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trade-in allowance, negative equity, refund, contract price, over allowance, Lemon Law, consumer rights, litigation

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  2. I. Trade-In Negative Equity Situation • What is Negative Equity? • What are the Dealers Choices? • More Cash Up Front; or • Over-allowance and raise Contract Price

  3. II. What Happens When The “Over-Allowance” Consumer Wants A Refund? • New York State Lemon Law (GBL§ 198-a(c)(1): “… the manufacturer at the option of the consumer shall replace the motor vehicle, or accept return of the vehicle from the consumer and refund to the consumer the full purchase price or if applicable, the lease price and any trade-in allowance plus fees and charges”. • What is “purchase price”? • Is it the contract price? or • Is it the amount the consumer actually paid for the vehicle?

  4. III. Leading Cases On “Over-Allowance” • New York • Monaco Coach Corp. v. Caliguire (Sup.CT. Schenectady County 2005) • Refund of the entire contract price with over-allowance built-in gives windfall to consumer. • Arkansas • Thrower v. Union Lincoln-Mercury Inc., 282 Ark. 585, 670 S.W.2d 430 (1984) • In a foreclosure action, over-allowance must be deducted from contract price of a vehicle so debtor doesn’t get benefit of a windfall at the expense of the creditor.

  5. Hawaii • Davis v. Wholesale Motors, Inc., 86 Hawaii 405, 949 P.2d 1026 (1998) • Price of trade-in vehicle is an evidentiary issue where contract is rescinded. • California • Thompson v. 10,000 RV Sales, Inc., 130 Cal.App.4th 950, 31 Cal.Rptr.3d 18 (Cal. App. 4 Dist. 2005) • Practice of over-allowance without disclosure to buyer is fraud. The true cost of credit is hidden and the buyer is paying for higher finance charge in the over-allowance situation.

  6. Ohio • Dunaway v. Ford Motor Company, 97 Ohio Misc.2d 3, 709 N.E.2d 947 (OH Ct. of Common Pleas 1998) • Court refused to consider over-allowance toward a reduction in a Lemon Law award. Court would not look past the stated contract price of the vehicle. • Colorado • A&P Trucking v. Phil Long Ford, Inc., 676 P.2d 1267 (Col. Appls. 1984) • Over-allowance should be deducted from value of repossessed vehicle if the dealer (after repossession) re-sells for a price including an over-allowance. The debtor should not get the benefit of the over-allowance.

  7. Minnesota • Elk River Ford Inc. Hoecherl, 428 N.W.2d 857 (Minn.Ct.Appl. 1988) • Over-allowance is part of the bargained-for sale. Court refused to adjust amount owed by debtor (in a repossession situation) to reflect over-allowance amount after dealer re-sold vehicle. • New Mexico • Hale v. Basin Motor Company, 110 N.M. 314, 795 P.2d 1006 (1990) • Automobile dealer is obligated to the purchase price in the contract regardless of the over-allowance because “whatever may motivate the automobile dealer to appraise the [consumer’s] Vehicle in excess of the appraised value” is irrelevant. 110 N.M. at 319.

  8. Illinois • Connor v. Ford Motor Company, 1997 WL 724528 (N.D. I11) • Meaning of “negative equity” on a contract is not apparent and should not be considered in determining refund amount. • Florida • Holzhauer-Mosher v. Ford Motor Company, 772 So.2d 7 (Fla. App. 2nd Dist. 2000) • Under the Florida Lemon Law, a refund must be reduced by the over-allowance amount to the extent of the consumer’s debt on the traded-in vehicle.

  9. Texas • Stephens v. Friendly Chevrolet, Ltd., ___S.W.3d___, 2005 WL 977834 (Tex.App.-Dallas, Decided April 28, 2005) • Whether over-allowance is a “cash price violation” under the Texas fraud laws is an issue of fact for a jury. The Court denied a consumer’s motion for partial summary judgment on the issue of whether the practice of over-allowance was an unlawful deceptive trade practice.

  10. IV. Why Should The Refund Factor In A Reduction For Over- Allowance? • Unjust Enrichment for Consumer

  11. V. Why Shouldn’t The Refund Be Reduced By The Over-Allowance Amount? • The Contract Controls (Parol Evidence) • Policy Argument • Increases Litigation • Puts heavier burden on consumer • NY GBL§ 396-q(2) permits a consumer to bring a private action against a dealer if that dealer reduces the allowance of a trade-in at the time of the sale.

  12. VI. How Do You Get The Over-Allowance Evidence Admitted? • Rigid rules of evidence are relaxed in arbitration settings • Parol Evidence Exceptions: • Consideration. Ehrlich v. American Moninger Green House Mfg., 26 N.Y.2d 255 (1970) • Writing requires explanation or interpretation. Meaning of trade terms such as “over-allowance” or “negative equity”. BM Heede, Inc., v. Roberts, 303 N.Y. 385 (1952) • “Accommodation” contract not intended to exist for the purpose stated in the contract. Adirondack Bank v. Simmons, 210 A.D.2d 651, 619 N.Y.S.2d 383 (3rd Dept. 1994) (held that contract drafted as “loan” was not valid because all parties intended it to be a gift).

  13. Contract was a fraud • Not arguing against the Contract at all. Simply looking at the amount paid by the consumer. If contract says $100,000 and consumer only paid $80,000 – why should the consumer be entitled to $100,000?

  14. VII. How Do You Determine Value of the Trade-In Model? • Actual Cash Value. (What the Dealer would pay for vehicle in straight trade-in). Subtract the over-allowance. • Fair Market Value. Value as determined by variety of factors: • NADA or Blue Book • Classified ads (similar models) • Valuation or sales expert • Wholesale Value • NADA or Blue Book • Usually same as Actual Cash Value

  15. VIII. Implications For The Parties • Dealer • Potential for Fraud Claim (See 10,000 RV Sales (CA) or NY GBL§ 396-q(2)) • Dealer has direct contract with consumer • Must disclose • Less likely to get over-allowance reduced in refund • Manufacturer • Not in privity with Consumer • Not benefiting from the over-allowance • Did not set the terms of the over-allowance • Did not have knowledge or consent of the over-allowance • More likely to get a reduction from the Court of a refund award

  16. IX. What Do You Do? • Dealer • Don’t give over-allowance; or • Disclosure/Disclosure/Disclosure

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