You spot delivered a vehicle expecting to assign the contract to a finance source. Unfortunately, the finance source declined the assignment because the customer misstated monthly income, you could not verify information provided, or any of several reasons beyond your control.
You have carefully reviewed the deal paperwork to determine whether you can rescind the transaction. You must have an agreement executed by the customer allowing rescission. When you sell a vehicle on a retail installment sale contract, you are the creditor. If another financial institution refuses to accept assignment of the RISC, there is finance approval – your approval, and you will wind up holding and servicing the RISC unless you can rescind. You will only have authority to rescind the transaction and ask for return of the vehicle if contractual language allows that.
Any time you find yourself in the position of considering rescission, go through a spot delivery rescission checklist:
- There is a contract or a contract provision allowing you to rescind for failure to obtain finance approval.
- The agreement, or the agreement in which the provision is contained, is signed by the customer.
- The dealership can document that it tried to assign the RISC and could not do so.
- The dealership otherwise complied with the terms of the contractual provision allowing rescission.
- The dealer is prepared to return to the status quo ante by returning any trade and the down-payment once the rescission takes place and the vehicle is returned.
Having decided that you can rescind, you contacted the customer requesting that the vehicle be returned. The customer has not done so. You hired a recovery service. The recovery service could not locate the vehicle. Now what do you do?
Often, the decision of what to do is made out of frustration. The customer was not candid when he bought the car, he has not been cooperative in working with the dealership, and he appears to be hiding the vehicle. The first reaction is likely to be “Let’s show him! Let’s report the car as stolen.” That is the wrong reaction.
The car was not stolen. You gave the customer possession of the vehicle under the transaction documents. The amateur lawyers on your staff may contend that if they cannot go to the police to charge the customer with theft, then the dealership should try to have him charged with the lower level misdemeanor of wrongful use. Once again, however, the customer was given possession of the vehicle and is holding possession of the vehicle under whatever temporary registration was permitted. A prosecutor is unlikely to prosecute the case based upon some contractual right you have to rescind the deal and retake possession of the vehicle.
If the prosecutor will not charge the customer, the customer will go free. The customer will still have the vehicle. And now the dealership faces a potential lawsuit for malicious prosecution which can lead to large awards for compensatory damages and even punitive damages.
Often the only safe remedy when a customer will not return a vehicle in a rescinded transaction is a lawsuit. A customer not cooperating with the dealership and hiding the vehicle will probably go into default. The dealership then can quickly obtain a judgment it can use as the basis for discovery from the customer to find out where the car is located and to potentially recover damages if the car can never be found or to recover the dealership’s losses for the period the vehicle was withheld. If the customer does not cooperate with the court’s demands that he appear to answer questions about where the vehicle is, then the court has the authority to detain him until he answers the questions.