Source: https://library.nclc.org/12-ways-recover-even-when-lemon-used-cars-are-sold-%E2%80%9C-%E2%80%9D
Timestamp: 2020-01-18 06:22:27
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12 Ways to Recover Even When Lemon Used Cars Are Sold “As Is” | NCLC Digital Library
Dealers selling used cars “as is” should not discourage consumers or their attorneys from seeking relief for vehicle defects or dealer misrepresentations. In almost every case, the consumer still has a viable claim despite the “as is” sale. This article sets out a dozen ways for consumers to recover even when they are sold a lemon used car “as is.”
Most of these ways allow for remedies not just a vehicle’s mechanical defects, but also for other less visible but still serious problems, such as unperformed safety recall repairs, missing airbags, flood damage, or wrecked vehicles improperly repaired. For more information on vehicle problems and investigatory techniques, see NCLC’s Automobile Fraud Chapter 2.
Used car installment sales or other purchase agreements frequently include mandatory arbitration provisions. These too should not discourage litigation to remedy vehicle problems. Arbitration agreements, particularly those drafted by used car dealerships, may have unconscionable provisions that render them unenforceable.
Practitioners also report good success in bringing claims before an arbitrator. In most cases the dealer will have to pay for most of the arbitration costs which often comes as a big surprise to the dealer, and may hasten settlement. Other times the dealer may refuse to pay the arbitration fees or to participate in the arbitration, allowing the consumer instead to bring the claims in court. When dealer practices are egregious, arbitration may be an effective venue to seek punitive damages (as long as the arbitrator is indeed neutral), because, unlike a jury award of punitive damages, there will be little or no court review as to the size of an arbitrator’s award of punitive damages. See NCLC’s Consumer Arbitration Agreements.
1. Odometer Misrepresentations Can Lead to a Minimum of $10,000 Statutory Damages
A surprising number of vehicles have “spun” odometers and inaccurate disclosures of the odometer reading on the vehicle’s title. A claim under the federal statute regulating odometer tampering and disclosures is not based on a warranty, but instead on federal statutory provisions. An inaccurate mileage disclosure is therefore actionable even when a used car is sold “as is.” Attempts to have the consumer waive rights under the federal statute should be ineffective. See NCLC’s Automobile Fraud § 5.9.
Anyone violating the federal odometer statute with an intent to defraud is liable for the consumer’s attorney fees plus the greater of $10,000 or treble actual damages. In some circumstances, the consumer may be able to recover multiple $10,000 minimum statutory damage awards. See NCLC’s Automobile Fraud § 6.8.2. In addition, there is no cap on class action recovery, so each class member should be able to recover the greater of $10,000 or treble actual damages. See NCLC’s Automobile Fraud § 6.8.6. For a detailed discussion of the federal odometer statute, see NCLC's Automobile Fraud Chapter 5 and Chapter 6.
2. “As Is” Sales Do Not Prevent UDAP Recoveries of Multiple or Statutory Damages and Attorney Fees
Every state has a “UDAP” statute providing a private right of action to remedy deceptive and in many states unfair or unconscionable practices. Statutes typically provide for the consumer’s attorney fees and some combination of actual, minimum, multiple, and punitive damages. See NCLC’s Unfair and Deceptive Acts and Practices Appendix A. Such statutes will apply to almost any form of dealer misconduct in the sale of a used vehicle. See NCLC’s Automobile Fraud § 9.4.8.
The UDAP claim is not based upon breach of the vehicle’s warranty or breach of a contract, but rather on the dealer’s deceptive or unfair practices in violation of the state statute. Thus an “as is” disclaimer in the contract does not prevent a UDAP claim based upon the dealer’s oral representations, failure to disclose, or unfair conduct. See NCLC’s Automobile Fraud § 9.4.3.
3. Fraud Claims for Punitive Damages Unaffected by “As Is” Disclaimer
In most jurisdictions, a fraud claim can recover punitive damages, and thus may be a good choice where the dealer’s conduct is intentional and egregious. For a general discussion of fraud claims and punitive damages in used car cases, including constitutional limits on punitive damages, see NCLC’s Automobile Fraud Chapter 8. If a fraud claim is forced into arbitration, there will be far less court review of the size of a punitive damage award, making arbitration an attractive forum for a consumer’s punitive damages claim if the arbitrator does not have an anti-consumer bias.
A fraud claim is not based upon breach of warranty or contract, but is instead a tort claim. As such, the “as is” sale does not prevent a recovery based on the dealer’s fraud. See NCLC’s Automobile Fraud § 8.4.2.
A fraud claim will not provide for a prevailing consumer’s attorney fees. Attorney fees can be recovered where claims under a state UDAP claim, the federal odometer statute, or the Magnuson-Moss Act for breach of a written or implied warranty are added to the consumer’s case.
4. “As Is” Disclaimer Does Not Apply to the Warranty of Good Title
Even a used car sold “as is” comes with a warranty that the title conveyed is good, that its transfer is rightful, and that the vehicle will be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge. See U.C.C. § 2-312(1); NCLC’s Consumer Warranty Law § 4.5. Warranty of title can be modified only by specific language or by circumstances which give the buyer reason to know of the title defect. See U.C.C. § 2-312 cmt. 4.
Failure to provide the consumer with the title, or with a clean title, is thus a breach of this warranty. The warranty of good title also creates a warranty that the title the consumer has received goes with the vehicle purchased—for example the warranty may be breached if a formerly salvage vehicle is restored in substantial part with the body or engine of a vehicle containing a different VIN than the one on the title.
5. Dealer’s “As Is” Disclaimer Does Not Affect Manufacturer Warranties That Can Even Apply to Used Cars
Whatever the nature of a dealer’s warranty on a used vehicle, the vehicle may still be subject to the manufacturer’s written warranties. A manufacturer’s written warranty rarely limits itself to the first purchaser, so a subsequent purchaser is protected by the unexpired portion of the manufacturer’s warranty. In addition, used vehicles are frequently sold today through a manufacturer’s certified pre-owned vehicle program that may provide another written warranty.
Breach of any manufacturer written warranties leads to remedies against the manufacturer under the federal Magnuson-Moss Warranty Act, including actual damages and attorney fees, even when the dealer sells the vehicle to the consumer “as is.” Moreover, as explained in item # 7, below, when the manufacturer offers a written warranty on a vehicle, the Magnuson-Moss Warranty Act prevents the manufacturer from disclaiming implied warranties (although the manufacturer can limit the implied warranty’s duration to that of the written warranty if it explicitly does so). See NCLC’s Consumer Warranty Law § 2.3.2.
New car lemon laws may also apply to subsequent purchasers of low-mileage used cars or to those purchasing demonstrators or similar used cars that have never been titled in a buyer’s name. Much depends on the language of a state’s new car lemon law statute. If applicable, the lemon law will provide the consumer with a replace or refund remedy. See NCLC’s Consumer Warranty Law § 14.2.3.3.
6. Used Car Dealers Make Many Hidden Express Warranties That Cannot Be Disclaimed
While an “as is” disclaimer may be effective as to implied warranties, it cannot prevent enforcement of an express warranty. Dealers selling used cars typically try not to make express warranties, but that is impossible, and dealers always make express warranties whether they know it or not.
Descriptions on the purchase order or installment sales agreement are almost always express warranties. This includes the vehicle’s make, model, and year, or any other notation such as “undamaged condition” or “replaced a/c.” The sales documents will also indicate the odometer mileage—an express warranty that the mileage is correct. Even advertising can create an express warranty.
Review the vehicle’s title that the dealer has signed over to the consumer. If the consumer does not have the title, it is likely with the creditor holding a lien on the car. The absence of a salvage brand is a representation about the vehicle’s salvage history—that the vehicle has never been declared salvage or that the appropriate steps were taken to remove the salvage brand.
Oral statements can also create express warranties, such as “is a good runner” or “reliable and in good, safe, roadworthy condition” or “mechanically A-1” or “never been wrecked” or “only one previous owner and no major repairs.”
7. Federal Magnuson-Moss Warranty Act Sharply Limits “As Is” Sales
The federal Magnuson-Moss Warranty Act specifies that a dealer or manufacturer providing a written warranty on a vehicle cannot disclaim implied warranties for that vehicle. Even if the written warranty is limited to certain vehicle components, the federal statute prohibits disclaimers of any implied warranty. See NCLC’s Consumer Warranty Law § 2.3.2.
Dealers may provide a written warranty as part of the sale of a certified pre-owned vehicle. But not all dealer express warranties are written warranties. A written warranty is a written representation that the car is defect free or will meet a specified level of performance. A written warranty can also be a written promise to refund, repair, replace or take other action if the vehicle fails to meet certain conditions. See NCLC’s Consumer Warranty Law § 2.2.3.1. In addition, implied warranties can be limited to the duration of the written warranty, but only if this limit is set forth in “clear and unmistakable language and prominently displayed on the face of the warranty.” See NCLC's Consumer Warranty Law § 2.3.2.3.2.
Usually of more significance in the sale of used cars, the federal Magnuson-Moss Warranty Act also prevents disclaimer of implied warranties if the dealer “enters into” a service contract with the consumer within ninety days of the vehicle’s sale. Service contracts are an important profit source in the sale of used cars and often accompany the vehicle sale. As with the written warranty, even if the service contract is limited in scope, the dealer cannot disclaim any implied warranties.
Less clear though is where a dealer “enters into” a service contract. When the dealer sells its own service contract, it has clearly entered into the service contract, even if the dealer hires a third party to administer the contract, as long as the dealer is financially responsible for the contract. NCLC’s Consumer Warranty Law § 2.3.2.2.1.
What about when the dealer offers another entity’s service contract? The dealer still has entered into such a service contract if the dealer is obligated to perform under the contract, such as when the contract provides that all service will be at that dealer. On the other hand, if the dealer merely sells another party’s contract without anything else, the dealer may not have entered into the contract. For more detail as to whether a dealer has entered into a service contract, see NCLC’s Consumer Warranty Law § 2.3.2.2.
When a dealer cannot disclaim implied warranties, the breach of any of those warranties is actionable under both the UCC and the Magnuson-Moss Warranty Act. See NCLC’s Consumer Warranty Law § 2.3.1. While both statutes provide for actual damages, only the Magnuson-Moss statute provides for attorney fees. See NCLC's Consumer Warranty Law § 2.7.8.
8. Seven Jurisdictions Broadly Prohibit “As Is” Sales in Any Consumer Transaction, Including Used Car Sales
With some restrictions, the District of Columbia, Kansas, Maryland, Massachusetts, Mississippi, Washington, and West Virginia prohibit “as is” sales in any consumer transaction, so that “as is” sales of used motor vehicles are prohibited. On the other hand, the prohibitions of “as is” sales in Connecticut, Minnesota, and Vermont apply only to the sale of new goods. Maine’s prohibition of “as is” sales excludes used cars because it defers to other Maine law regulating motor vehicle warranties. See NCLC’s Consumer Warranty Law § 5.4.2.
9. Most Other States Have Special Legislation Limiting “As Is” Sales of Used Cars
Most other states have some form of legislation protecting purchasers of used vehicles despite a dealer’s attempt to disclaim all liability. Seven jurisdictions—Hawaii, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, and the Virgin Islands—have used car lemon laws that provide minimum warranties despite “as is” sales.
Arizona, Connecticut, Maine, and New Mexico also create statutory warranties or require the implied warranty of merchantability to be in effect for at least the first few weeks after the sale. Pennsylvania provides that there is an implied representation that any vehicle sold in the state is roadworthy. Illinois and Nevada have restrictions on disclaimers. Virginia requires special language in any disclaimer regarding a used vehicle sold for consumer use. Wisconsin requires specific negotiation in motor vehicle sales to disclaim implied warranties.
Most states also require used cars to pass an inspection, sometimes at the point of sale. New York’s law is particularly strong, creating non-waivable protections and allowing a private cause of action. Several states also have laws requiring disclosure of damage that used cars have suffered before sale.
A state-by-state list of thirty-three jurisdictions that limit in some way “as is” sales of used cars is found at NCLC’s Consumer Warranty Law § 15.5.7.
10. Revoking an “As Is” Sale
Even when the dealer has effectively disclaimed implied warranties, some courts allow the consumer to revoke acceptance of the used car if there is a defect that is considered a nonconformity—the seller has not delivered the vehicle that was ordered. This is particularly the case where the original manufacturer warranty is still in effect. For more on when a consumer can revoke a used car sold “as is,” see NCLC’s Consumer Warranty Law § 5.14.
11. “As Is” Disclaimers Are Not Effective If Disclaimer Not Properly Worded or Disclosed
The UCC allows disclaimers of implied warranties only if the dealer uses the correct language. It must either mention “merchantability” or use expressions such as “as is” or “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty. See NCLC’s Consumer Warranty Law § 5.5.
Even if the correct language is used, the dealer cannot rely on the manufacturer’s “as is” language, but must put it into its own sales documents. Any ambiguity must be interpreted against the drafter. See NCLC’s Consumer Warranty Law § 5.6.
The disclaimer must also be conspicuous. Disclaimer of the implied warranty of fitness must be in writing and conspicuous and a written disclaimer of merchantability must also be conspicuous. A contract disclaimer in type no larger than any other and not otherwise set out from the rest of the contract is not conspicuous and is inoperative as a disclaimer. Similarly, a disclaimer that contrasts only slightly with neighboring text is not conspicuous. If the print is too small or too light to be read, the disclaimer is inconspicuous. See generally NCLC’s Consumer Warranty Law § 5.8.
The disclaimer must be given prior to consummation of the sale. If made later, it has not been made conspicuously and is not part of the basis of the bargain. Thus any disclaimer found in documents given to the consumer after the sale has been made is not effective. The federal Magnuson-Moss Warranty Act also requires that the terms of a warranty be made available to the consumer prior to the sale, and a violation can lead to actual damages and attorney fees. For more on whether a disclaimer has been provided prior to consummation, see NCLC’s Consumer Warranty Law § 5.7.
To be binding, the “as is” disclaimer must be agreed upon by the parties. Thus a sticker on the car saying “as is” is not part of the sales contract and should not be binding. See NCLC’s Consumer Warranty Law § 5.10.
Some courts even require that the disclaimer actually be negotiated or specifically brought to the consumer’s attention. Even if brought to the consumer’s attention, it may not be enough if the dealer orally misrepresents the nature of the disclaimer. Similarly, where a transaction is conducted in another language, an English-only disclaimer may be ineffective. See NCLC’s Consumer Warranty Law § 5.9.
12. “As Is” Disclaimer Ineffective If Unconscionable, in Bad Faith, or Circumstances Indicate Otherwise
U.C.C. § 2-316(3)(a) provides that an “as is” disclaimer is effective “unless the circumstances indicate otherwise.” For example, circumstances may indicate otherwise where the buyer does not understand English or does not understand the significance of the disclaimer—such as believing that “as is” means “as equipped.” The dealer’s conduct can also create circumstances that “indicate otherwise,” such as where the dealer takes steps to divert the consumer’s attention from the disclaimer, discourages the consumer from reading the disclaimer, or puts a hand over the disclaimer. See generally NCLC’s Consumer Warranty Law § 5.11.
The UCC’s unconscionability standards should also apply to warranty disclaimers. Thus the disclaimer can be found unconscionable and unenforceable where the dealer knew of major defects, the consumer did not understand English, or the dealer contradicted the disclaimer with oral assurances. Since unconscionability will depend on the facts, the consumer should be able to proceed to trial with an unconscionability claim, allowing the consumer to present facts to support this claim. See NCLC’s Consumer Warranty Law § 5.12.
The UCC also provides that every contract imposes an obligation of good faith. This defense to an “as is” sale should be effective where the dealer has failed to disclose material vehicle defects. See U.C.C. § 2-314, cmt. 3; NCLC’s Consumer Warranty Law § 5.13.
John Van Alst is a staff attorney at the National Consumer Law Center whose focus includes deceptive practices law, automobile fraud, rural issues, warranty, and manufactured home issues. Prior to joining NCLC John was an Attorney with Legal Aid of North Carolina. He was also the Chair of the North Carolina Consumer Law Task Force. He spent one year as a Visiting Clinical Supervisor at the University of North Carolina School of Law's Civil Clinical Program supervising law students representing low-income clients. He is a graduate of the University of North Carolina School of Law.
He is co-author of NCLC's Automobile Fraud, Consumer Warranty Law, and Repossessions.
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