the sale of respondents f'\\" illg 111;\chilJPS mul which were sent tn participallts in the drawing:"s (111!lltidt'd by resp()nclellt, which wili hereinafter ue discussed, as e("()IHl place gift certificates (Adms. R!1 H() 97; ex 33 , ex 3()).

The guarantee \y!Jich l'P lJolHlents nctual1y proyitled purchast:r of their pruducts j ill e\"jdenee n.s ex 3A-B and i.s the u ual manufadurpl" s gUitLll1tee, in this instance, Xe\\ Home Se\\"ing I\lachine eel" Los AtJ)_ lle . Califurnia (CX :3A- B; Adms. U HOUSEHOLD SEWING MACHINE CO" INC" lot AL. 229 207 Initial Decision CX 35, CX 36; Tr. 85, 419). Seeger testified that CX 3A-B accompanied the delivery of each new New Home sewing machine sold by the respondents (Tr, 85)." Mr. Seeger further testified with respect to CX 3A-B as follows:

By Hearing Examiner Jackson:

Q. This is the guarantee? A. Right, yes.

Q. That goes with the machine? A. Yes.

Q. There is no other guarantee? A. No. (Tr. 85-86.

Although New Home Sewing Machine carries the Good Housekeeping Seal of Approval as represented by respondents, the record contains no evidence of any guarantee by respondents. Under these circumstances respondents have falsely represented that they were the guarantor when in truth and in fact they were not. In addition, an examination of CX 3A-B reveals that it contains numerous conditions and limitations. Inasmuch as the manufacturer s guarantee provided by respondents was subject to numerous terms, conditions and Ijrnitations which were not disclosed in respondents' advertisements, respondents have misrepresented the nature and extent of the guarantee. It is found therefore that the failure of respondents in their advertisements to correctly disclose the identity of the guarantor and the conditions and limitations upon the guarantee, constitutes false, misleading and deceptive acts and practices in violation of Section 5 of the Federal Trade Commission Act and must be prohibited. 13, In the course and conduct of their business, and for the purpose of inducing the purchase of their products, respondents held "drawings" in which persons were invited to register their names and addresses for the chance to win a free sewing machine and other prizes (Tr. 78). The participants in said "drawings later received further promotional material by mail. Typical and ilustrative of the statements and representations made in such promotional material are the following:

CONGRA TULA TIONS' YOUR NAME WAS SELECTED FROM THE TICKETS TAKEN AT THE RECENT SEWING MACHINE DRAWI:\G TO RECEIVE ONE OF THE SECOC\D PRIZE AWARDS. YOU HAVE WON A $50.00 DIS- COL'NT CERTIFICATE.

6 See testimony of Ann D. Latimer, a consumer witness, to the same effert (Tr. 4l9 42()). Initial Dccision 76 F.

THIS CERTIFICATE ENTITLES YOU TO A BRAND NEW 1966 NEW HOME SEWING MACHINE , MODEL # 103. THIS 1!MACHINE IS NATIONALLY ADVERTISED FOR $89. , SO WITH YOUR CERTIFI, CATE ALL YOU PAY IS $39.95! THIS IS AN ADVERTISING PROMO- TIO:\, ALL WE ASK IS TELL YOUR FRIENDS ABOUT YOUR NEW HOME SEWING MACHINE. (CX 2.

By and through the use of the statements and representations quoted above and by oral statements of respondents of similar import and meaning, respondents have represented, directly or by implication, that they conduct bona fide drawings and that recipients of their merchandise certificates have won a valuable prize. entitlng them to a discount in the amount stated on the certificate, which constituted a reduction from tbe price at which such products were usually and customarily sold. In truth and in fact, respondents did not conduct bona fide drawings, Their purpose in having persons register for drawings was to obtain leads to prospective purchasers of se\\Ting machines. The recipients of such certificates did not receive a valuable prize since tbe amount of the award certificate was decucted not from the usual and customary price of the product, but from a higher fictitious price, and consequently the prize was illusory. Respondent Seeger testified that the drawings were conducted by setting up a sewing machine and an entry box in a supermarket, One such drawing was set up at Earl' s Supermarket (Adm, 86; CX 35, CX 36; Tr. 86-89), F!'ederick, Maryland, on or about June 11 , 1966. Another such drawing was conducted at By-Pass Market, Wanenton, Virginia, in May 1966 (Adm. 94; CX 35, CX 36), Additional drawings were conducted in Rockville and Waldorf, Maryland, in 1966 (Tr. 75- , 374, 375), Entry forms were dropped into the box and subsequently a drawing was held and the winner was awarded a sewing machine (Tr. 78), Generally, the manager of the supermarket drew the winning entry out of the box (Tr. 79). Seeger then testified that the second prize winners were selected by him and that "practically all of the entries were sent second prizes" which consisted of CX 2 (Tr. 79- 374-375) .

Examination of the second prize gift certificate CX 2, the text of which is set forth above, reveals that the respondents represented that the New Home Model #103 was uationally advertised at a selling price of $89.95 (CX 2; Adm. 90; CX 35 , ex 36). Respondents admit that to theil' lmo'vkdgc Model #103 \las not ad- HOUSEHOLD SEWI:-G MACHINE CO" INC. , ET AL, 231 207 Initial Decision vertised at a price of $89,95 in any publication of interstate or national circulation other than publications prepared by the New Home Sewing Machine Company during 1966 (Adm. 91; CX 35 CX 36). Respondents also admit that they did not regularly sell the New Home Sewing Machine Model #103 for $89,95 during 1966 (Adm. 92; CX 35, CX 36). Moreover, the evidence establishes that respondents in the regular course of their business generally sold the New Home Model #103 Sewing Machine for $39. throughout 1966 to persons without gift certificates as well as to persons with gift certificates (see CXs 3 , 6 , 7 , 8 , 11, 12, 13, 15 16, 17, 18, 19, 20, 23, 24), Where the machine included a cabinet respondents' usual and customary price was $69. 50 (see CXs 4 5).

From the foregoing it is clear that the drawings and gift certificates were no more than a device to obtain leads to prospective purchasers and the "gift certificate " afforded no saving. The hearing examiner finds the aforesaid practice to be false and deceptive and i'n violation of Section 5 of the Federal Trade Commission Act and must be prohibited.

14. Paragraph Ten of tbe complaint alleges that: In the course and conduct of their business respondents have failed to disclose certain material facts to purchasers, including, but not limited to the fact that at respondents' option, conditional sale contracts, promissory notes or other instruments of indebtedness executed by such purchasers in connection with their credit purchase agreements may be discounted, negotiated, or assigned to a finance company or other third party to whom the purchaser is thereafter indebted and against whom defenses may not be available. Conditional sales contracts or promissory notes executed between respondent Household Sewing Machine Co. , Inc. , and its customers were regularly negotiated or assigned to a third party during the period January 3, 1966, through April 30, 1968 (Adm. 102; CX 35, CX 36; Tr. 55). Employees of Household Sewing Machine Co., Inc., did not, as a matter of practice, orally advise customers prior to the execution of conditional sales contracts that such contracts might be negotiated or assigned to a finance company or other third party (Adm. 105; CX 35, CX 36) and that the purchaser would be indebted to a third party (Ar1m. 106; CX 35, CX 36).

Although respondents and their salesmen did not generally volunteer this information, theywonld diseJose this inf0111ation if Initial Decision 76 F.

asked. Respondents salesman Brockelbank testified as follows (Tr. 198) :

Q. When you sold a sewing machine, did you volunteer to the purchasers of a sewing machine that they would be making their payments to a finance company or another third party? Did you volunteer this information to them? A. Not all the time. If they asked I would tell them. Respondent Seeger similarly testified as follows (Tr. 88-89): Q. Did you while you were sales manager instruct the door-to-door salesmen with regard to disclosures to the customer executing conditional sales contracts that those contracts might be negotiated or assigned to a finance company or other third party? A. If they were asked? Q. Would you explain that, please? A. If the customer asked if this contract was to be sold or financed by another company, then the salesmen were instructed to tell them yes it would be.

The foregoing is cOl'oborated by the testimony of Helen Celia Anger, a consumer witness, who testified as follows (Tr, 468) : Q. No. , at that time you filled in your contract and signed the contract, did the sale"man tell you that you would be making your payments to a finance company? A. I wasn t a\vare of this; I wasn t aware of this until later. I thought I was going to make the payments to the Household Sewing Machine Company, but when he came and said that this is the way it was to be done, I accepted it.

Q. 1\' , when who came and said this: A. \Vhen the salesman explained this to me. Q. \Vhen did he explain it to you? Was this before or after you signed the contract that he explained it to you:

A. Repeat that again.

Q. Before or after? Did the salesman to the best of your recollection, did the salesman inform you prior to your signing the contract that you would be making the payments to a finance company? Did he to the best of your recollection, did he inform you of that fact prior to your signing the contract? A. Yes, I believe so.

An examination of respondents' Conditional Sales Agreements (CXs 25 , 26 , 27, 28 and 29) reveal that on the second page thereof (CXs 2511, 26b, 27b, 28b, 29b) under the heading " CONDI- TIO"s " appearing in large print at the top of the page, the first sentence reans as follows:

Purchaser agrees promptly and faithfully to pay to Seller or to Seller successors ur assig-ns, the full amount of the TI1IE RALAXCE herein set forth in the installments as herein provided. HOUSEHOLD SEWING MACHINE CO" INC. , ET AL. 233 207 Initial Decision On the lower half of the page also appearing in large bold print is the following:

DEALER' S NO:\-RECOGRSE ASSIGNMENT together with a lengthy paragraph commencing with We hereby sell, assign, transfer convey and set over to the contract on the reverse hereof; etc. Below that again in large bold print appears the following: ASSIG:'MENT WITH RECOURSE together with a short paragraph commencing with For Value Received, the within Agreement, and all right and title of un. dersigned in the goods therein described, are hereby sold and assigned to the , etc.

Each of the respondents' customers signs an acknowledgment that he received, at the time of execution of the above contract, an exact copy thereof, completely filled in. " (CXs 25a, 26a, 27a, 2Ra, 29a) .

Accordingly, the hearing examiner finds that al1 of respondents' customers receive adequate notice that the conditional sales contract may be negotiated or assigned to a finance company or other third party, that respondents' salesmen are instructed to explain this aspect of the couditional sales contract to customers if asked and in fact when so asked they do so explain these terms and conditions, and there is no evidence that oral representations to the contrary have ever been made by respondents or their salesmen.

The hearing examiner alsl' finds, based upon the testimony of Mrs. Ella Austin (Tr, 3:33), and Mr. Leroy Hobson (Tr. jol-i02), that generally consumers do not read tboroughly what they sign and as a result many persons are una\vare of the assignment pruvisions contained in conditional sales contracts. However, unfortunate as this may be, in the absence of some affirmative misrepresentatiun, deliberate omission of a material fact, or fnilul'e tu put the purchaser on notice through customary provi:-ions contained in the contract, the hearing examiner is not pl'epal'erl to I'ule that thpse l'PsIHmdents have it greater bmdeu of explaining these provisions than is customary on any other C011tract or negotiable instrument. itloreover, in this record, there is no showing that respondents after assigning their contracts refuse tu service or otherwise to satisfy a customer s complaint. Complaint counsel in their proposals have cited nine prior decisions of the Commission as anth(Jrit \- for their position. Of these Initial Decision 76 F.

nine, seven were either orders obtained by default, sbpulation or consent and one decision by a hearing examiner is on appeal. Only one case cited Lifetime, Inc. 59 F. C. 1231 (1961) was a contested matter decided by the Commission and that involved affirmative misrepresentations about financing including the signing of a hidden promissory note. That case is obviously distinguishable on the facts. Complaint counsel, however, have omitted any reference to School SeTrices, Inc. , et ai" Docket 8729, decided October 10 1968 (74 F. C, 920, at 1016-17J), in which the Commission stated:

'Ve must presume thrt R pr() pective student is capable of reading this very short contract. It may 'well be that a prospective student does not grasp tJw full import of the provisions contained therein; based on this record, however, we are not prepared tel rule that respondents have a greater burden of expl.8ining these provisions than is customary. The significB nt contract IH'ovisirnu: appear to be adequately disclosed and in tJw absence of oral representations to the contrary do not warrant further consideration. (Opinion, p. 26.

In light of the foregoing, the hearing examiner finds that the allegations of Paragraph Ten of the complaint have not been sustained and must be dismissed.

15. In the conduct of their business . at all times mentioned herein, respondents have been, and now are, in substantial cOJnpetiton, in commerce, ,with corporations, firms and individuals engaged in the sale of se\ving machines of the same general kind and nature as those sold by respondents (Ans. par. 11; see also Finding 7 SUPTrL) 16. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of respondents' products by reason of said erroneous and mistaken belief. CONCLCSIONS 1. The aforesaid acts and practices of respondents, as herein found, were and are, all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair and deceptive acts and practices and unfair methods of competition, in commerce in violation of Section 5 of the Federal Trade Commission Act.

HOUSEHOLD SEWING MACHI1\E CO. , INC. , E'l AL. 235 207 Initial Decision 2. The Federal Trade Commission has jurisdiction of and over respondents and the subject matter of this proceeding. 3, The complaint herein states a cause of action and this proceeding is in the public interest.

Based upon his findings and conclusions, the hearing examiner deems the following order appropriate.

ORDER It is ordend That respondents Household Sewing Machine Co" Inc., a corporation, and its offcers, and Wiliam R. Clark, individually and as an offcer of said corporation, and Wiliam R. Seeger individually and as a former offcer of said corporation, and respondents ' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, offering for sale, sale or distribution of sewing machines, or any other products, in commerce, as '(comlnerce " is detined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Representing, directly or by implication, that any product has been manufactured or designed to be sold in any stated year, unless such product was in fact manufactured or designed to be sold in the year represented, 2, Misrepresenting in any manner the model year, the year of manufacture or design, or the age of any product, 3. Representing, directly or by implication, that any product was left in layav,ray, was repossessed, or that it is being offered for the balance of the purchase price which was unpaid by a previous purchaser, unless the specific product in each instance was left in layaway, was repossessed or is offered for the balance of the unpaid purchase price, as represented, 4, Misrepresenting in any manner the status, kind, quality or price of the products being offered.

5, Representing, directly or by implication, that purchasers save the paid-in amount on repossessed or unclaimed layaway products unless in each instance purchasers save the anlOunt represented.

(), 236 FEDERAL TRADE COM !lSSJ(N DJ.CISJONS Initial Decision 76 F.

6. Misrepresenting in any manner the savings afforded to purchasers of respondents' products.

7, Using the names "Credit Dept." or " Household Credit Dept." or other names of similar import or meaning; or otherwise representing, directly or by implication, that respondents' principal business is that of lending money or settling or collecting accounts; or misl'ellre enting in any manner the nature or status of l'€spnnctents' business. 8. Representing, directly or by implication, that products are guaranteed, unless the nature, conrlitions and extent of the guarantee and the manner in which the guarantor will perform thereunder are clearly ann conspicuously disclosed. 9. Representing, directly or by implication, that names of ,vinners are selected or ohtainect through " dla\\illg " or by chance when all of tbe names selected are not chosen by Jot; or misrepresenting in any manner the method by which names are selected in any drawing or contest. J O. Representing, directly or by implication, that certificates, awards or prizl s are of a certain value or worth Whl'll recipients thereof are Hot in fact benefited by 01' no llot SHY€ the amount of the represented value of such certificates prizes or awards.

11. Representing, directly or by implication, that an . savings, discount 01' allowance. € is given lllll'thnsers frurn respondents' selling price for speeiflect proollc:s 111l1e s shin selling price is the amount at \\-hidl such pr()duct has lW. sold or offered for sale in good faith by respondents fur a reasonably substantial period of time in the recent regular course of their business.

12. Using any advertising, sales plan or promotional scheme involving the use of false, misleacting or deceptive statements or representations tn IIbtain h ;\ds or IH' '1lec1s for the sale of any product.

13. Failing to deliver a copy of this Olc1er to cease ann desist to all present and future .';desmen or other P(,1'1.118 engaged in the sale of l'Pspnndenb' products and failing" to secure from each such salesman or otner lWl'S()l a signed statement ac1.;nowlerlging J'-'Ct,jl1t of said orner. HOUSEHOLD SEWING MACHINE CO" INC" ET AL, 237 207 Opinion of the Commission OPINION:\ OF THE COMMISSION AI'GUST 6 , 1969 BY NICHOLSON Commissioner:

The Commission issuer1 its complaint in this proceeding on April 30, 190 , charging that respondents har1 violater1 Section 5 of the Federal Trade Commission Act, 15 V. C. 45, by engaging in unfair and r1eceptive practices and unfair methods of competition in the ar1vertising and sale of sewing machines. Specifically, respondents were charg:ed with- (1) using bait anrl switch tactics; (2) misrepresenting the year when their sewing machines were manufactured; (3) misrepresenting sewing machines as partially pair1 for by a previous purcbaser and that the current purchase price was merely the unpaid balance; (4) misrepresenting their principal business as lenrling money or settling or collecting accounts; (5) misrepresenting the terms anrl conditions a guarantee; (6) conducting a bogus r1rawing; and (7) failing to disclose to purchasers, prior to sale, that conditional sales contracts might be negotiated to a finance company 01' another third party.

Respondent William R. Seeger filed an answer admitting all the material allegations of the complaint but denying he formulated, directed, or controlled the acts and practices of the corporate responr1ent, including the acts and practices alleged in the complaint. Respondent William R. Clark anrl tbe corporate respondent, Household Se,,-ing Machine Co., Inc., fied separate answers ar1mitting certain specific allegations in the complaint but denying generally any violation of law.

Hearings were held on the complaint, respondents electing not to put in a defense. The hearing examiner issued his initial decision on December 20 , 1968 , upholding all charges of the complaint (including the responsibility of the individual respondents) except for the allegations relating to the use of bait and switch and failure to r1disclose that conditional sales contracts might be assigned b,' respondents.

Complaint counsel has appealed from the initial decision contenr1ing the examiner erred in his conclusion that the burden proof hact not been sustained on the two charges which were dismissed. Respondents concede these are the only issues )Jl'€scnterl for review. No appeal has been taken by respondents from any Opinion of The Commission 76 F. portion of the findings of facts, conclusions, or order, and respondents urge the Commission to adopt the examiner s initial decision. To the extent that the examiner s findings are not inconsistent with the findings of this opinion, these findings are hereby adopted as those of the Commission, There is no dispute on the facts. Respondent Household Sewing Machine Co. , Inc. (hereinafter Household), is a corporation organized and doing business under the laws of the District. of Columbia with its principal place of business presently located at 2420 Wilson Boulevard, Arlington, Virginia.' Household is in the business of selling sewing machines to consumers in the metropolitan Washington, D. , area through advertisements in the classified advertising section of Washington s three major newspapers, Respondents' basic advertising format is to represent that used sewing Inachines are available at a reduced price, and to couple this price reduction with representations that respondents Dealer Credit Department" has reclaimed partially paid for used 111achines \vhieh have been left in "layaway." 3 The reader of respondents' advertising is invited to call a telephone number for more information. The calls are taken in respondents' store and salesmen make an appointment to give these prospective customers a home demonstration..

The machines, which had been represented in respondents' advertisements to be comparatively new and selling at a reduced price, \were described by custo,mers as " very old and rusty looking" , and " pretty wel! beaten up." C TM examiner found that in almost all eases customers "unequi.voc.ally and almost inunediately " rejected the advertised machines,' and respondents con, ceded that 80% of all "leads " did not buy the used machines. These llsed machines, hmvev€y, did serve one purpose: after rejecting the advertised machines the salesmen would announce that he just happened to have a new (and a much more expen.. 1 Until December 1 , 1967 , rcslJom!enb' bu:;iness was Jo aled at ll) Dth Street, 1' V..,'., v,'ashington, D. C. (1'1'. 143, 144).

21'1'. 32. 52..

3 Admissions 67 and .sO; ex 35, ex 3G. 1 Demonstrations and sales wete made in customers' homes located in Washington, D. C., Virginia and TlIaryland (Adm. 30; ex 35 , ex 36). 51'1'. 329.

61'1'. 410. Sec also 1'J'. 327- W: 305- 405; H, 2; 453-,159; 463- 472. , Initial Decision. p. 22:J.

g Respondents Household ar.d Cbrk' s l'roj1o;;e.j F"nding-s of Facts BefCJ\'e the Examiner, Find. ing No.

HOUSEHOLD SEWING :VIACHINE CO. , INC" ET AL, 239 207 Opinion of The Commission sive) machine in his car, When the new machine was shown the contrast between old and new was effective-almost invariably the new machine was sold.

It was alleged in the complaint that respondents' advertisements for used machines are not bona fide offers but merely a "come- " (or bait) to develop leads which are then "switched" during the home demonstration to expensive merchandise. The examiner dismissed this allegation and in concluding that the facts recited above do not constitute unlawful bait and switch tactics, he relied unduly upon some considerations and omitted others which are relevant. First, the examiner found (1) no clear-cut offer by any purchaser to buy a used machine; (2) no refusal by respondent to sell a used machine; and (3) no evidence that a clear-cut offer to buy would have been refused.' The examiner seemed to be saying that since no one "took" the '(bait " no one ,vas "swHched. To define bait and switch in terms of offers or refusals of offers misconceives the essential nature of the practice. Our decisions relating to bait and switch are grounded on a factual determination that the advertised product is not an offer which the seller seriously intends the buyer to accept, but a "come- " which wil lead to the sale of a higher priced product." Whether the bait is actually taken or not is of no moment. On the contrary and as the record of this case plainly shows, tbe assumption of the bait and switch perpetrator is that the bait wil probably not be "taken (or at least not swal1owed) but wil serve as an opening gambit to get the salesman over the doorstep. Insofar as the examiner required proof of actual offers to buy the used machines, and subsequent refusals by respondents to sell, he erred-these factors are not material in establishing an ilegal "bait and switch" scheme. Next, the examiner attaches significance to the sale of some used machines by respondents. The Commission has long made it clear that actual sales of advertised merchandise do not preclude the existence of a bait and switch scbeme," Our decision in Soles which the examiner cites, did not turn merely upon sales of the advertised product, In Soles the Commission said that "Initial Decision, p. 223. See al,o Tl'. 410. IV Initial Decision, P. 223.

!tin the Matter of Leon A. Tasha! t/a New York Jewelry Company. C. Docket No. 8714 (December 14 , 1968), 74 F. C. 1361; In the Matter of AU-State Ind11stries of North Caroli11U Inc. C. Docket No. 87 8 (April 1. 1960). ) F. C. 465. 12 See Gldde8 Against Bait Advertising, 2 CCH Trade Reg. Rep. 7893 (November 24 , 1(59). in the Matter of Consumer Product. of America, Inc. C. Docket No. 8679 , 72 P. C. 533 (September 7, 1967). afJ' d, 401 F. 2d 930 (3rd Cir. 1968). 13 In the Ma.tter of Clarence Sales, C. Docket No. 8602 (December 3 , 1964), 66 F. C. 1234. Opinion of The Commission 76 F. where there was positive evictence that respondent was :1ctuall;\ in the business of selling used Singers, and the record did not show suffcient evidence that the advertised offer was insincere, we would not condemn the scheme as bait and switch. We are dealing here with entirely different facts.

The entire record here proves that respondents' method of operation consists of (1) representing lIsen machines as fairly new models; (2) demonstrating used machines of ancient vintage; and (3) then switching consumers to orand new machines. Respondents Clark and Seeger conceded that respondents' principal business was selling new machines. I- In any event, there is evidence that whatever sales there were of used macbines, these were made in respondents' store, not in the home,'" But our only concern here is with what happened in the home after respondents salesmen developed a lead through the advertised used machines: there new machines were being sold.

The relative unimportance of the used machines to respondents overall business is further proven by respondents' own sales figures. On sales of 297 new machines and 117 used machines (all used machines apparently sold in respondents' store) Household' gross sales were approximately $60 000. H' The new machines sold for between $199 and $219 " while the used machines sold for less than $40," Thus respondents' sales of the used machines accounted for approximately $4 680 or less than 8 percent of their total sales volume. Yet in order to obtain $4 680 worth of business respondents were wiling to spend between $5 000 and $6 000 a year in advertising used machines. Seldom, if ever, did they place an advertisement for the new machines which were the heart of their business.'" It is clear to us that respondents ' objective in placing these advertisements was not to sell used machines but to develop "leads" for new machines, Surely this is the most persuasive and the only economically rational justification for their behavior, H Tr. 23, 142-143.

15 Tr. 27. Total store sales accounted for a negligible portion of resIJondents ' business. Tr. 27, 59. 143-144.

6 Tr. 166.

1 Tr. 72.

18Tr. 24, 73, 19Tr. 33.

o Tr. 35, SI'eBo'nd Senl:ng Stores 51 F. C. 470 (1954): Household Se1ting Mn,chine Company !not respondents he!" jnJ. 52 F. C. 250 (1n 'J). .

HOUSEHOLD SEWING MACHINE CO" INC" ET AL. 241 207 Opinion of The Commission The examiner also found that no salesman mane Hactual or implied rlispHl'a dl1g remarks with regard to the old used machine. The Conlllli"ion, however, has held that oral disparagement of the prorlllct is not an essential element of "ait and switch.'" Be- :luse of the age and condition of the nl;\chines exhibited to prospedive IJlll'Chasel's, no oral emhelIishments were necessary: the lisen machines gave a graphic ano persuasive demonstration of their undesiraJ,ilit"- The examiner lJso erred in declining to give proper consideration to other evidence further substantiating the existence of a bait and :'witch scheme. especially the incentives respondents p1'Oviderl to encourage their salesmen to sell new machines. The a1esmen received either no commission 4 or only 10 percent commission on the advertised used machine. Since the average sale price of tbe used machine was, a salesman who sold the advertised n1aehine could look forward to no commission, or at most (and only on rare occasions) $4. ' If he solrl the unadvertised new machine (at a price between $199 to $249, he was paid a commission of 20 percent "" or between $40 to $50 for each sale, On the basis of these incentives, there can be little doubt the salesmen were only interested in selling new machines once the leads were developed, "

Respondents' advertising, when read in its entirety, also reflects upon the sincerity of the used machine offer. We find the used machines being advertised with the aid of a classic collection of rleceits. During 1966 respondents were advertising "66" Singers which were not made in 1966-they were Model 66 made 15 to 20 years earlier, And contrary to respondents' representations the used machines had not been "repossessed"; they had not been left in layaway; they were not being sold for "unpaid balances" and respondents were not in the business of lending money and setting or collecting accounts.'" Respondents have taken no appeal from the examiner s ruling on the illegality of any of these claims.

Inii iA.l I)pcision. p. 22 :3 See Leun /t. Tashof fla Neil' York Je1lelr 11 COmpal1l1, note 11 S11prrL slip opinion, p. 11, ;4 F. (' 13Xf\- Acco!'d, Household Sewing Machine Co. !lote 21 supra; Cm1sllller Products of Amerira. Inc. note 12 :iUl'ra.

:NTr. 186, 193.

M Tr. 59, 60. There was no commission on sales of used Singers, and almost all of respondents ads were for the sale of used Singer'.

:.Tr. 59.

"1 The treatment of sales commissions hy respondents is relevant in determining- the sin- ('('rity of the user! machine offer. CrmSILmerS Products of .amen:cu 111('" note 12 supra. '" Initial lJe(ision . pp. 22J- 231.

Opinion of The Commission 76 F. We said in Soles the truth of the advertised claim wil beconsidered in determining whether a bona fide offer or a "comewas involved. D In Soles there was no proof of misrepresentation of age, or any other material fact. Here the misrepresentations are so extravagant that the entire ad can only be read as a ruse to attract the interest of customers who could be developed as profitable "leads " by respondents' salesmen, Indeed, it is likely that respondents anticipated that the difference between what \vas advertised and what was shown 'Arould result in immediate rejection (as in fact it was in all cases), thereby setting up the consumer for the execution of a switch.

In sum, the record clearly supports a finding that respondents have engaged in a bait and 'switch scheme. We next consider the question of an appropriate order that wil eliminate the use of highly deceptive advertising as "bait" to de.. velop leads, and the subsequent switching of these (lleads ' to expensive items. In fashioning this order we are cognizant of the fact that moderate or low-income consumers may be especially susceptible to the blandishments of a deceptive come-on that misrepresents the age of used lnachines and emphasizes their 10\v prices,;j() On the basis of these representations the salesman gains a foothold in the home where the demonstration of the advertised used machines almost immediately causes disappointment-a disappointment, however, which can be profitably exploited. For it has been our experience, based on the record herein and countless other proceedings in bait and switch cases that once the consums appetite has been whetted, the display of a new machine has the psychological impact of breaking down resistance to careful deliberation, and a spur of the moment decision may be made to purchase a machine which the consumer may either not afford, or which may be bought cheaper if she shops around. Moreover, the consumer is likely to be taken in by respondents' particular varia- 29 Clarence Sole. note 13 supra, slip opinion, pp. 3-4, 66 F. 'f. C. 1234 , 1249-12, 30 'fr. 328- 330, 397.

31 See, g., Better Living, Inc., 54 F. C. 648 (1957) aff' d per C1ria11t 259 F. 2d 271 (3rd Cir. 1(58); Pari-Port, l11c. 60 F. C. 35 (1962), ff' 313 F. 2d 103 (4th C;r 1%::): L!!X!lT11 Indw;tries ,9 F. C. 442 (1961): Atlas Sewing Cente,.s, h,t. S7 F. C. 974 (1960): ClelLlI-Rite Vacuum Store. , Inc 51 F. C. 887 (1955); Bond Sewing Stores, 51 F. C. 470 (1954): Lifetime, Inc. 59 F. C. 1231 (1961). The SUIJreme Court stated in Jacob Sil'gel Co. v. Federal Trade C01n1lissio11 327 V. S. 608, 614 0(146), thrt " The Commission is entitled not only appraise the facts of the particular case and the dangers of the marketing methods employed" ,. but to draw from its gen"'J'alized expcJ.ience. y, HOUSEHOLD SEWING MACHINE CO" INC" ET AL, 243 207 Opinion of The Commission tion of the bait and switch technique because they use demonstrations in the home where the non-commercial atmosphere may lower resistance to the sales pitch, Having used an illegal bait and switch scheme, respondents should be effectively prevented by our order from engaging misrepresentations for the purpose of making initial contact with a consumer, as well as deceptive manipulation of the consumer thereafter: both practices violate Section 5 of the Federal Trade Commission Act.

An order limited merely to a prohibition against repetition of deceptive advertisements or a generalized ban against bait and switch tactics is not adequate protection for the consumer. What is required is an order that wil dissipate the effects of deceptive invasions of the privacy of the home where high-pressure tactics may result in the ill-advised purchase of expensive merchandise which would not be bought upon careful reflection. The most effective protection is that which the consumer can provide for herself by taking a second look at the product to reconsider whether she can really afford it, or to discuss the purchase with her husband, al1 free from the influence of deceptive sales techniques.

Accordingly, the order wil require respondents to allow a three-day period of grace during which all contracts negotiated in the consumer s home may be rescinded by the purchaser. This wil serve as a cooling-off period during which any consumer who may be subjected to the unfair pressures resulting from the deceptions we have discussed or similar deceits, may reevaluate ;n The Cornrnis ion s authority to prohibit rnisrepresentations that do not directly involve the inherent Qualities of a !1J'duct but rather concern ancillary factors, such as the IJl'oducts origin, the identity of its manufacturer, or the circumstance of its sale is well established. Federal Trade Commissio- v. Royal Milling Cu. 288 U. S. 212 (1933); Federal Trade Commission Y. Alyoma Lumber Co., 291 U. S. 67 (1934); Kenan v. Federal Tnule Commi. Hion 265 F. 2d 246 (loth Cir. 1959), cert. denied 361 U.S. 818 (1959): Mohawk Ref. Corp. v. Federal Trade C011lni.81:On 263 F. 2d 818 (3rd Cir. 1959). c6rt. dem 61 U.S. H14 (1959). Thus in addition to actions against bait advertising (note 31 supra), the Commission s rule against sales through deceptive "first contact" has been applied to a scheme to g"ain entrance to a home by purporting to conduct a survey (Kal1l'ajtys v. Federal Trade Cum",isswn 237 F. d 654 (7th Cir. 1956), cert. denied 352 U. S. 1025 (1\)57)) and to the use of deceptive mock-ups to break through viewey s skepticism about television advertising". Federal Trade Commission v. Colgate-i'almolive Co., 380 U.S. 374 (1965).

The Commission has also forbidden the use of dece)Jtive sales schemes involving purchases induced through consumer mistake about whether goods had been ordered UVonnan Co. , 40 296 (1945)), oy consumer fear of a lawsuit (Dorfman v. Federal Trade Commission 144 F. 2d 737 (8th Cir. 1\144), or consumer v;Jnity over being ucclared a contest "winner (Clark fl. Geppert. et al. 17 . e. 832 (1960): Arthur 1Vlurra11 111(:. 57 :F. e. 306 (1960)), or consumer "pride " over being one of a few "carefully selecteu" individuals to be contncted by respondent (Federal Trade Commission v. Starldard Edllc. Soc R6 F. 2d 692 (2nd Cir. 1(36), modified, 302 U.S. 112 (1937)).

g., Opinion of The Commission 76 F. and cancel her purchase. Our order wil require the notice of the cooling-off period to be clearly printed in a conspicuous place on the contracts and will also require that respondents provide a separate, simple and clearly understandable cancellation form. In the light of respondents' proclivity for the use of deception in both advertising and in the home, this is appropriate and necessary relief. Federal Tmde Commission v. National Lead Co. 352 S. 173 (1944); Fedeml Tmde Commission v. Colgate-Palmolive Co., 380 U.S, 374 (1965).

It should be added here that in ordering the cessation of these deceptive practices and in fashioning effective relief to prevent their resumption, we do not in any way condemn honest door-todoor selling. On the contrary, businesses relying on this method of sales wil themselves be protected from unfair competition and wil not be required by competitive pressure to resort to deceptive practices, See Fedeml TTade Commission v, R, P. Keppel Em. 291 V.S, 304 (1934), We turn now to the allegations of the complaint respecting conditional sales contracts. Many of the sales described in Part II herein, were credit purchases. The complaint charges a violation of Section 5 of the Federal Trade Commission Act by reason of respondents' failure to disclose that instruments of indebtedness executed by consumers in connection with their credit purchase agreements may be transferred to third parties to whom respondents' customer would thereafter be indebted and against whom defenses on the contract may not be available, Complaint counsel appeal from the examiner s dismissal of this charge of the complaint, The examiner found that the conditional sales contracts and promissory notes executed between Household and its customers were regularly negotiated or assigned to a third party. He found J3 Several States have passed " Cooling-Off Law;;" to provide a period during which the buyer can reconsider the purchase. Ga. Code Ann. G6-906 (Supp. 1068): Il. Ann. Stat. ch. 12.1 1/2 262B (Smith-Hurd Supp, 1969); Mass. Ann. Laws rh. 255D 14 (1968); Wash. Rev. Code Ann. 63. 14.040(2)(e) (Supp. 1968). Sections 2. 502-2..505 of the proposed Uniform Consumer Credit Code give the buyer a three-day period for re cinding- a consumer credit purchase made in the home. A Federal " Door-to-Door Sales Act" (S. 1599 and H. R. 10904) had been introduced in the 90th Congress. IRt Session. The jurisdictions in which respondents currently do business have not yet enacted the same or similar "coolin,,-off" legislation. If they do the relief required herein may create the impression among purchasers that their rights are fact less well protected than they would be under state or federal "cooling-off" legislation. Therefore, the order wiJJ be drawn in anticipation of the possibility that the jurisdictions in which the respondents do business may adopt such legislation. HOUSEHOLD SEWING MACHINE CO. , INC. , ET AL, 245 207 Opinion of The Commission that Household's salesmen did not as a matter of practice undertake to inform customers of this circumstance-although the salesmen would disclose this information if asked for it. " The examiner further found that the contracts and notes contained the following sentence in large print at the top of the page: Purchaser agrees promptly and faithfully to pay to Seller or to Seller suc cessors or assignees, the full amount of the TIME BALANCE herein set forth in the installments as herein provided. Also appearing on the page in large bold print were the words DEALER S NON-RECOURSE ASSIGNMENT " together with words reciting the transfer of the contract to a third party. Below those words appeared" ASSIGN),ENT WITH RECOURSE" followed by more words describing the assignment"' These findings are supported by the record evidence.

The examiner concluded that these words constituted suffcient notice and that in the absence of affrmative misrepresentation deliberate omission of a material fact, or failure to include customary notice, respondents had no greater burden of explanation than is customary in any other contract or negotiable instrument. We disagree.

Subsequent to the issuance of the initial decision on August 14 1968 , the Commission held in All-State that assignment of a purchaser s note to a holder in due course may materially alter the nature of the purchaser s rights and liabilties, and that where a seller customarily assigns instruments of indebtedness to third parties without disclosing to the purchaser that this may be done the purchaser is deceived and such deception is prohibited by Section 5 of the Federal Trade Commission Act. As we said in All-State when a seller knows, but the buyer does not know, that the debt contracted by the buyer wil be assigned to a third party, the buyer may be entering into a transaction quite different from the one he believes he is entering. If the instrument of indebtedness if transferred to a holder in due course, the buyer may be indebted to the assignee notwithstanding any defense or claim the buyer may have against the seller on the original contract such as defective merchandise or failure of 34 Initial Decision, p. 231.

:lid. at 232- !I In the Matter of All-State Industries of North Carolina, I'Ic" C. Docket No. 8738 (April 1. 1969). slip opinion, p. 10, 75 F. C. 466, at 490. 246 FEDERAL TRADE CO:VIMISSION DECISIONS Opinion of The Commission 76 F. the seller to perform servicing functions as may be required in the contract.

That the contmctJ.lBI obligation of the seller to the buyer may not be relieved by the transfer of the instrument of indebtedness is of no consequence. Effective assertion of strictly contractual rights is severely curtailed by the financial condition and educationallevel of a substantial number of unsophisticated consumers who buy on such credit arrangements. Nor does it matter that purchasers may not have been injured by the seller s assignments, The practice must be judged by its capacity to deceive or its unfairness and not on the basis of demonstrated injury to purchasers. "

The buyer assumes, in the absence of adequate notice to the contrary, that if the product does not live up to its express or implied representations he wil be able to obtain reasonable satisfaction by withholding payment for the product. The buyer not unreasonahly regards his indebtedness as a form of leverage insure that the seller wil stand behind his product. This expectation is realistically an integral part of the consideration flowing to the buyer, The buyer must be made to understand-befon the sale is consummated-that a demand for payment from a third party assignee may not be defeated even if the product turns out to be defective or worthless, even if the seller fails to perform contractual obligations-and even if the seller goes out of business.

The question of suffciency of disclosure remains. The Commission held in All-StlLte that the seller must make affrmative disclosure." This means the purchaser must be made to understand how he is being affected. Indeed, the remedy in All-State requires that the disclosure be made with such conspicuousness ILnd CllTity is likely to be observed and read by the purchaser. We hold that the disclosure in the instant case does not meet the standard. It requires no elaborate analysis to demonstrate that the number of consumers buying sewing machines on credit who comprehend the implications of "Dealer s Non-Recourse Assignment" and "Assignment with Recourse " may be less than 31 See Montgomery Ward Co. v. Federal Trade Commi. sion 379 F. 2d 6613 (7th Cir. 1%7); Charles of the Ritz Distributors Corp. v. Federal Trade Commission 143 F. 2d 676 (2d Gir. 1(144): All-State It1ustries of North Carolina, Inc" note 36 supra. .8 AU-State Industries oj North CaToli1Ul, Inc. note 36 supra final order paragraph 13. , HOUSEHOLD SEWING MACHINE CO" INC. , ET AL. 247 207 Opinion of the Commission overwhelming," Adequate disclosure means that the purchaser must be told in simple everyday language precisely how the assignment wil affect him and our order wil so require. As we said above, the need for disclosure is not conditioned upon a showing that the seller has in fact used the assignment as a device to avoid his contractual and warranty obligations to the buyer. It is enough that the assignment may confer upon the seller the ability to do this. There is no showing in this recordand it was not charged in this complaint-that respondents sought to avoid their obligations to buyers after assigning the contracts. A showing that a seller systematically uses assignments in such manner might well necessitate relief broader than that ordered here, A regular business practice of non-disclosure coupled with avoidance may very well require that the holder due course himself be placed on notice that he is taking the instrument subject to all of the purchaser s original defenses and claims.

Since our order also provides for a three-day "cooling-off" period, part III supra respondents wil be prohibited from transferring any instrument of indebtedness until two days after expiration of this three-day period, If respondents are allowed to negotiate the instrument of indebtedness during the consumer cancellation period, the buyer s right to cancel may be of negligible value, A five-day restraint on negotiation of the instrument gives the respondents time to receive a notice of cancellation mailed within the three-day period. The order wil so issue. FINAL ORDER This matter has been heard by the Commission upon the appeal of counsel supporting the complaint from the hearing examiner initial decision. The Commission having determined that said appeal should be granted in full hereby adopts the findings of the Black' s Law Dictionarll. Fourth Edition, defines assig-nment as " A transfer or making over to another of the whole of any property, real or personal. in possession or in action, or of any estate or right therein " '" . . It includes transfer of all kinds of property . But is ordinarily Brnited to transfers of choses in action and to rights in or connedpd with property, asdistinguished from the particular item of property " It is generally appropriate to the transfer of equitable interests, " (Citations omitted. I The phrase " Without Recourse" is defined as "* '" '" used in making a Qualified if1dor,;ement of a negotiable instrument, signifies that the indorser means to save him!;"lf from liability to subsequent holders, and is a notification that, if payment is refused "by the parties primarily liable, recourse cannot be had to him.

40 As in the case of the "cooling-off" prohibition, note 33 supra, our order will be drawn in anticipation of legislative change. Two States, Vermont and J\fassachusetts, have already abolished the holder- in-due course doctrine for COJlsumer paper. Mass. GeJl. Laws ch. 255. 12c (1966 Supp. ); Vt. Stat. Ann. Title 9, 2455 (1967 Supp. Final Order 76 F.

hearing examiner to the extent they are consistent with the opinion accompanying this order. Other findings of facts and conclusions of law made by the Commission are contained in that opinion. For the reasons contained in that opinion the order entered by the hearing examiner is modified and, as modified, adopted and issued by the Commission as its final order, Accordingly, It is O1'dered That respondents Household Sewing Machine Co. Inc., a corporation, and its offcers, and Wiliam R. Clark, individually and as an offcer of said corporation, and Wiliam R. Seeger individually and as a former offcer of said corporation, and respimdents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, offering for sale, sale or distribution of sewing mais de-chines, or any other products, in commerce, as "commerce" do forthwith ceasefined in the Federal Trade Commission Act, and desist from:

1. Representing, directly or by implication, that any products or services are offered for sale when such offer is not a bona fide offer to sell said products or services. 2, Using any advertising, sales plan or promotional or deceptive scheme involving the use of false, misleading statements or representations to obtain leads or prospects for the sale of any product, 3, :\Iaking representations purporting to offer merchandise for sale when the purpose of the representation is not to sell the offered merchandise but to obtain leads or prospects for the sale of other merchandise at bigher prices. 4. Disparaging, in any manner, or discouraging the purchase of any product advertised, 5. Representing, directly or by implication, that any product has been manufactured or designed to be sold in any stated year, unless such product was in fact manufactured or designed to be sold in the year represented, the 6. Misrepresenting in any manner the model year, year of manufacture or design, or the age of any product, 7. Representing, directly or by implication, that any product was left in layaway, was repossessed, or that it is being offered for the balance of the purchase price which was unpaid by a previous purchaser, unless the specific product in each instance was left in layaway, was repossessed or is of- HOUSEHOLD SEWI:-G MACHINE CO. , INC. , ET AL. 249 207 Final Order fered for the balance of the unpaid purchase price, as represented, 8. Misrepresenting in any manner the status, kind, quality or price of the product being offered.

9. Representing, directly or by implication, that purchasers save the paid-in amount on repossessed or unclaimed lay away products, unless in each instance purchasers save the amount represented, 10. Misrepresenting in any manner the savings afforded to purchasers of respondents' products.

11. Using the names " Credit Dept. " or "Household Credit Dept.," or other names of similar import or meaning; or otherwise representing, directly or by implication, that respondents' principal business is that of lending money or settling or collecting accounts; or misrepresenting in any manner the nature or status of respondents' business. 12. Representing, directly or by implication, that products are guaranteed, unless the nature, conditions and extent of the guarantee and the manner in which the guarantor wi1 perform thereunder are clearly and conspicuously disclosed. 13. Representing, directly or by implication, that names of winners are selected or obtained through "drawings " or by chance when all of the names selected are not chosen by lot; or misrepresenting in any manner the method by which names are selected in any drawing or contest. 14. Representing, directly or by implication, that certificates, awards or prizes are of a certain value or worth when recipients thereof are not in fact benefited by or do not save the amount of the represented value of such certificates prizes or a wards.

15. Representing, directly or by implication, that any savings, discount or allowance is given purchasers from respondents' selling price for specified products, unless said sellng price is the amount at which such products has been sold or offered for sale in good faith by respondents for a reasonably substantial period of time in the recent regular course of their business.

16. Failing to disclose, orally prior to the time of sale and in writing on any trade acceptance, conditional sales con- 250 FEDERAL TRADE CO:vMISSION DECISIONS Final Order 76 F.

tract, promissory note, or other instrument of indebtedness executed by the purchaser, with such conspicuousness and clarity as is likely to be observed and read by such purchaser;

(a) The disclosures, if any, required by federal law or the law of the state in which the instrument is executed; (b) Where negotiations of the instrument to any third party is prohibited or otherwise limited under the law of the state in which the instrument is executed that the negotiation or assignment of the trade acceptance, conditional sales contract, promissory note or other instrument of indebtedness to a finance company or other third party will not rescind or diminish any rights or defenses the purchaser may have under the contract;

(c) Where negotiation of the instrument to a third party is not prohibited by the Jaw of the state in which the instrument is executed, that the trade acceptance conditional sales contract, promissory note or other instrument may, at the option of the seller and without notice to the purchaser, be negotiated or assigned to a finance company or other third party; and (d) Where the law of the State in which the instrument is executed does not preserve as against any holder of the instrument all the legal and equitable defenses the purchaser may assert against the seller, that in the event the instrument is negotiated or assigned to a finance company or other third party, the purchaser may have to pay such finance company or other third party the full amount due under his contract whether or not he has claims against the seller s merchandise as defective; the seller refuses to service the merchandise; or the seller is no longer in business, or other like claims, It is further orde?'d That the respondents herein shall, in connection with the offering for sale, the sale, or distribution of sewing machines or any other products, when the offer for sale or HOUSEHOLD SEWING MACHINE CO. , INC" ET AL. 251 207 Final Order sale is made in the buyer s home, forthwith cease and desist from:

(1) Contracting for any sale whether in the form of trade acceptance, conditional sales contract, promissory note, or otherwise which shall become binding on the buyer prior to midnight of the third day, excluding Sundays and legal holidays, after date of execution.

(2) Failing to disclose, orally prior to the time of sale and in writing on any trade acceptance, conditional sales contract, promissory note or other instrument executed by the buyer with such conspicuousness and clarity as likely to be observed and read by such buyer, that the buyer may rescind or cancel the sale by directing or mailing a notice of cancellation to respondents' address prior to midnight of the third day, excluding Sundays and legal holidays, after the date of the sale. Upon such cancellation the burden shall be on respondents to collect any goods left in buyer s home and to return any payments received from the buyer. Nothing contained in this right-to-cancel provision shall relieve buyers of the responsibility for taking reasonable care of the goods prior to cancellation and during a reasonable period following cancellation.

(3) Failing to provide a separate and clearly understandable form which the buyer may use as a notice of cancellation, (4) )/egotiating any trade acceptance, conditional sales contract, promissory note, or other instrument of indebtedness to a finance company or other third party prior to midnight of the fifth day, excluding Sundays and legal holidays after the date of execution by the buyer, (5) P1'ovided, however That nothing contained in part II of this order shall relieve respondents of any additional obligations respecting contracts made in the home required by federal law or the law of the state in which the contract is made. When such obligations are inconsistent respondents can apply to the Commission for relief from this provision with respect to contracts executed in the state in which such different obligations are required. The Commission, upon proper showing, shall make such modifications as may be warranted in the premises.

Final Order 76 F. T.

It is fudhe!' ordel' That the respondents herein shall forthwith deliver a copy of this order to cease and desist to all present and future salesmen or other persons engaged in the sale of respondents' products or services, and shall secure from each such salesman or other person a signed statement acknowledging receipt of said order.

It is further ordered That the respondents herein shall, within sixty (60) days after service upon them of this order, file with the Commission a report in writing setting forth in detail the