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Lemon Law – Arizona

Author: LegalEase Solutions

RESEARCH FINDINGS

Under Arizona Law, was the dealer required to disclose the information that the car was a lemon law buyback vehicle prior to the purchase? If that information was not disclosed, does this amount to violation of the Arizona Lemon Law or fraud.

Arizona’s Lemon Law

Arizona Motor Vehicle Warranties Act (also known as “Arizona’s Lemon Law”) falls under Ariz. Rev. Stat. §§ 44-1261 to 44-1267.

Under Arizona’s Lemon Law, if a new “vehicle cannot be timely repaired, the consumer is entitled to either a replacement vehicle or a refund of the purchase price.” Hull v. DaimlerChrysler Corp., 209 Ariz. 256, 257 (Ariz. App. 2004) ((citing A.R.S. § 44–1263(A)). “Both of these prescribed remedies require the consumer to return the nonconforming vehicle to the manufacturer.” Id. Additionally, these are the only statutory remedies provided for under Arizona’s Lemon Law. See, id. However, these remedies only apply new vehicles only. Smith v. TMC Acquisitions, LLC, 2:05CV3237-HRH, 2006 WL 2613426 (D. Ariz. June 22, 2006) (citing A.R.S. § 44-1262) (“Arizona’s Lemon Law applies to new vehicles.”) (emphasis in original); see also Hull, 209 Ariz. at 257 (same).

Nevertheless, Arizona’s Lemon Law does provide coverage regarding used vehicles. A.R.S. § 44-1266 provides rules with respect to the notice to dealers must provide to prospective purchasers of buyback vehicles. Specifically, the statute states:

A manufacturer who has . . . replaced or repurchased a motor vehicle pursuant to this article or the repair or replace laws of another state shall, before offering the motor vehicle for resale, attach to the motor vehicle written notification indicating the motor vehicle has been replaced or repurchased. A consumer has a cause of action against any person who removes the written notification from the motor vehicle, except as provided in subsection B of this section.

  • 44-1266(A). Under subsection B, a motor vehicle dealer who offers sale of a replaced or repurchased motor vehicle “shall provide the purchaser with the manufacturer’s written notification indicating that the motor vehicle has been replaced or repurchased before completion of the sale.” § 44-1266(B).

Moreover, pursuant to A.R.S. § 28-4412(A), prior to “the consummation of the sale of a used motor vehicle, a motor vehicle dealer” must disclose the following:

  • Provide each purchaser with a written statement that:

(a) Indicates whether or not an express warranty or guaranty is associated with the used motor vehicle.

(b) Is distinguished from the body of the sales agreement through the use of either bold-faced type or bold-faced type of a color other than that used in the body of the agreement.

(c) States “as is — not expressly warranted or guaranteed,” if the used motor vehicle to be sold is not expressly warranted or guaranteed.

(d) Explicitly states the nature and extent of the express warranty or guaranty, if the used motor vehicle to be sold is expressly warranted or guaranteed.

(e) States “as is — not guaranteed to pass vehicle emissions inspection. Vehicle not eligible for certificate of waiver and must be repaired to meet emissions standards,” if the used motor vehicle is a disabled vehicle that is offered for sale at a wholesale public auction with an auctioneer who is a licensed used motor vehicle dealer and if the vehicle does not comply with the requirements prescribed in § 49-542.

  • Direct the purchaser’s attention to the written statement.
  • 28-4412(A)(1)-(2). Additionally, “[t]his section does not negate any implied warranties otherwise applicable to the sale of a used motor vehicle, including the implied warranty of merchantability described in § 44-1267.” A.R.S. § 28-4412(B).

Section 44-1267 describes all the requirements, warranties, and remedies for used car buyers under Arizona’s Lemon Law. Under § 44-1267(B):

Except as provided in subsection I of this section and in addition to the requirements of § 28-4412, a used motor vehicle dealer shall not exclude, modify or disclaim the implied warranty of merchantability prescribed in § 47-2314 or limit the remedies for a breach of that warranty, except as otherwise provided in this section, before midnight of the fifteenth calendar day after delivery of a used motor vehicle or until a used motor vehicle is driven five hundred miles after delivery, whichever is earlier.

In calculating time under this subsection, a day on which the warranty is breached is excluded and all subsequent days in which the motor vehicle fails to conform with the implied warranty of merchantability are also excluded. In calculating distance under this subsection, the miles driven to obtain or in connection with the repair, servicing or testing of the motor vehicle that fails to conform with the implied warranty of merchantability are excluded. An attempt to exclude, modify or disclaim the implied warranty of merchantability or to limit the remedies for a breach of that warranty, except as otherwise provided in this section, in violation of this subsection renders a purchase agreement voidable at the option of the purchaser.

Under § 44-1267(C):

For the purposes of this section, the implied warranty of merchantability is met if the motor vehicle functions in a safe condition . . . and is substantially free of any defect that significantly limits the use of the motor vehicle for the ordinary purpose of transportation on any public highway.

The implied warranty of merchantability expires at midnight of the fifteenth calendar day after delivery of a used motor vehicle or when a used motor vehicle has been driven five hundred miles after delivery, whichever is earlier . . . .

(emphasis added).

However, “[t]he implied warranty of merchantability does not extend to damage that occurs after the sale of the motor vehicle and that is the result of any abuse, misuse, neglect, failure to perform regular maintenance or to maintain adequate oil, coolant or other required fluid or lubricant or off road use, racing or towing.” § 44-1267(D).

Under § 44-1267(E):

If the implied warranty of merchantability described in this section is breached, the purchaser shall give reasonable notice to the seller. Before the purchaser exercises any other remedies under title 47, chapter 2,[Arizona’s adopted version of the Uniform Commercial Code (“UCC”)] the seller shall have a reasonable opportunity to repair the vehicle. The purchaser shall pay one-half of the cost of the first two repairs necessary to bring the vehicle in compliance with the warranty. The purchaser’s payments are limited to a maximum payment of twenty-five dollars for each repair.

Moreover, if the seller breaches the implied warranty of merchantability under § 44-1267, “[t]he maximum liability of the seller under this section is limited to the purchase price paid for the used motor vehicle.” § 44-1267(F).

Additionally, under § 44-1267(G):

An agreement for the sale of a used motor vehicle by a used motor vehicle dealer is voidable at the option of the purchaser unless it contains on its face the following conspicuous statement printed in bold-faced ten point or larger type set off from the body of the agreement:

The seller hereby warrants that this vehicle will be fit for the ordinary purposes for which the vehicle is used for 15 days or 500 miles after delivery, whichever is earlier, except with regard to particular defects disclosed on the first page of this agreement. You (the purchaser) will have to pay up to $25.00 for each of the first two repairs if the warranty is violated.

“The inclusion of the statement prescribed in subsection G of this section in the agreement does not create an express warranty.” § 44-1267(H).

However, the “purchaser of a used motor vehicle may waive the implied warranty of merchantability described in this section only for a particular defect in the vehicle and only if all of the following conditions are satisfied:”

  1. The used motor vehicle dealer fully and accurately discloses to the purchaser that because of circumstances unusual to the used motor vehicle dealer’s business, the used motor vehicle has a particular defect.
  2. The purchaser agrees to buy the used motor vehicle after disclosure of the defect.
  3. Before the sale, the purchaser indicates agreement to the waiver by signing and dating the following conspicuous statement that is printed on the first page of the sales agreement in bold-faced ten point or larger type and that is written in the language in which the presentation was made:

Attention purchaser: sign here only if the dealer told you that this vehicle has the following problem(s) and that you agree to buy the vehicle on those terms:

1.__________

2.__________

3.__________

  • 44-1267(I). Furthermore, “[t]he dealer has the burden to prove by a preponderance of the evidence that the dealer complied with subsection I[.]”§ 44-1267(J).

The foregoing establishes the rights and remedies of a used car purchaser who argues that the used car dealer breached the implied warranty of merchantability. Furthermore, by virtue of § 44-1267(E) and (K), a used car purchaser may pursue additional remedies only under Arizona’s adopted version of the UCC. See § 44-1267(E) (“Before the purchaser exercises any other remedies under [the UCC] . . . .”); § 44-1267(K) (“Any purchaser . . . who is aggrieved by a transaction pursuant to this section and who seeks a legal remedy shall pursue any appropriate remedy prescribed” under Arizona’s adopted version of the UCC, “and shall comply with the requirements prescribed” thereunder.).

Arizona’s Adopted Version of the UCC

  1. Implied Warranty of Merchantability

A.R.S. § 47-2314 provides for the implied warranty of merchantability under the UCC. This section holds that “a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.” § 47-2314(A). Moreover, for “[g]oods to be merchantable” the must:

  1. Pass without objection in the trade under the contract description; and
  2. In the case of fungible goods, are of fair average quality within the description; and
  3. Are fit for the ordinary purposes for which such goods are used; and
  4. Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
  5. Are adequately contained, packaged, and labeled as the agreement may require; and
  6. Conform to the promises or affirmations of fact made on the container or label if any.
  • 47-2314(B)(1)-(6).

According to the Arizona Supreme Court, “the type of product defect contemplated by the UCC is a qualitative one; the Code provides that a merchant impliedly warrants that his goods are ‘merchantable,’ that is, ‘fit for the ordinary purposes for which such goods are used.’” Salt River Project Agr. Imp. & Power Dist. v. Westinghouse Elec. Corp., 143 Ariz. 368, 376, 694 P.2d 198, 206 (1984) (quoting  A.R.S. § 47–2314(B)(3), abr’d on other grounds by Phelps v. Firebird Raceway, Inc., 210 Ariz. 403, 111 P.3d 1003 (2005). As a result, a plaintiff bringing an action under the UCC for breach of implied warranty of merchantability  “must prove that the goods he received were defective in that they were not fit for their ordinarily intended use[.]” Id. at 376-77, 694 P.2d at 206-07.

Furthermore, a plaintiff bringing a claim for breach of implied warranty of merchantability seeking to recover “purely economic damages” may do so only against a defendant with whom he or she shares privity of contract. Flory v. Silvercrest Indus., Inc., 129 Ariz. 574, 579, 633 P.2d 383, 388 (1981). Specifically, “[t]he measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.” § 47-2714(B). Also, “[i]n a proper case any incidental and consequential damages under § 47-2715 may also be recovered.” § 47-2715(C).

  1. Revocation of Acceptance

Like breach of implied warranty, a claim for revocation of acceptance is only available to a plaintiff in privity of contract with the defendant. Seekings v. Jimmy GMC of Tucson, Inc., 130 Ariz. 596, 601, 638 P.2d 210, 215 (1981).

Under A.R.S. § 47-2608, a “buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it: (2) [w]ithout discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptane or by the seller’s assurances.” § 47-2608(A)-(A)(2). Moreover, revocation of acceptance “must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.” § 47-2608(B). And, “[a] buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.” § 47-2608(C).

Also, “goods must have a nonconformity from what they are represented to be before revocation of acceptance is available.” Seekings, 130 Ariz. At 601, 638 P.2d at 215. Moreover, “revocation may be available whenever goods sold fail to conform to the seller’s representation of the goods if the nonconformity ‘substantially impairs’ the value of the goods to the buyer.” Id. at 602, 638 P.2d at 216. Furthermore:

Revocation is proper where the buyer proves that the goods purchased: (1) have a nonconformity that substantially impairs their value to the buyer; and (2) were accepted either with knowledge of the nonconformity that the seller promised to cure but has failed to reasonably cure or without knowledge of the nonconformity where acceptance was induced by the difficulty of discovery or by the seller’s assurances. A.R.S. § 44-2371(A).

Revocation is valid only if the buyer notifies the seller of it within a reasonable time after the buyer discovers or should have discovered the ground for revocation and before the condition of the goods substantially changes other than because of their own defect. A.R.S. § 44-2371(B)

Id. at 603, 638 P.2d at 217. Regarding the return condition requirement under § 47-2608(B), “[t]he condition set forth is satisfied if the buyer is able to return the goods in substantially the same condition as they were received.” Preston Motor Co., Inc. v. Palomares, 133 Ariz. 245, 250, 650 P.2d 1227, 1232 (Ariz. App. 1982) (citing Hydrick v. Mehlman’s Inc., 253 S.C. 652, 172 S.E.2d 824 (1970)).

The timeliness of notifying the seller of revocation must be a “‘reasonable time’ after the buyer discovers or should have discovered the basis for revocation.” Id. at 604, 638 P.2d at 218. “Reasonableness of the time for revocation is a question of fact unique to the circumstances of each case.” Golembieski v. O’Rielly R.V. Ctr., Inc., 147 Ariz. 134, 137, 708 P.2d 1325, 1328 (Ariz. App. 1985). “‘The obvious policies behind the notice provisions are to give the seller an opportunity to cure, to permit the seller to assist the buyer in minimizing the buyer’s losses, and to return the goods to seller early, before they have substantially depreciated.’” Seekings, 130 Ariz. At 604, 638 P.2d at 218 (citing J. White and R. Summers, Uniform Commercial Code § 8(3), at 261 (1972)).

According to the Seekings Court, “[a] revocation letter was sent some four months after the sale and two months after appellees had last complained about any defects” was reasonable. Id. Moreover, “[t]wo months is not an unreasonable time for consumers to decide a product’s defects are incurable and to seek legal advice. Any substantial change in the condition of the vehicle during this period was due to its own defects.” Id.  Conversely, in Golembieski, the plaintiffs waited two-and-a-half months between the last service and their revocation, driving approximately 7,000 miles on the vehicle, and this was found to be unreasonable. Golembieski, 147 Ariz. At 136, 708 P.2d at 1327. Also, a purported revocation of acceptance more than a year after purchase was found to be unreasonable. Pac. Am. Leasing Corp. v. S.P.E. Bldg. Sys., Inc., 152 Ariz. 96, 101, 730 P.2d 273, 278 (Ariz. App. 1986).

If the above conditions are met and revocation of acceptance is proper, the buyer may “recover the contract purchase price or the buyer may elect to sue for damages resulting from the nonconformity of goods pursuant to A.R.S. § 47–2607(C) and § 47–2714.” IMA N. Am., Inc. v. Maryln Nutraceuticals, Inc., CV-06-344-PHX-LOA, 2008 WL 4737888 (D. Ariz. Oct. 28, 2008) (citing Preston Motor Co. v. Palomares, 133 Ariz. 245, 650 P.2d 1227 (App.1982)). Moreover, “‘[t]he remedies associated with revocation of acceptance are intended to return the buyer and seller to their presale positions. In general, the buyer is entitled to recovery of the purchase price plus all damages caused by the seller’s failure to deliver conforming goods[.]’” Id. (quoting Chaurasia v. Gen. Motors Corp., 212 Ariz. 18, 25, 126 P.3d 165, 172 (Ariz. App.2006)).

Furthermore, “incidental and consequential damages may be awarded in conjunction with revocation of acceptance[.]” Seekings, 130 Ariz. At 605, 638 P.2d at 219 (citing Mobile Home Sales Management, Inc. v. Brown, 115 Ariz. 11, 562 P.2d 1378 (Ariz. App.1977)); see also §47-2715.

Additional Note:

Arizona’s Lemon Law and the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq., are identical.  However, the two differ only in following aspects: “[Arizona’s] Lemon Law applies only to motor vehicles and express warranties whereas the Act is applicable to all consumer products and to implied and express warranties.  Furthermore, a definition of ‘written warranty’ is included in Magnuson-Moss Act.  Otherwise, the Lemon Law and the Magnuson-Moss Act are virtually the same.” § 44-1261, Editor’s Note.

Given the foregoing, the client in the immediate case looks to have a possible cause of action under the UCC by virtue of Arizona’s Lemon Law. Additionally, the client may also have a cause of action under Arizona’s Consumer Fraud Act.

Arizona’s Consumer Fraud Act

Arizona’s Consumer Fraud Act falls under Ariz. Rev. State. §§ 44-1521 to 44-1534. Pursuant to § 44-1522:

The act, use or employment by any person of any deception, deceptive or unfair act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely on such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice.

  • 44-1522(A).

In Tavilla v. Cephalon, Inc., 870 F. Supp. 2d 759 (D. Ariz. 2012), the District Court held that  “claims under the CFA, like common law fraud claims, can be based on affirmative misrepresentations, concealment, or omission of material facts. To the extent that ‘omission’ suggests that mere silence as to material facts may be actionable without a duty to disclose, the Arizona Court of Appeals has rejected this interpretation.” Id. at 776 (citing Horne v. AutoZone Inc., 227 Ariz. 471, 258 P.3d 289, 299 (Ariz.App.2011) (holding that a CFA claim, like a common law fraud claim, can be based on omission only “when the law imposes a duty to disclose.”).

The Tavilla Court also noted that Arizona follows the Restatement (Second) of Torts which holds:

A party may also be liable for fraud through failure to disclose, but only if that party is under a duty to disclose. Alternatively, a party may be liable for fraudulent concealment even where there is no duty to disclose, but only if that party ‘intentionally prevents the other from acquiring material information.’

Id. at 774 (quoting § 551(1)). Additionally, “[f]raudulent concealment differs from mere silence and must involve ‘deceptive acts or contrivances intended to hide information, mislead, avoid suspicion, or prevent further inquiry into a material matter.’” Id. (quoting Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 38 P.3d 12, 35 (2002) (quoting United States v. Colton, 231 F.3d 890, 899 (4th Cir.2000)).

In Powers v. Guar. RV, Inc., 229 Ariz. 555 (Ariz. App. 2012), the Court of Appeals stated that in order to uphold a private cause of action under Consumer Fraud Act (CFA) a plaintiff need only to prove “‘a false promise or misrepresentation made in connection with the sale or advertisement of merchandise and the hearer’s consequent and proximate injury.’” Id. at 560 (quoting Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 342, 666 P.2d 83, 87 (Ariz.App.1983)).  Also, the Court of Appeals found that, “the CFA does not limit liability to the originator of a misrepresentation. Rather, it broadly extends liability to any person who ‘use[s]’ the misrepresentation in connection with the sale of merchandise.” Id. at 561.

Additionally, “[c]oncealing a material fact when there is a duty to disclose may be actionable fraud. Generally, a seller does not have a duty to disclose, but certain circumstances may give rise to such a duty. When a buyer inquires about a certain condition, a seller has the duty to disclose all he knows.” Id. at 562 (quoting Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 214, 619 P.2d 485, 486 (Ariz. App.1980)). Importantly, “a person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not
exist . . . where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.” Id.at 562.

Additionally, in Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338 (1983), the Court of Appeals held that punitive damages were also recoverable under the CFA. Specifically, punitive damages were recoverable in private cause of action under the Consumer Fraud
Act and evidence of past deceptive sales practices on the part of seller was relevant to issue of whether seller was currently involved in deceptive sales practices and to the issue of punitive damages. Id. at 342-343.

Additionally, it would seem that recovering under the CFA is easier that under a claim for common law fraud. The Tavilla Court outlined common law fraud under Arizona law:

The requirements for proof of common law fraud in Arizona are ‘very strict’ and require a showing of nine elements:(1) a representation; (2) its falsity; (3) its materiality; (4) speaker’s knowledge of its falsity or ignorance of its truth; (5) intent that it should be acted upon; (6) hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon, and (9) his consequent and proximate injury.

Tavilla, 870 F. Supp. 2d at 774; see also Enyart v. Transamerica Ins. Co., 195 Ariz. 71, 77 Ariz. App. 1998)). Moreover, “failure to prove any one of [these elements] is fatal to the cause of action.” Id. (citing Fridenmaker v. Valley Nat. Bank of Arizona, 23 Ariz. App. 565, 534 P.2d 1064, 1068 (1975)).

CONCLUSION

Overall, given the forgoing, and from the facts provided, the buyer in the immediate case might have a claim under the UCC and Arizona’s Lemon Law. Additionally, if the buyer in this case inquired about the vehicle’s history and was directly lied to by the dealership, then she would very likely have a claim under the CFA.