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Automobile Fraud: 9.2.2.1 Nature of Warranty of Title

The UCC provides that implicit in every sale is a warranty of title. Specifically, under UCC § 2-312(1), in every contract for sale there is a warranty by the seller that the title conveyed is good and its transfer rightful. This warranty also assures that the goods will be delivered free from any security interest or other lien or encumbrance, unless the buyer has knowledge of the encumbrance at the time of contracting.

Automobile Fraud: 9.2.2.3 Disclaimer of Warranty of Title

The usual provisions for disclaimer of implied warranties do not apply to the warranty of title.43 Warranty of title can be modified only by specific language or circumstances which give the buyer reason to know of the title defect.44 Neither an “as is” disclaimer nor a statement that the seller is selling only its interest in the vehicle is sufficient.45 To defeat the warranty, the buyer must have actual knowledge of the title defect, not me

Automobile Fraud: 9.2.2.4.1 UCC remedies

As with other warranty claims, the buyer must give timely notice to the seller as a precondition of asserting a claim for breach of warranty of title.48 Particularly when the seller is not acting in good faith, this requirement of a timely notice of breach should be liberally construed in favor of the buyer.49 One court held that notice given by filing suit eight months after police seized the vehicle was sufficient.50 However in other contex

Automobile Fraud: 9.2.2.4.2 Application of Magnuson-Moss Act

The warranty of title is not an express warranty, because the warranty is not dependent on the seller’s representations. It is implicit in the sale. Nevertheless, whether a warranty of title is an implied warranty or some other type of warranty is unclear.

Automobile Fraud: 9.2.2.4.3 Potential defendants; bond claims

Warranty of title problems often arise because a dealer sells the car to a consumer without paying the former owner of the car or without paying a floor plan financer who has a security interest in the vehicle. The dealer then is unable to deliver good title to the new buyer. Dealers who stoop to such fraud are usually on their way out of business, and the consumer should assert a claim against the dealer’s bond as soon as state law allows.63

Automobile Fraud: 9.2.2.5 Obtaining Clear Title for the Buyer

Sometimes the title problem arises because the dealer sells the car without paying the previous owner, and then the previous owner refuses to release the title. In this situation the buyer should be able to win title to the car, as long as the previous owner traded the vehicle in to the dealer, sold it to the dealer, or placed it on the dealer’s lot for sale.

Automobile Fraud: 9.2.2.6 Practical Tips in Warranty of Title Cases

Discovery of a title defect can often be an opportunity for the consumer to get out of the purchase of a bad car. A dealer that fails to pay off the floor plan financer or the previous owner is probably also cutting corners in other ways and selling vehicles with serious concealed problems. The consumer should consider revoking acceptance of the vehicle.

Automobile Fraud: 9.2.3.1 Creation and Breach of Express Warranties

Whenever a seller makes an affirmation of fact or promise which relates to goods and plays any role in the overall bargain of the parties, an express warranty is created that the goods shall conform to every aspect of that statement.74 A statement can be binding even if it is general and imprecise, nonverbal, made to the public at large, made after the deal is struck, or originating from a third party.75 An express warranty is also created by any description of the goods or any sample or mod

Automobile Fraud: 9.2.3.2.2 Express warranties by description

Other express warranties in used car sales are created by the title, purchase order, and other documents, which will specify the car’s vehicle identification number (VIN), make, model, and year. These create express warranties that the car is that VIN, make, model, and year.92 If substantial parts of a rebuilt vehicle in fact are parts from different makes, models, or years, then the warranty is breached.93 The same is true if the VIN is fictitious.

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.