April 14, 2025
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
You sell and deliver a new car to a customer. He trades a used car worth $18,000, promising he will bring you the title next week. Next week comes, and you do not receive the title. You finally discover the trade is co-owned by the customer’s brother who has no intention of signing the title.
Or, you sell and deliver a new car to a customer who trades in a vehicle with a $18,000 payoff and equity worth $18,000 and fails to disclose that a spouse is on the title. You pay off the trade and the title comes in with the name of the spouse on the title. You contact the customer about a signature on the title or a power of attorney. The customer promises something will happen next week. Next week comes, and the spouse does not appear. That drags on for several weeks, only for you to find the wife and husband are now separated and cannot agree on anything. The other spouse has no intention of signing the title or the power of attorney.
The result in each case is the same. You have a used car and the only thing you can do with it is store it. Your only choice is to sue the customer for the trade allowance. When you get a judgment months later, and you possibly collect the judgment amount months after that, your recovery after attorneys’ fees and costs is a fraction of what you have invested in the trade.
To make matters worse, if you sell the trade to a retail customer before you have clear title, and the other trade owner demands his or her vehicle back, the dealership may face claims by the other owner who says he or she did not authorize the transaction.
So what do you do to prevent these problems?
First, know who owns the vehicle being traded by the customer. The customer may not have the title, but the customer should have the owner’s card. What does that say about who owns the trade? If the customer does not carry the owner’s card in the vehicle, ask questions. If the trade is titled in a state where you have access through your computerized registration system, you can check to see who owns the car.
More important, why title the vehicle you sold to the customer before you have a valid trade title? Failing to provide good title for the trade vehicle is a failure of consideration as if the downpayment check bounced. Under your sale agreement, you probably have the right to claim the customer breached the contract by failing to provide the consideration upon which any financing was based, and this allows you to rescind the sale. Once you title the vehicle you sold, you lose your rights.
Situations where dealers are getting stuck with trades for which they do not have a good title because of circumstances described in this article are becoming increasingly frequent. You must take action immediately to know you have good title to a trade before completing a deal.