DEALERLEGALSERVICES.NET
6256 Greenwich Drive, Suite 500 San Diego, CA 92122 (619) 857-4243 Tel.
DEALERSHIP LAW 101 NEWSLETTER
California Lemon Law & The Pre-Owned Vehicle When an automobile dealer is sued under California's lemon law statute by a customer who has repeated mechanical problems with a used vehicle, the dealership's initial reaction is often that the lemon law does not apply to used vehicles. This is a common misperception. California's lemon law does apply to the sale of used vehicles sold with written warranties (i.e. 50% parts and labor for 30 days or 3,000 miles). Thus, a dealership is exposing itself to liability every time it sells a pre-owned vehicle with a written warranty if it is unable to make the vehicle conform to the warranty terms. In addition, each time a dealer sells a vehicle with a written warranty the lemon law automatically imposes an implied warranty of merchantability on the vehicle. The law mandates that the implied warranty is the same duration as the written warranty which accompanied the vehicle, but no less than 30 days. Cal. Civ. Code §1795.5(c). Further, an implied warranty of merchantability covers all aspects of a vehicle versus a written warranty which may cover only the engine and power train. Thus, the implied warranty of merchantability can be much broader than a written warranty thereby creating additional exposure for the dealership. Excessive Repair Attempts on a Written Warranty Item In regard to a used vehicle, if a dealership is unable to make the vehicle conform to the terms of the limited, written warranty within
a "reasonable number of attempts", the customer has the right to rescind the contract and receive full reimbursement of all monies paid towards the purchase of the vehicle. Cal. Civ. Code §1793.2(d). The customer may also recover any incidental damages (i.e. towing and rental car costs), a civil penalty in the amount of two times the actual damages, and his or her attorney's fees. Thus, a customer is entitled to a full buy back on a used vehicle if the limited, written warranty is breached. The lemon law does not define how many repair attempts constitute a "reasonable number of attempts" on a used vehicle. Thus, it is up to the jury to decide if the number of repair attempt was reasonable or not. As a rule of thumb, it is generally accepted that four to five repair attempts is the maximum number a jury would accept as reasonable. Excessive Repair Attempts on an Implied Warranty Item It is often the case that a customer's mechanical problem is not covered by the limited, written warranty the dealership provided. Thus, a dealership may feel it has no obligation to fix these problems. However, if the defect makes the vehicle unfit for use during the implied warranty period, a dealership may breach the implied warranty of merchantability if it refuses to fix the problem. If an implied warranty is breached the customer's remedy is limited to three possibilities: 1) revocation and cancellation of the contract which is very similar to
6256 Greenwich Dr., Suite 500, San Diego, CA 92122, (619) 857-4243
DEALERLEGALSERVICES.NET
6256 Greenwich Drive, Suite 500 San Diego, CA 92122 (619) 857-4243 Tel.
DEALERSHIP LAW 101 NEWSLETTER reimbursement rights for a breached limited, written warranty; 2) recovering the cost of the repair; or 3) recovering the diminished value of the vehicle due to the defect. Revocation/Cancellation of Contract vs. Cost of Repair/Diminished Value A customer's right to revoke acceptance of a vehicle and cancel a contract under a breach of implied warranty must be done "within a reasonable time after the buyer discovers or should have discovered the ground for it. (Cal. Com. Code § 2608, subd. (2)) and must also be done before "any substantial change in condition of the goods". Gavaldon v. Superior Court (2004) 32 Cal. 4th 1246. Thus, if a customer waits for a long period of time or puts a substantial amount of mileage on the vehicle after the problem is discovered, his or her right to cancel the contract could be waived. If so, the customer's rights would be limited to recovering the cost to fix the problem or recovering the diminished value of the vehicle as a result of the problem, which ever is the lesser of the two. Unfortunately, even if a customer was to win only the cost of the repair under California's lemon law, the customer is still considered the "prevailing party" and would be entitled to his or her attorney's fees against the dealership. Thus, an award for $200 in repairs could result in a disproportionately large attorney fee award in favor of the plaintiff. Avoiding Liability Under the Lemon Law There is only one way to avoid liability under the California lemon law when selling a used vehicle. The lemon law does not apply when a used vehicle is sold "AS-IS" 6256 Greenwich Dr., Suite 500, San Diego, CA 92122, (619) 857-4243 and without a written warranty. In order to properly sell a vehicle "AS-IS" in California, the "AS-IS" disclaimer must be posted on the vehicle itself. Cal. Civ. Code. 1792.4 (a). This is done using the Buyer's Guide required by Part 455 of Title 16 of the Code of Federal Regulations. As a reminder, a customer must be provided a copy of the front and back of Buyers' Guide at the time of the sale. The customer is not required to sign the Buyer's Guide, but it is a good practice to do so as this is often the only way of proving that the Buyer's Guide was given to the customer. Some dealers rely on disclaimers of implied warranties on the reverse of a retail installment sale contract or a separate "ASIS" form filed out in conjunction with DMV paperwork. However, these do not effectively disclaim any implied warranties and are not sufficient to create a true "ASIS" sale unless they were posted on the vehicle itself. Thus, checking “AS-IS” on the Buyer’s Guide and posting the disclaimer on the vehicle is the only way to avoid liability under California’s lemon law.
Author: Michael C. Rogers, Esq.
The Dealership Law 101 Newsletter is published to provide our clients and friends with information concerning recent legal developments in the automotive industry. These developments should not be acted upon without first seeking professional, legal advice.