NC Court of Appeals Upholds Jury Verdict for Dealership in a YoYo Sales
In March, the North Carolina Court of Appeals issued an opinion affirming a jury verdict on an auto fraud case involving yoyo sales. In Patterson v. University Ford, Inc., the Plaintiff sued University Ford following her attempt to buy a 2010 Mustang. The general manager purportedly told her that she had been “approved” for financing. She filled out the paperwork to buy the car, including a Retail Installment Sales Contract (RISC), which stated that the defendant was the “Seller-Creditor” and that the defendant had “assigned” the RISC to C&F Finance Company.
She also signed a conditional delivery agreement (CDA) which stated, in part, that the “terms of the [RISC] are not binding until accepted by a designated lender. This contract is cancelled if the terms are rejected by a lender.” The defendant’s controller testified at trial that the dealership doesn’t accept deals on a “buy here pay here” basis, and that it never intended to accept payments from the plaintiff.
A critical aspect of the case was that the defendant apparently kept the car insured on its own insurance policy after the plaintiff left the lot, and never filled out any title transfer paperwork, such as a title application. After the defendant was unable to prove a source of additional income for the plaintiff, they told her that the deal wouldn’t get done, and later repossessed the vehicle.
The jury returned a verdict for the defendant. The plaintiff moved for a new trial, which the trial court denied, and the plaintiff appealed.
The plaintiff made a number of arguments on appeal. One of the main arguments was that the trial court erred in giving improper jury instructions. The trial court instructed the jury that title to, and therefore ownership of, a vehicle passes when a certificate of title is issued. Specifically, NCGS 20-72(b) states “[i]n the context of automobile sales, new title to any motor vehicle shall pass or vest until an assignment and warranty of title is executed by the owner on the reverse certificate of title.” The plaintiff argued on appeal that the Uniform Commercial Code should have governed when ownership of the vehicle passed to the plaintiff, specifically, that N.C.G.S. (UCC) 25-2-401(2) should have controlled the issue of ownership. That statutes states “[t]itle, and therefore ownership, passes to the buyer at the time and place at which the seller complete his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document title is to be delivered at a different time or place….” The plaintiff’s proposed instruction though left out key initial language in this section that actually reads “[u]nless otherwise explicitly agreed….” Thus, the Court of Appeals found that the plaintiff’s requested jury instruction was not a complete statement of the law, and therefore the trial court properly instructed the jury on the ownership rule set forth in 20-72(b).
During the trial phase, the plaintiff did not object to the jury instructions, which prevented her from getting a second bite at the apple by arguing on appeal that those instructions were erroneous. Had she objected to the instructions at the time, and requested that the jury be given a UCC instruction, the Court of Appeals would have made a more substantive analysis. As it now stands, the question of when, exactly, the UCC will control the issue of ownership in a motor vehicle sale, remains open. There are some nuances in North Carolina case law on this point, such that there may be times when the UCC, and not the Motor Vehicle Act, will control. Fortunately, the Court did not make any further analysis on this point, keeping the argument alive for another day.
At trial, the plaintiff asserted claims for breach of contract, conversion, and unfair and deceptive practices.
Breach of Contract
On the breach of contract claim, the Court ruled that the CDA and the RISC should be read together, and that the failure of the dealer to sell the RISC to C&F Finance Company meant that the a condition precedent hadn’t occurred, and the contract was therefore void. Because the dealer was not able to sell the contract to a third party finance company, the condition did not occur, the RISC was voided, and the jury found that no breach of contract occurred.
The one positive take away from this ruling is that the Court stated that the question of whether there was “mutual assent” between the plaintiff and defendant, and whether a contract was intended between the parties, is a question of fact for a jury.
The plaintiffs also argued that the presence of a merger clause in the retail installment contract should have precluded the conditional delivery agreement from being introduced at trial. A merger clause is a clause that combines all prior agreements between parties to a contract within the four corners of a contract document. In this case, and in the case of almost all retail installment sales contracts, the RISC contained a merger clause that stated “this contract contains the entire agreement between you and us relating to this contract.” The plaintiff argued that this clause should have excluded the conditional delivery agreement document, since the RISC did not state that it was conditional in any way.
The outcome here hinged on the fact that the dealership maintained insurance on the vehicle. Under the North Carolina Conditional Delivery Act, N.C.G.S. 20-75.1, a dealer can do a conditional delivery of a vehicle, but must keep the vehicle on its own insurance policy and cannot issue 30-day tags or transfer the title of the vehicle. The outcome may very well have been different had the plaintiff actually presented evidence that she insured the vehicle during the time that she had it. Had the dealership made her do this before driving off with the vehicle, I think that a stronger argument could have been made that the dealership violated the Conditional Delivery Act, and therefore should not have been allowed to introduce evidence of the conditional delivery agreement at trial. In any event, I think that under the facts of this case, the Court of Appeals reached the correct result.
The Court of Appeals also upheld the jury’s verdict on the conversion claim. Basically, the Court reaffirmed the principle that “ownership is the issue for the jury”. Thus, because there was a disagreement between the parties as to when ownership of the vehicle passed to the buyer, this factual dispute was correctly decided by the jury. Again, the positive take away from this opinion is that such an issue is one that is correctly for a jury to determine in future cases. I am glad that the Court of Appeals did not state as a matter of law that ownership of a vehicle in a situation like this automatically stays with the dealership.
Unfair and Deceptive Practices
The plaintiff argued that the dealership committed an unfair and deceptive practices by purportedly selling the vehicle using an unconditional retail installment sales contract along with a conditional delivery agreement. In upholding the jury verdict, the Court of Appeals simply referenced the Conditional Delivery Act, N.C.G.S. 20-75.1, which states that a dealership may sell a vehicle conditioned on the purchaser obtaining financing. However, the dealership must keep the vehicle on its own insurance policy until “final financing is obtained.” If it doesn’t, then the dealership violates the law. Because, in this case, it appears that the dealer actually followed the law by maintaining insurance coverage on the vehicle, I think that an argument for an unfair or deceptive practice was weak.
Quite frankly, I think that North Carolina consumers dodged a bullet on this case. This was, unfortunately, not a good case to take up on appeal, and the Court of Appeals could have made a more detailed ruling that harmed consumers in future cases. The fact that it did not, and limited its ruling to just those facts in this particular trial, was beneficial long term.
While the case is not a good one, the positive take away is that it appears that future cases will at least reach a jury. For practitioners looking to accept similar cases, it is imperative before taking the case to determine the exact sequence of events in the transaction, the nature and extent of the documents that the consumer signed, and the issue of insurance coverage.
The simple fact is, dealerships in North Carolina routinely violate the Conditional Delivery Act by representing to consumers that sales are final and unconditional, only to later go back on those representations when a third party finance company does not agree to buy the contract, for whatever reason. Dealerships go wrong by selling vehicles to consumers while having the customer insure the vehicle while the dealer is trying to sell the RISC, putting 30-day temporary tags on the vehicle, and filling out reassignment of title documentation. Many times they make the problem worse by later refusing to return the customer’s deposit money, selling or refusing to return trade-in vehicles, etc.
They say that bad facts make bad law. Unfortunately, I think this opinion will only embolden North Carolina dealers who will read this case too broadly as a vindication of their practices, and double down on their Yo-Yo practices. Only time will tell.