Consumer Warranty Law: 21.3.6.3 Lessee’s Right to Revoke Acceptance
In the case of consumer leases, the consumer can revoke acceptance against the lessor in the following five situations:63
In the case of consumer leases, the consumer can revoke acceptance against the lessor in the following five situations:63
While Article 2 allows revocation only for nonconformity of the goods themselves,70 Article 2A allows revocation for any lessor default in the lease agreement. Grounds for lease revocation include:
Whenever the lessee rightfully rejects the goods or justifiably revokes acceptance, the lessor is in default under the lease contract,72 and the consumer may cancel the lease73 and may recover so much of the rent and security deposit as has been paid and is just under the circumstances.74 While in a sales transaction revocation requires the seller to return all payments made by the buyer, in a lease transaction such is not always the case.
Lessees can seek cumulative remedies upon a lessor’s default: damages, revocation of acceptance, and withholding of lease payments. “Use of multiple remedies is barred only if the effect is to put the lessee in a better position than it would have been in had the lessor fully performed under the lease.”84
Consumers have certain warranty rights against the originating lessor (be it a retailer or financer), as described in § 21.3, supra. Consumers can also raise as defenses to lease payment against the lessor’s assignee any defense the consumer had against the original lessor.
Consumer leases typically do not waive the right to raise lessor defenses against the assignee.
Section 21.3, supra, sets out the lessee’s warranty claims against the lessor.
The Consumer Leasing Act (CLA) requires lessors to clearly disclose the manufacturer’s express warranty, and any inaccuracy in fulfilling that requirement is a CLA violation,115 leading to statutory damages up to $2000, actual damages, and attorney fees.
Even in the extreme case of a finance lease,121 the drafters of UCC Article 2A stated that the consumer need not continue paying on a lease when the leased goods are defective. Comment 2 to section 2A-407 states: “That a consumer be obligated to pay notwithstanding defective goods or the like is a principle that is not tenable under case law . . . , state statute, . . . or federal statute.” Article 2A is less clear how this principle is to be implemented.122
This chapter focuses on fraud relating to car purchase and ownership in two specific contexts. The first is a too common situation in which consumers are led to believe they have purchased and own a car, but the dealer tries to retain the right to back out of the deal for days or even weeks after the consumer drives home with the vehicle. If the dealer decides to unwind the deal, it demands the vehicle back or requires the consumer to pay more in financing costs or other charges.
Yo-yo transactions, also referred to as spot-delivery, conditional sales, take-back, MacArthur (“I shall return”), or gimme-back transactions, are one of the most widespread automobile dealer abuses today. Dealers use this tactic in new and used car sales as well as leases. The yo-yo sale is standard operating procedure at many dealerships.
This chapter examines various approaches consumers can use to challenge yo-yo sales and sublease scams. To oversimplify, there are two major strategies in a yo-yo case. One is a fact-intensive demonstration that the dealer has engaged in unfair and deceptive acts and practices (UDAP), fraud, conversion, or other state law violations, and the consumer seeks actual, and perhaps multiple or punitive, damages.
At present about one-third of the states have some kind of official pronouncement about yo-yo sales, but there are significant variations from state to state. It is thus important to stay current with a particular jurisdiction’s statutory law and any administrative rulings from the state’s dealer licensing board, department of motor vehicles, attorney general’s office, or other state agency.
To make a transaction contingent on the dealer’s ability to sell the retail installment sales contract, the parties must explicitly agree to such a condition.14 In the most egregious case, a dealer attempts a yo-yo sale with no written document or other basis for making the sale contingent on financing. Instead the dealer preys on the consumer’s ignorance (and some courts’ confusion) as to the dealer’s role in the transaction and the relationship of the dealer and the bank or finance company.
A financing contingency that is only orally conveyed to the consumer is not effective. State motor vehicle and retail installment sales statutes require that all the terms be included in the installment sales agreement. Such oral statements also run afoul of the parol evidence rule and the statute of frauds. Moreover, the installment sales agreement itself often states that its terms supersede any other agreements, and may even state that the dealership is not bound by the statements of its employees.
The dealer may claim it is canceling the sale because the consumer lied on the credit application, and that this violation triggers a default or allows the dealer to cancel on the basis of the consumer’s material fraudulent misrepresentation. However, experience shows that the dealer is most often at fault for misstatements on a credit application.
Some dealers do not sign the financing agreement, and then argue that the financing agreement is not final for this reason. Nevertheless, the filled-in contract should be viewed as the dealer’s offer, and the consumer’s signature as acceptance, so the contract is binding.23 The dealer’s failure to sign the installment sales agreement may also violate the state installment sales act.24
Any contingency clause must comport with state law. In some states a contingency clause is illegal.26 For example, the Maryland Motor Vehicle Administration states that dealers are not to use contingent or supplemental contracts.27 A letter from the Michigan Department of Commerce finds such a contingency clause to violate the Michigan Motor Vehicle Sales Finance Act, a position the Michigan Secretary of State’s Dealer Manual agrees with.
Contingency “riders” found outside the retail installment sales agreement are subject to challenge.
Just because the agreement includes a valid contingency clause does not give the dealer the right to cancel the transaction. Events must occur that are listed in the contingency clause as grounds to cancel the agreement.
Check to see if communications between the dealer and the finance company show that denial occurred even before the consumer left the dealership with the car, or whether the underwriting standards that the potential assignees provided the dealer, often found on rate sheets or other program descriptions, demonstrate that the dealer knew in advance that the financing would fail.
In the typical yo-yo transaction, dealer employees repeatedly make oral representations that the deal is final and that a sale has been made. Such assurances will be made by the finance and insurance manager, by the salesperson, by the receptionist, and other personnel, congratulating the consumer on the purchase and even making specific statements that financing has been approved. Also look for brochures sent to the consumer indicating the consumer has been pre-approved or that all credit applications are approved.