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Automobile Fraud: 9.2.3.2.3 Warranties for “certified” used cars

Some used car dealers sell “certified” used cars, which are represented to have passed a multi-point safety inspection. Some of these programs involve manufacturer certifications, while others are offered by the dealer itself or by a separate company. Their standards and rigor vary widely.

Automobile Fraud: 9.2.3.2.4 Absence of title brand as express warranty

State lemon laundering and salvage statutes require disclosure on the title and/or other sale documents about the car’s prior history. A title or other document without the salvage or lemon history disclosed should be an express warranty that the car is not salvage or a lemon buyback. In other words, the document is a written statement of fact warranting that the car is a certain make and model and year and other characteristics described on the document.

Automobile Fraud: 9.2.3.2.5 Other express warranties on used cars

By statute, a few states require warranties of a specified duration for at least certain categories of used cars.101 Some used car dealers explicitly offer express warranties of various sorts. Low-end used car dealers may offer short-term warranties in which the buyer bears part of the cost of repairs. A promise to repair any problems found with the vehicle may be an express warranty.102

Automobile Fraud: 9.2.3.3 Disclaimers and Parol Evidence

Dealers attempt to disclaim express warranties in several ways: by disclaiming the express warranties they make, by disclaiming that they are making warranties, and by arguing that express warranties outside the contract are not created because the contract contains all the terms of the agreement. The first type of disclaimer is futile. Express warranties, once created, cannot be disclaimed.105

Automobile Fraud: 9.2.4.2 Implied Warranties in Automobile Fraud Cases

An implied warranty of merchantability is breached when the car would not “pass without objection in the trade under the contract description.”128 Such should certainly be the case when a car’s contract description does not disclose a problem history, but when the vehicle in fact has a rolled-back odometer, a salvage history, or other problem past.129 A “gray market” vehicle that is sold in the United States but does not conform to federal standards also does not pass without objection in th

Automobile Fraud: 9.2.4.3.2 Magnuson-Moss restrictions on disclaimers

The Magnuson-Moss Warranty Act prohibits a dealer from disclaiming implied warranties, and makes those disclaimers ineffective, whenever the dealer makes a “written warranty” (a term of art under the Act)139 or enters into a service contract with the consumer.140 Many used car dealers offer some sort of written warranty that will bring these Magnuson-Moss restrictions into play, and service contracts are even more common.

Automobile Fraud: 9.2.4.3.4 UCC restrictions on disclaimers

Even when state law or the Magnuson-Moss Warranty Act does not prohibit disclaimers of implied warranties, the UCC requires the disclaimer to be adequately disclosed to the consumer. To disclaim an implied warranty of merchantability, the disclaimer must mention the word “merchantability” or use the term “as is” or “with all faults.”152 The disclaimer must be available to the consumer before the contract is signed.153

Automobile Fraud: 9.2.4.3.5 Effect of the FTC Used Car Rule

In a used car sale, the conspicuousness and effectiveness of a disclaimer will be affected by the dealer’s compliance with the Federal Trade Commission’s Used Car Rule. The failure to give the consumer a Buyers Guide or place the Buyers Guide language in the sales agreement should either be determinative or strong evidence that the disclaimer was not conspicuously disclosed, and thus is not effective.166 The failure to provide a Buyers Guide is also relevant to whether the disclaimer is unconscionable and whether it is in good faith.

Automobile Fraud: 9.2.5 Notice of Breach

The UCC requires a buyer to give the seller notice of breach within a reasonable time after the buyer discovers or should have discovered a breach.171 Failure to give notice bars the consumer from any UCC warranty remedy, including cancellation of the sale and damages.172 Courts recognize only a few exceptions to this rule.173

Automobile Fraud: 9.2.6 Privity

Historically, the notion of privity of contract limited warranty rights so that only the immediate buyer could enforce a warranty, and only against the direct seller. Thus a buyer could not sue the manufacturer and a subsequent owner could not sue the dealer. The privity doctrine has come under increasing attack, especially in consumer transactions. There are now many exceptions to it and many jurisdictions have abolished it.

Automobile Fraud: 9.2.7.1 Introduction

One of the most important advantages of a UCC warranty claim is that it gives the consumer a self-help remedy to cancel the sale. The consumer merely notifies the seller and recovers all payments made. If the seller refuses to honor the revocation, the UCC gives the consumer appropriate remedies, including selling the car to satisfy the seller’s obligation to the consumer.

Automobile Fraud: 9.2.7.3 Consumer Options After Revocation

The UCC does not require the consumer to tender the car back to the dealer after revocation.189 While the consumer always has the option of returning the vehicle, the UCC allows the consumer to hold the car until the seller picks it up, or sell the vehicle for the seller’s account. The consumer may decide to continue to use the vehicle while waiting for the dealer to implement the revocation, although this option carries some risks.190

Automobile Fraud: 9.2.7.4 Returning the Car to the Dealer

One option is to return the car to the dealer. This option may be best for reducing the inconvenience and expense of either holding the car with reasonable care or selling it. On the other hand, for the buyer who has paid money to the seller on the purchase price or incurred expenses, returning the vehicle to the seller may eliminate the only leverage the buyer has to recover the out-of-pocket loss without having to resort to litigation or threats of suit.

Automobile Fraud: 9.2.7.5 Holding the Car for Dealer Pick-Up

Another option is to hold the car, using reasonable care, for a reasonable time to allow the seller to retrieve it. The UCC makes it clear that the buyer need not return the car, but need only make it available for the seller to pick up.192 And if the consumer has either signed a negotiable instrument, made any payments toward the car, or incurred any expense in inspecting, transporting, or holding the car, the consumer need not even allow the seller to pick the car up.

Automobile Fraud: 9.2.7.6.1 The consumer’s right to sell the car

In most cases, the consumer need not return the car to the dealer after revocation. Instead, a consumer who has revoked acceptance usually has a security interest in the car and can sell it and use the proceeds to reduce the dealer’s obligation to the consumer.

Automobile Fraud: 9.2.7.6.2 Dealing with liens on the title

For most consumers, selling the vehicle after revoking acceptance is more complicated than the UCC contemplates, because the certificate of title will show a security interest in favor of the seller or a financing entity. This security interest will make it difficult to sell the vehicle, as the consumer will have difficulty providing clear title to the car.197

Automobile Fraud: 9.2.7.7 Consumer’s Continued Use of the Car

A final option is using the vehicle while waiting for the dealer to implement the revocation. Using the vehicle is risky for the consumer because it can constitute a new acceptance that will bar cancellation. Continued use can also be considered proof that the defects did not substantially impair value, as must be shown in a revocation case. It also undercuts any claim that the vehicle is dangerous to drive. On the other hand, continued use may be the only practical option for a consumer who cannot afford alternative transportation until the matter is resolved.

Automobile Fraud: 9.2.8 Withholding Payments As a UCC Remedy

The UCC gives the buyer the important remedy of deducting the damages caused by the seller’s breach of warranty from the outstanding balance due to the seller or the seller’s assignee.208 The UCC language and the limited existing case law favor allowing the consumer an immediate deduction from the next installments due, and not a deduction from the last installments due.209