The Case of the Invisible Waiver

It isn’t unusual for the laws and regulations that govern dealer activities to require that certain disclosures and contract terms be “conspicuous.” Occasionally, the font size and the color are mandated as well. These “conspicuousness” requirements frequently apply to parts of the buyers order and the retail installment contract, but sometimes affect other documents, such as credit application forms.

So what happens when the dealer’s form is deficient, or when something that is supposed to be conspicuous, isn’t? That was the question in a recent New York case. Let’s see what happened in the Empire State.

Charles Rhody bought a used Jeep from Main Street Auto in Newfield, N.Y. Rhody sued the dealership, alleging numerous defects in the vehicle. He argued that he was entitled to relief under New York’s Used Car Lemon Law, New York’s Warranty of Serviceability Law and the Uniform Commercial Code (UCC) for breach of the warranty of merchantability.

The court decided that the Used Car Lemon Law did not apply because the vehicle had more than 100,000 miles on it at the time of purchase. So Rhody was out of luck, right?

Not so fast, there, Bunkie. Even though the court didn’t serve up any lemon-aid, it granted Rhody relief under the warranty of serviceability and warranty of merchantability claims.

The court found that the Jeep was presumed to be unfit for use on the highways because Main Street failed to perform an 18-point inspection. As a result, Main Street breached the warranty of serviceability.

But wait! Main Street included language in the bill of sale that was intended to waive the warranty of merchantability, so how could the court determine that the warranty applied?

The court focused on the fact that the waiver appeared in fine print on the back of the bill of sale, was not in boldface type, and was not otherwise obvious to the reader. Because the waiver was not conspicuous, the court found that the waiver was not effective. In other words, an inconspicuous waiver might as well be invisible.

Rhody was entitled to choose between two remedies: The Warranty of Serviceability Law allows the buyer to rescind the contract of sale, surrender the vehicle and title and recover the purchase price plus incidental and consequential damages. The UCC allows the buyer to accept the goods and recover the difference between the value of the goods as accepted and the value of the goods as warranted, plus incidental and consequential damages. The court judged the vehicle to be in poor condition, so the court decided the vehicle was worth one-half of the Kelley Blue Book “fair condition” valuation for the vehicle make, model and year.

It’s time, once again, to haul your documents down to your friendly compliance lawyer’s office for a checkup, just to make sure that none of the language in the forms designed to protect your dealership is invisible.