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California Court of Appeal Offers Insight on What Not to Do When Selling Vehicles and Other Consumer Goods with a Service Contract/Warranty

September 9, 2015 | Topic: Warranty

The Court of Appeal recently reversed a judgment in favor of an auto dealer.  (Jones v. Credit Auto Center, Inc. (2015) 237 Cal. App. 4th Supp. 1.)  Despite this result, the Court’s ruling is particularly instructive for companies that sell vehicles and other consumer goods with express warranties and/or service contracts in California. 

After a bench trial in Los Angeles Superior Court, the trial court entered judgment in favor of Defendant Credit Auto Center, Inc. on Plaintiff’s express and implied warranty claims under the Song Beverly Consumer Warranty Act (“Song-Beverly”) and for deceptive sales practices under the Consumer Legal Remedies Act (“CLRA”).  The Court found there was no breach of an express warranty under Song-Beverly because Plaintiff only gave Defendant one opportunity to repair, no breach of an implied warranty because the vehicle was operable when sold and was “drivable for over a thousand miles,” and no violation of the CLRA because Plaintiff was provided with sufficient notice that he was being charged $495 for a service contact.  (Id. at p. 7.) 

The Court of Appeal reversed, finding Plaintiff had proven his Song Beverly implied warranty claim, because a “breach of the implied warranty of merchantability may be based on a defect which becomes known after a sale or delivery to a buyer,” and the subject vehicle’s alleged defect was discovered within the warranty period.  (Id. at pp. 9–10.) (emphasis in original).  However, the more instructive portion of the Court’s opinion relates to the CLRA claim.

The Court also reversed the trial court on the CLRA claim, finding Defendant mischaracterized the express warranty as a service contract, thereby failing to differentiate between the two.  (Id. at p. 13.)  Specifically, the Buyer’s Guide had a box checked off, indicating the vehicle came with a six-month or 6,000-mile warranty on the motor and transmission, and instructing the buyer to “[a]sk the dealer for a copy of the warranty documents for a full explanation of the warranty coverage, exclusion, and dealer’s repair obligations.”  The Buyer’s Guide also had a box checked off, indicating, “a service contract is available at an extra charge for this vehicle.”  The Service Contract then indicated that a buyer would receive “[s]ix months warranty on motor and transmission,” and specified the ways the “warranty” could be voided.  However, the Purchase Order indicated that the vehicle was sold “As-Is” and that the service contract was “optional.”  Despite the fact that a warranty was included in the price of the vehicle and, therefore, the vehicle was not sold “as-is,” one of Defendant’s agents told the buyer that the service contract, which had to be purchased at any additional cost, was the warranty.  Based on a totality of the circumstances, the Court of Appeal found the Defendant failed to differentiate between a warranty and a services contract, and therefore deceived the customer.  

While not a defense verdict, this case is instructive on the importance of clearly differentiating between service contracts and warranties during the sales process.