| A California appellate court affirmed a decision against plaintiff car buyers who sought to rescind their contract for a used Cadillac Escalade. In Bermudez vs. Fulton Auto Depot, 179 Cal. App. 4th 1318, 102 Cal. Rptr. 3d 413 (3d Dist. 2009), the Third District California Court of Appeal rejected plaintiffs’ argument that the dealer and the credit union note holder violated the Automobile Sales Finance Act (ASFA) by overestimating the DMV license fee and failing to submit the vehicle to a smog check for which buyers were charged in the purchase contract. The defendant dealer overestimated the DMV license fees by $2.00 and did not smog the Escalade before delivery to plaintiff. After approximately four months, plaintiffs returned to the dealer to inquire why they had not received their registration from DMV. The dealer immediately smogged the vehicle and processed the registration paperwork. In their suit to rescind the contract plaintiffs argued that neither the dealer nor the holder corrected the erroneous charges on their sales contract within the ASFA’s safe harbor period.
Estimated License Fee
The court noted that the dealer had entered the word “estimate” next to the license fee charge on the sales contract. The court also found that Vehicle Code section 11713.4 allows dealers to estimate the DMV licensing fee. That code section requires dealers to return excess charges made to governmental agencies by dealers on behalf of purchasers back to the purchasers. If dealers were not permitted to estimate the license fee under ASFA, then section 11713.4 would be meaningless.
Smog Problem
With respect to the smog fee, the court noted that the dealer may have violated Vehicle Code section 24007(b) (2) which requires a dealer to provide the buyer with a smog certificate before or at the time of delivery of the vehicle. However, plaintiffs based their case on violating ASFA (arguing that the dealer made an untruthful statement on the sales purchase contract) not on section 24007. The court rejected plaintiffs’ contention that the dealer violated ASFA, noting that the dealer did eventually smog the Escalade, that doing so was a requirement for the sales transfer to be effective, and that therefore, the $58.25 charge stated on the sales contract for a smog fee was not an untruthful statement. In other words, the purchase contract was true in stating that there was a $58.25 charge for a smog check before the vehicle could be legally transferred to the buyer because until the smog check happened, buyers did not have legal title of the Escalade.
Beware of Smog Issues
The dealer here missed a bullet. The Court’s determination that an “estimate” of licensing fees is consistent with the law was a sound judgment given that the law is written to refer to “estimate” and refunds of over-charges to the consumer. However, the Court’s determination that the ASFA is not violated when a smog fee is charged without the smog having been done does not mean that a dealer may not have liability under other laws for selling a used vehicle without a necessary smog. The Court alluded to the fact that the dealer may have liability under other laws which were not relied upon by the Plaintiff in this case. Further, a DMV disciplinary action is another risk which a dealer faces for failing to smog a car prior to sale.
The Lesson
The lesson for dealers arising out of the Fulton Auto Depot case is 1) be sure and return any license fee overcharges to consumers, and 2) smog used vehicles prior to sale when necessary.
(This email blast from Miles McLeod Law Firm does not create an attorney-client relationship, nor is it intended that any person rely on the foregoing as legal advice. Please consult counsel for any specific legal questions.) |
