Monday, August 22, 2016

FYI: Cal App Ct (2nd Dist) Rejects Claim That Post-Dated Checks Were Undisclosed "Deferred Downpayments"

The Court of Appeal of the State of California, Second District, recently held that the California Rees-Levering Motor Vehicle Sales and Finance Act, Calif. Civil Code, § 2981, et seq. ("Rees-Levering Act") does not require a post-dated check provided at the time of sale to be categorized as a "deferred down payment" on the sales contract.

A copy of the opinion is available at:  Link to Opinion

The plaintiff purchased a car from the defendant car dealer using three checks as down payment.  Two of the checks were dated the day after the contract was signed, and one check was dated about two weeks later.

The car dealer entered the three check down payment on the line of the sales contract describing it as a down payment as opposed to a deferred down payment. The car dealer informally agreed to briefly hold the checks as a favor to the plaintiff. 

After several months of owning the car, the plaintiff sought to rescind the contract based on violations of the Rees-Levering Act. The court ruled in favor of the car dealer and auto finance company and the plaintiff appealed.   

The plaintiff argued that the car dealer's failed to disclose a deferred down payment in supposed violation of the Rees-Levering Act, as some or all of the checks were agreed to be held until a later date.  See § 2983 (a)(6)(D) and (c).  In addition, the plaintiff argued if the court were to conclude that a held check is different from a deferred down payment, there would be a violation of the Rees-Levering Act because the agreement to hold the checks would supposedly violate the single document rule.  See Section 2981.9.

As you may recall, section 2981 of the Rees-Levering Act defines "down payment" as "a payment that the buyer pays or agrees to pay to the seller in the cash or property value or money's worth at or prior to delivery by the seller to the buyer of the motor vehicle described in the conditional sale contract."  See Section 2981. 

The term "down payments" also includes "the amount of any portion of the down payment the payment of which is deferred until not later than the due date of the second otherwise scheduled payment, if the amount of the deferred down payment is not subject to a finance charge. The term does not include any administrative finance charge charged, received or collected by the seller as provided in this chapter." (§ 2981, subd. (f).)

Section 2982(a)(6)(D) requires disclosure for deferred down payment, and 2982(c) requires that the deferred down payment schedule be disclosed as required under the federal Truth In Lending Act. 

Here, the plaintiff's monthly payments were set to begin after the date on the post-dated check.  None of the checks were deferred to a later due date than the second scheduled payment.  Therefore, the Appellate Court held, the held checks fell under the definition of down payment in section 2981(f).  The Court also noted that the plaintiff did not provide any evidence that holding the checks affected any aspects of the purchase transaction -- it did not increase the purchase price, the amount financed, the annual percentage rate, monthly payments, payment schedule or the final payment. 

The Court also noted that the plaintiff made her down payment at the time of the purchase and there was nothing left for her to do after that.  Unlike the car buyers in in two other "deferred down payment" cases in which violations of the Rees-Levering Act were found, the here plaintiff did not make her down payments in installments.  See Rojas v. Platinum Auto Group, 212 Cal. App. 4th 997 (2013) and Munoz v. Express Auto Sales, 222 Cal. App. 4th Supp.1 (2014).  

The plaintiff also relied on Highway Trailer of Cal. Inc. v. Frankel, 250 Cal. App. 2d 733 (1967), in which the court held that a post-dated check that was not accurately represented in a contract should not listed as cash down payment.  

Here, the Appellate Court noted that Highway Trailer of Cal. Inc. relied on an earlier version of the Rees-Levering Act under which deferred payments were not mentioned.  Accordingly, the Appellate Court refused to read Highway Trailer to suggest that a check, as a matter of law, cannot be listed on a contract as a down payment under the Rees-Levering Act. 

After reviewing statutory language, legislative history and case law, the Appellate Court here could not find that a post-dated check must be categorized as deferred down payment under the Rees-Levering Act. 

The plaintiff also argued that the car dealer violated the single document rule in the Rees-Levering Act section 2981.9.  This provision requires all agreements of the buyer and seller with respect to the terms of the payment be disclosed in the contract. 

The plaintiff argued that because the car dealer agreed that one check would be deposited until a later date, and that agreement was not stated in the contract, the contract violated the single document rule.  The Appellate Court disagreed, refusing to rule that an informal agreement to accommodate a customer by not immediately depositing a check constitutes a "term of payment" requiring disclosure under section 2981.9. 

Accordingly, the Appellate Court affirmed the trial court's ruling. 

Eric Tsai
Maurice Wutscher LLP
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