- False. Under common law, once the dealer and the customer sign an agreement for sale of a vehicle, including a retail installment sale contract or a lease, the transaction is complete unless you protect yourself with a written condition subsequent allowing you to rescind the transaction. Virginia law provides the language to be used.. Make sure your form buyer’s order has the state mandated language and that you follow it.
Have a process for clear disclosure to your customer of the conditional nature of the sale. In almost every spot delivery case, the consumer will contend that the dealer’s representative said that “you have been approved” and “your sale is final”. Have a script to be followed in every spot delivery that advises the customer that the completion of the deal is subject to approval by a finance source that will take assignment of the contract.
- True. Unless there is some egregious wrongdoing by the customer amounting to fraud, spot delivery agreements generally require the inability to obtain approval for the assignment of the RISC or lease. You need to be sure that you have processes in place to spot deliver and that you have taken the steps to obtain finance or lease source approval, absent customer fraud.
Document attempts to obtain approval. One of the common charges by plaintiffs’ lawyers is that a dealer just didn’t try very hard to get the deal approved at the rate or at the terms on which delivery took place. They charge that the dealer wanted the customer to come back so that it could increase the rate or add elements to the contract that will increase the dealer’s profit. That is almost always nonsense, but in a lawsuit you will have to prove that. Make sure that the attempts to submit the deal and rehash the deal, where appropriate, are adequately documented in the deal file.
- True. A dealer can always renegotiate. However, be clear that the replacement contract is voluntary. A common claim in spot delivery cases is that customers were told that they are bound to the recontract. Have a script clearly explaining the customer’s choices and the benefits of working with the dealer on the alternate deal terms.
- False. Once you have determined that you will not be able to obtain financing or lease approval for the customer, act reasonably and in accordance with the law. Seek to recover the vehicle without (what lawyers call) a “breach of the peace.”
- False. Having decided that you can rescind, 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. Even a misdemeanor charge of wrongful use may lead to a malicious prosecution lawsuit since the customer is operating on legally issued documentation, even if overdue.
The answer is a civil suit to recover the vehicle. 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.
- False. If you must take back the vehicle you delivered, what you are doing is rescinding the contract. In other words, you are returning the dealership and the buyer to the beginning as if the transaction had not even occurred, to the extent possible. That means that not only must the customer give back the car you delivered, you must give back the trade and any downpayment. If you do not do that, or you cannot do that, then you are not in a position to “rescind” the transaction.
- False. You should bullpen trades until the deal is complete. If the finance or lease agreement is rescinded, you must be in a position to return the trade to the customer. Many dealers who are short on space think they can send them the wholesalers “on a string”, meaning they can get them back if they want to. However, there are several problems with this.
The wholesaler does not have to respect your verbal agreement. The wholesaler simply may resell the vehicle, taking away your ability to rescind the contract.
A customer can claim that if the trade was subject to return, the dealer had the obligation to avoid a transfer, just as the customer cannot transfer the spotted vehicle while the deal is incomplete.
If you rescind, you must return the vehicle in the condition you received it, just as the customer must do for yours. Don’t forget, rescission is based on the theory that you can return to the status quo at the time the deal is done. If excess mileage, damage, or repairs are done to the vehicle, you may find that you no longer have the right to rescind.
Some wholesalers may improve the vehicle, putting you on the hook for paying for improvements that you will not be able to charge to the customer who traded the vehicle if you rescind.
- True. If you must rescind the deal, how will you return the trade with its financing in place which is what is necessary to get you back to the status quo ante? If you pay it off, the finance source has little incentive to reinstate the financing, jeopardizing your right to rescind the deal. Protect your rights holding the payoff until completion of the deal.
- False. Do not charge for mileage. Again, if you take a car back, you are rescinding the transaction. It may be the customer’s fault for giving you faulty information. It may simply have been a mistake by dealer personnel. It does not matter. If you are taking the transaction back to the beginning, that should be done without imposition of fees, unless clearly allowed under state law.