Buyer’s Remorse – Your Rights as a Dealer

Business Law Notes

Summer 2008 Edition

 

BUYER’S REMORSE– YOUR RIGHTS AS A DEALER

You’ve seen it happen from time to time. A customer comes into the dealership and drives out with a vehicle. And then, sometime later, the customer parks the car at the dealership and demands a refund. Maybe the air conditioning isn’t working quite right. Maybe there is a ding on the door. Maybe the car stalled once or twice. What really has happened can be summed up in two words– “buyer’s remorse”.

Contrary to what most dealers believe, the law itself does not hold that the customer is always right. The law actually places significant limitations on the circumstances under which a buyer of “goods” (which includes motor vehicles) can revoke acceptance of merchandise that has been delivered.

There are four requirements which all must be met in order for a buyer to revoke acceptance:

  1. That the goods contain a nonconformity that substantially impairs their value to the buyer;
  2. That the buyer either accepted the goods knowing of a nonconformity by reasonably assuming it would be cured, or that he accepted the goods not knowing of the nonconformity due to the difficulty of the discovery or reasonable assurances from the seller that the goods were conforming;
  3. That the revocation occurred within a reasonable time after the buyer discovered or should have discovered the defects; and
  4. That the buyer notifies the seller of the revocation.

Viewed in the context of the sale of motor vehicles, the legal requirements for revocation of acceptance are formidable to buyers. There must be a problem with the vehicle that substantially impairs its value to the purchaser. Cosmetic defects or minor mechanical problems rarely suffice. For example, the North Carolina Court of Appeals held in one case that a vehicle’s malfunctioning speedometer, odometer and broken fan belt were insufficient to allow revocation of acceptance.

If the buyer is aware of defects in a vehicle, but purchases the car anyway, he cannot later revoke acceptance of the vehicle on the basis of the known defects (unless the dealer promised to repair the problems and failed to do so). Nor can a buyer wait an unreasonable period of time with knowledge of a problem before deciding to revoke acceptance. A buyer who seeks to revoke his acceptance of a vehicle must promptly return it to the dealership and notify the dealer that he is revoking his acceptance.

The most difficult situations for a dealer to defend are those where a vehicle has one or more significant mechanical defects or where it is dangerous to drive. Also difficult for a dealer to defend are situations where the customer has returned the vehicle to the dealership on numerous occasions in order to have a significant problem or series of problems corrected.

A dealer who desires to contest the revocation of the sale of a motor vehicle by a buyer is advised to immediately write the buyer a certified letter demanding that the customer retrieve the vehicle and further stating why the revocation of acceptance is unjustified. Delay on the part of the dealer in sending a written objection to the purported revocation might be deemed by a court to be a ratification of the buyer’s revocation.

If the vehicle is new or is still covered by the manufacturer’s warranty, the dealer should promptly Johnson, Hearn, Vinegar & Gee, PLLC ~ Two Hannover Square, Suite 2200, Raleigh NC ~ 919.743.2200 ~ attys@jhvglaw.com send the manufacturer a certified letter demanding that the manufacturer indemnify the dealer. State law provides broad support for dealers faced with the revocation of acceptance of a new vehicle due to productrelated problems. In such instances, the manufacturer is usually required to indemnify the dealer and to pay the dealer’s defense costs, including attorney’s fees.

Notwithstanding the fact that a dealer may have the legal right to fight a purchaser’s revocation of acceptance, most dealers continue to adhere to the old saying that, “the customer is always right.” Indeed, a dealer who resists a customer’s attempted revocation could subject itself to adverse publicity and large defense costs, even when the customer is not right. However, it remains important that dealers realize that they often do have a choice. A purchaser has no automatic legal right to revoke acceptance of a vehicle. In many circumstances the dealer really can confidently and lawfully say “NO!”

TRUTH IN LENDING DISCLOSURE REQUIREMENTS IN LIGHT OF POLK V. CROWN AUTO DECISION

Many dealers remain confused about how to comply with the disclosure requirements of the Truth in Lending Act (“TIL”) following a decision by the 4 Circuit Court of Appeals that affects how dealers disclose credit terms.

WHAT IS REQUIRED: The Court determined that dealers must provide the consumer with the required TIL disclosures, which are already contained in most standard retail installment contracts, in the following manner:

  1. They must be in writing in a form that the consumer may keep; and
  2. They must be made before the transaction is consummated.

Merely providing the consumer with a signed copy of the retail installment contract after it is signed (when the sale is consummated) is legally insufficient according to the Court.
 

About our Author:

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

 

DISCLAIMER: Johnson, Hearn, Vinegar & Gee, PLLC, provides this newsletter for general information only. The materials contained herein may not reflect the most current legal developments. Such material does not constitute legal advice, and no person should act or refrain from acting on the basis of any information contained In this newsletter without seeking appropriate legal or other professional advice on their particular circumstances. Johnson, Hearn, Vinegar & Gee, PLLC and all contributing authors expressly disclaim all liability to any person with respect to the contents of this newsletter, and with respect to any act or failure to act made in reliance on any material contained herein. Distribution of this newsletter does not create or constitute an attorney-client relationship between the firm and any reader or user of such information.

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