Exactly what is a deferred downpayment?

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That was the issue on appeal in Nichols v Century West, LLC et al., 2016 Cal.App.LEXIS 689, after judgment was entered for the dealership. The court of appeal held that post-dated downpayment checks provided to the dealer on the date of sale—as opposed to payments scheduled to be made at a later date—are not “deferred” downpayments.

Michelle Nichols purchased a car using three checks as a down payment. Two checks were dated for the day after she signed the contract and one check was dated around 2 weeks later. All three checks were listed on line 6.G. as “Cash” on the sales contract and it was argued on appeal that her three checks should have been listed as “Deferred Downpayment” on line 6.D. Because the checks were improperly described on the contract, she argued, the Rees-Levering Motor Vehicle Sales and Finance Act (Civil Code §§2981, et seq.) affords her the right to rescind the contract. Nichols contended the three post-dated checks violate Civil Code §2982(a)(6)(D) which requires disclosure for a deferred down payment, and Civil Code §2982(c) that requires a deferred down payment schedule be disclosed on the contract. The Court of Appeal affirmed the trial court judgment, holding “neither the language of the Act nor the cases Nichols cites compel a finding that a car dealer’s informal agreement to wait to deposit a check tendered the day of the purchase – as opposed to scheduling a payment to be made at a later date – constitutes a “deferred” down payment.”

In its decision the Court looked at the definitions provided by Section 2981 of the Act. “’Downpayment’ means a payment that the buyer pays or agrees to pay to the seller in cash or property value or money’s worth at or prior to the delivery by the seller to the buyer of the motor vehicle described in the conditional sale contract. The term shall also include the amount of any portion of the downpayment 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 downpayment is not subject to a finance charge.”

The Court noted that the Act does not include a definition for “deferred,” and therefore it considered other sources. Noting that the Legislative intent was to provide comprehensive protection for the unsophisticated motor vehicle buyer, the Court then looked to cases discussing deferred down payments. The facts of each case were distinguishable, and therefore none of them offered guidance on whether post-dated checks provided at the time of the sale should be categorized as “deferred” down payments. The Court went on to say “While it is arguable that a post-dated check could be categorized as a “deferred” down payment rather than a down payment, neither the statutory language, legislative history, nor the case law compels such a result.”

This is a notable pro-dealer interpretation of both the Rees-Levering Motor Vehicle Sales and Finance Act’s provisions concerning deferred downpayments and its Single Document Rule and distinguishes Rojas v. Platinum Auto Group (2013) 212 Cal.App.4th 997 and Munoz v. Express Auto Sales (2014) 222 Cal.App.4th Supp.1, previous pro-consumer cases interpreting those provisions under facts and circumstances that differed here.

The primary factual differences that led to a finding for the dealer on the Rees-Levering Motor Vehicle Sales and Finance Act’s deferred down payment provisions are that here, the post-dated downpayment checks were received on the date of the sale (requiring no further act of payment by the consumer) and the contract’s notation of the downpayment was an accurate reflection of the parties’ understanding as to the downpayment Nichols was making for the purchase and matched the amount of the checks she presented on the day of sale.

As for the Act’s Single Document Rule, the court of appeal held:

“We have found no authority supporting Nichols’s assertion 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. As stated above, when Nichols provided her $3,000 down payment checks to Century West, no further down payment was due from Nichols. Nichols and Century West did not reach any agreement that Nichols was to pay any additional down payment at a later date. Moreover, nothing in the history or stated purposes of the Act suggests that the Act was intended to allow a buyer to rescind a contract where a dealer has accommodated a buyer’s request to hold a down payment check for a few days.”

Relying on this case as guidance, an informal agreement with a buyer to hold a down payment check provided to a dealership at the time the contract is executed and to be cashed before the due date of the second scheduled payment does not have to be listed as a deferred down payment. Bully for dealers. But caution should still be heeded.

The court of appeal’s common sense reasoning, i.e., that a dealer’s accommodation to a customer who requests that a dealer hold their downpayment checks shouldn’t create a legal violation in light of the intent and purpose of the law, could have broader implications that, consumer advocates may argue, results in inconsistencies with other published decisions. A request for rehearing has already been made and denied at the time this article is drafted. Given the intensity with which consumer advocates despise this opinion and the frequency with which the attorneys representing Nichols petition the California Supreme Court to hear its cases, we fully expect a petition for review to be filed with the California Supreme Court. If the California Supreme Court takes up the case (it has the choice to do so), that act will de-publish this case, rendering it not citable as precedent (valid authority) until after the California Supreme Court rules on the issue, which is unlikely to happen before 2018.

What are dealers to do in the meantime? Until such time as there is a final decision, consult your auto dealer attorney before changing your practice of disclosing down payments and deferred down payments on the sale contract. Also, the CNCDA’s F&I Manual (5th Edition) contains valuable conservative advice on this topic in its Chapters 23 and 24.