Automobile Fraud: 8.12.2 Consumer’s Slowness in Responding, Other Conduct May Preclude Rescission
Even before commencement of the lawsuit, a buyer’s actions upon learning of the fraud may limit the availability of rescission.
Even before commencement of the lawsuit, a buyer’s actions upon learning of the fraud may limit the availability of rescission.
Historically a claim for rescission was viewed as inconsistent with a suit for damages; a suit for damages affirms the contract while a claim for rescission rejects the contract.796 Nonetheless most states allow the plaintiff to plead both actions, in the alternative.
Successful investigation and litigation of automobile fraud requires a thorough understanding of federal and state titling requirements. With an astonishing frequency, dealers flaunt state and federal mandates. These violations may provide a federal cause of action, enhance punitive damages in a fraud claim, and aid in the success of other state claims.
While each state has its own unique title system, a number of general statements can be made, in part because federal law specifies certain minimum requirements as to titles and because states use fairly uniform systems. This section will describe how title transfer and documentation works. It also examines the movement toward electronic titling.
Consumers are generally not transferred salvage certificates of title, but such titles may show up in a vehicle title search. In many states, when a vehicle is in a major collision or is flood damaged, a salvage certificate of title must be sought. At some point after a vehicle is reconstructed, this salvage certificate of title will be exchanged for a standard certificate of title, but subsequent titling of that vehicle may indicate the salvage history with a brand on the new title.75
With few exceptions, duplicate titles are conspicuously marked “duplicate.” When a title is lost or damaged, the owner, or a dealer under a power of attorney, applies for a duplicate title. A duplicate title may be part of a fraud scheme by which a dealer intends to “wash” information off the original certificate of title, particularly when that title has had several assignments since being issued (assignments of which the state will usually have no record).
Federal regulations create title document retention requirements that apply to “dealers and distributors of motor vehicles,” acting as either transferors or transferees.79 A dealer is defined as a person that sold at least five motor vehicles during the prior twelve months to buyers that in good faith bought the vehicles other than for resale.80 A distributor is a person that sold at least five motor vehicles during the prior twelve months for resale.81
Prior sections discussed the consumer’s right to see the certificate of title because federal law requires that the consumer sign the certificate as transferee and what information is found on that certificate of title. A related issue is when in the transfer process must the consumer sign the document and, thus, when does the consumer have the opportunity to examine the information on the certificate of title.
Federal regulations require that odometer disclosures be made on the title “in connection with the transfer of ownership.”88 The mileage disclosed should be the mileage at the time of transfer of ownership, not when the title is assigned.89 Consequently, federal law allows the title to be signed by the transferee at some time after the transfer of ownership, and not necessarily simultaneously with the transfer of ownership.90
Virtually all state title statutes specify when the old title must be signed over to the transferee. A substantial majority of states require that the title documents must be signed over to the transferee “at the time of delivery.”91 In other words, when the consumer takes possession of the vehicle, the dealer on that day must fill out and sign the reassignment form on the title or on a separate document, and obtain the consumer’s signature on that document.
In certain states, the law provides a natural incentive to transfer the title document immediately. In these states no ownership can change hands until the title document is completed and provided to the transferee. These are called strict title states. For example, Missouri title law states that the sale of a vehicle without assignment of the certificate of title is fraudulent and void.96
Almost every type of transfer requires an assignment of title, but there are certain exceptions. A secured creditor repossessing a car typically does not receive an assignment of the title from the debtor, because the transfer is involuntary. Instead, the states have created procedures whereby a new title will be provided in the name of the secured creditor after certain documentation is filed by the creditor. It is improper for a repossessing creditor to sign over the old title, which is still in the prior owner’s name, to the secured creditor’s transferee.
This chapter sets out various federal requirements concerning transfer of title. National Highway Traffic Safety Administration (NHTSA) regulations exempt transfers of certain vehicles from these federal rules. These exemptions are set out in more detail in § 5.6.4, infra.
Titles typically are not kept in the vehicle but retained by the lienholder or, hopefully, kept in a secure location by the owner. A registration is provided to be kept with the vehicle that shows proof that the vehicle is titled. A registration may also show operators in addition to the owner. Although a registration may refer to an individual as an “additional owner,” that individual may only be an operator and not an owner.
Federal law requires that a transferee of a used vehicle sign the certificate of title being transferred.13 There are two narrow exceptions, and in those cases federal law specifies alternative documents that the transferee signs.14 Federal law does not require the buyer to sign a title when purchasing a new vehicle, for the simple reason that there is no title until the first purchaser for use applies for a title on the new car.
A new car is issued a manufacturer’s statement of origin (MSO) at the time of production, and when that vehicle is transferred to the first purchaser for use, there is no existing certificate of title. Consequently, the consumer does not sign an assignment of a certificate of title. Federal law also does not require the consumer to sign the MSO, although state law or industry practice may so require.
When a used vehicle is transferred, the transfer will be detailed on the existing certificate of title. Usually the existing title will have printed on it the name of the most recent purchaser for use (that is, it will be titled in the name of the most recent purchaser for use). The title will not have printed on the front the name of the dealer or others in the chain of title that purchased the vehicle for resale.
A title will typically have three or four reassignment blocks allowing the title to be assigned multiple times. When a vehicle is purchased for use state law will require that a reassignment block be completed, and then that the title be turned in to the state in exchange for a new title showing the transferee for use as the owner. The new title will similarly have a number of blank blocks for future reassignment of that title.
Dealers frequently seek to obtain a power of attorney from a consumer, which allows the dealer to sign the old certificate of title for the consumer, in effect signing both as transferor and transferee. In this way, the consumer never sees the old title. In addition, if the dealer rips up a power of attorney, the dealer can pretend that the transfer never happened.
To be valid a power of attorney must be in the particular format specified by federal law.
Federal law allows use of a power of attorney only if allowed by state law.46 In general, states do not prohibit use of a power of attorney, but may place certain restrictions on their use, and the dealer will then have to comply with both these requirements and the requirements of federal law.
The use of the power of attorney form is optional. The consumer must agree to its use. The dealer cannot require the consumer to utilize this form.47
A dealer’s ability to use a power of attorney to transfer a vehicle to a consumer is sharply limited by federal law. A power of attorney can be used to transfer a vehicle from the dealer to a consumer only if that dealer already has a power of attorney covering that vehicle from the party who transferred the vehicle to the dealer. This can happen only when the party transferring the vehicle to a dealer gives the dealer (the transferee) a power of attorney to complete the title documentation.
The fifth requirement for a selling dealer to obtain a valid power of attorney from a consumer is that, when the dealer obtained the first power of attorney (Part A) as transferee, it had the right to seek such a power of attorney.
In the rare situation in which a dealer has properly obtained a power of attorney to act as both transferor and transferee, the dealer has further obligations. The dealer reviews the physical or electronic title and any reassignment documents and, only if no discrepancies are found, acknowledges disclosure on the physical or electronic title.