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Posts Taged california-automobile-sales-finance-act

A Pragmatic Approach to the Single Document Rule Cont’d

In a previous positing, I discussed the implications of the recent California Attorney General (“AG”) opinion on the California Automobile Sales Finance Act’s (CASFA) Single Document Rule for new car dealers.  I will now explore the legal reasoning behind the AG’s opinion and explain why I find it potentially problematic.   

 

In reaching his decision that all agreements between the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle need not be referenced on a single sheet of paper, the AG first applied well-established rules of statutory construction.  Looking to the usual and ordinary meaning of the words, the AG found that the term “single document” means “a separate or individual paper.”  The AG concluded that nothing in this definition requires that the entire document “be contained on one page or on one sheet of paper.”

 

The AG further supported his conclusion by appealing to the relevant case law.  In

Kroupa v. Sunrise Ford, the Court of Appeal held that three occurrences—consumer traded in two vehicles, consumers received a rebate from the dealer, consumer entered into a vehicle lease—constituted a single transaction that should have been memorialized in a single document.  Because the terms of the lease did not contain information about the rebate and the trade-ins, the Court found that the Single Document Rule had been violated.  The Court, however, failed to state that all the information relating to the three occurrences had to be contained on one sheet of paper.  In Morgan v. Reasor Corp., the California Supreme Court found a violation of the Single Document Rule where an installment contract and promissory note were not physically attached to each other.  The AG argued that this holding implies that separate pages physically attached to each other can constitute a single document.  Lastly, the Attorney General appealed to a recent California Supreme Court decision, Alan v. American Honda Motor Co., Inc.  While the Court’s decision did not directly involve the CAFSA, the Court interpreted a rule of court to include a single document requirement.  In interpreting the requirement, the Court stated that “[o]bviously a document can have multiple pages.”

 

The AG’s opening statements suggest that pragmatic considerations also played an instrumental role in informing his conclusion.  He notes that “taking all of the rules into account, an automobile sales contract must now be approximately 24 inches long (printed on both sides) in order to contain all required provisions in their required sizes.”  This is a gross understatement when viewed in the practical light of an automobile finance office on a Sunday afternoon.  Every closer must determine how far the law goes in regulating agreements that are silent as to the contract terms and amounts but might have some indirect affect on the total cost of the transaction.  These necessary agreements are frequently used by plaintiffs’ attorneys attempting to rescind auto sales contracts for violating the Single Document Rule.  I am referring, for example, to pay-off adjustments for trade-ins, damage indemnity agreements and GAP (guaranteed automobile protection) agreements. 

 

As I briefly mentioned in my previous posting, the AG’s opinion does not provide adequate justification for eliminating the requirement that all agreements between the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle be referenced on a single sheet of paper.  The AG relies merely on the absence of any such articulated requirement coupled with pragmatic considerations to support his rejection of the prevailing interpretation.  There is simply insufficient case law to determine with any degree of certainty how a court would rule on this issue. We are cautiously optimistic, however, that a court would reach a similar decision based on the same pragmatic considerations and lack of adverse authority.

 

Erica A. Stuckey

estuckey@carnaclaw.com

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A Pragmatic Approach to the Single Document Rule

The California Automobile Sales Finance Act (AFSA) protects consumers from excessive finance charges and hidden costs by requiring that automobile sales contracts disclose all items of cost. An extremely important provision of the AFSA is the Single Document Rule contained in Civil Code section 2981.9. Under the Single Document Rule ("SDR"), every conditional sales contract "shall contain in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle."

There has been much confusion over how to interpret the SDR. In a recent opinion, 8 Ops.Cal.Atty.Gen. (2009) (the "Opinion"), the California Attorney General rejected what had been the prevailing interpretation. Under the prevailing interpretation, all agreements need not be contained on a single piece of paper, but any agreement not so contained must be physically attached to and clearly cited on the face of the conditional sales contract form. The Opinion dismissed any requirement that all agreements be contained or referenced

in a single sheet of paper, finding that the SDR is satisfied if the document consists of multiple pages that are attached to each other and integrated such as through inclusive sequential numbering.

Appropriate procedure prior to the Opinion would require evidence of true incorporation by reference and integration of every collateral document into a single document. In order to minimize any SDR risk, the dealer would need to insert a description of the incorporated document followed by the words "attached to and made a part of this agreement." The dealer would then attach the original incorporated document to the original contract and then attach a copy of the document to each copy of the contract, including the customer’s copy, using staples or some other bonding agent. To be extra careful, the dealer would then place a corresponding statement on the first page of the attached document that "this document is attached to and made a part of," followed by the name and date of the contract form being used. The Opinion directs that it is now possible to satisfy the SDR requirement for automobile sales contracts if the document consists of multiple pages that are attached to each other and integrated by means such as inclusive sequential pages numbering (e.g. "1 of 4," "2 of 4," etc.).

While the process of selling an automobile would be greatly simplified if the Opinion were binding authority, there is reason for automobile dealers to proceed with caution in relying on the Opinion’s interpretation. We agree with the Attorney General’s finding that application of the rules of statutory construction and the relevant case law lead to the conclusion that the SDR does not require that all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle be contained on a single sheet of paper. It is, however, currently far less clear that the SDR does not mandate that all such agreements be referenced on a single sheet of paper. The Attorney General relies merely on the absence of any such articulated requirement coupled with pragmatic considerations to support his rejection of the prevailing interpretation. There is simply insufficient case law to determine with any degree of certainty how a court would rule on this issue. Stay tuned for my analysis of the Opinion for those interested in the legal reasoning

Erica A. Stuckey

estuckey@carnaclaw.com

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