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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

Automobile Fraud: 9.2.9.2 Punitive Damages

The UCC provides that punitive damages may be recovered only “as specifically provided in this Act or by other rule of law.”216 The general rule of contract law and the UCC is that punitive damages are unavailable.217 The purpose of punitive damages is to punish the wrongdoer and deter similar acts.218 Contract damages are designed to make the aggrieved party whole,219 not to punish another fo

Automobile Fraud: 9.2.9.3 Statute of Limitations

The UCC Article 2 statute of limitations for the consumer’s warranty claim is four years from tender of delivery.236 This limitations period has both positive and negative aspects. Four years is often longer than provided for other causes of action. But, unlike federal odometer statute, fraud, and most UDAP claims, the four years run from delivery, not from the consumer’s discovery of the fraud.

Automobile Fraud: 9.2.9.4 Limitations on Remedies Clauses

Dealers may insert in the sales agreement a provision limiting the consumer’s remedies for breach of warranty, such as restricting consequential damages or even limiting the consumer to a repair remedy. These contractual limitations on remedies can be challenged, particularly in the automobile fraud context.

Automobile Fraud: 9.2.10 Attorney Fees

UCC Article 2 does not provide for the recovery of attorney fees. However, attorney fees are available for prevailing consumers under the Magnuson-Moss Warranty Act for breaches of written and implied warranties.247 Remember, though, that “written warranty” is a term of art under the Magnuson-Moss Act that does not include all express warranties.248

Automobile Fraud: 9.2.11.1 Introduction

As discussed in the following subsections, the Magnuson-Moss Warranty Act creates a private cause of action for a consumer who is damaged by the failure to comply with a “written warranty” (as defined by the Act), an implied warranty, or a service contract. The sale must also involve a “consumer product” as defined by the Act260 and the seller must be a “supplier,”261 but those requirements will be met in almost all consumer vehicle sales.

Automobile Fraud: 9.2.11.3 Implied Warranty Claims Under the Magnuson-Moss Warranty Act

The Magnuson-Moss Act provides a remedy for any consumer who is damaged by the failure of a supplier or warrantor to comply with any obligation under an implied warranty.268 The Act adopts state standards as to when an implied warranty is breached.269 Because it provides for attorney fees, it is often useful to join a Magnuson-Moss implied warranty claim with a state law implied warranty claim.

Automobile Fraud: 9.2.11.5 Magnuson-Moss Remedies

The Magnuson-Moss Act allows a consumer to recover “damages and other legal and equitable relief.”276 Personal injury damages are explicitly excluded for most claims, however.277 Most courts have held that the Act’s remedy provision is broad enough to encompass revocation of acceptance.278 If the consumer prevails, the Act authorizes an award of “costs and expenses (including attorney’s fees based on actual time expended) . . .

Automobile Fraud: 9.3.1 Benefits of a Claim of Mistake

Rescission on grounds of mistake may be available as a remedy when other remedies are foreclosed. For example, a fraud claim may be precluded because the buyer cannot prove that the seller knew or should have known of the vehicle’s adverse history. There may be no relevant express warranties and the seller may have successfully disclaimed implied warranties. Rescission on grounds of mistake is a useful approach in this situation.

Automobile Fraud: 9.3.2 Elements of a Claim of Mistake

As expressed by the Restatement (Second) of Contracts, a mistake is a belief that is not in accord with the facts.287 It can be either a mistake of fact or law.288 If both parties are mistaken at the time of contracting as to a basic assumption on which the contract was made, and the mistake has a material effect on the agreed exchange of performance, then the contract is voidable by the adversely affected party.289 The mistake must

Automobile Fraud: 9.4.1.1 Strengths and Benefits of UDAP Claims

A UDAP (unfair and deceptive acts and practices) statute is a state statute of general applicability that prohibits deceptive practices, unfair and deceptive practices, or unconscionable and deceptive practices. A few states add abusive practices to the list of prohibited actions.308 Every state has a UDAP statute that authorizes a private cause of action.309

Automobile Fraud: 9.4.1.2 Comparison to Warranty Claims

In some ways, a UDAP claim is very similar to a breach of warranty claim. In most states, the consumer need not prove the seller’s intent or knowledge. The seller’s good faith is no defense. If the consumer did not receive what was promised, then the consumer should be made whole.