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Reduce Business Risk By Seeking Early Counsel About Consumer Sales

That it is easier and less expensive for businesses to avert trouble than it is to get out of trouble is illustrated by a recent Maryland Court of Appeals case.

An automobile dealer financed its sale of a used car to consumers. The consumers alleged after the purchase that material information about the car’s accident history had been withheld from them and filed suit. The dealership defended that the consumers had waived their right to a court trial and were bound by the sales documents to arbitrate the dispute.

The sales transaction terms were contained in several different documents which were the forms routinely used in the business of the dealership. One such document identified the vehicle being sold, the price and payment terms. Another document contained a mandatory arbitration provision. All the documents were signed by the parties at the same time.

The consumers contended that the arbitration provision was not binding on them because it was not contained in the document describing the car being sold, the price and payment terms. It was their contention that all of the terms of the sale must be contained in a single instrument and, therefore, the extra document mandating arbitration was extraneous to the sales contract and unenforceable, even though they had signed it.

Though one might think that the consumers’ position was frivolous, it was not, even though it did not prevail. Moreover, the entire costly dispute could have been avoided.
Since 1978, the Motor Vehicle Administration has published a regulation stating:
“Every vehicle sales contract or agreement shall be evidenced by an instrument in writing containing all of the agreements of the parties. It shall be signed by all of the parties before the seller delivers to the buyer the vehicle covered by the agreement.”

Automobile manufacturers and distributors, often the preparers of these boilerplate documents, ought to be familiar with the requirements of the various states and avoid needlessly taunting the spirit of consumer protection efforts that pose no real burden to a business. On the other hand, dealerships often are stuck using the manufacturers’ document.

Not so surprisingly, the consumers’ position was that the regulation mandating a written “instrument” meant that all of the sales terms must be contained in a single document. Nonetheless, based on a long history of appellate opinions the Court found that, though made up of multiple documents, the parties’ agreement could constitute a single and enforceable contract. As one judge wrote, “…a single instrument may be comprised of more than one document….”

While joining in the judgment of the Court, two judges observed about the contract documents that a lay person “in buying a used car would be well advised to bring along a lawyer, a magnifying glass, and perhaps an English major, to decipher their meaning.”
The bottom line is that early counseling can assist business in taking steps to avoid expensive law suits. By simply complying with the law and regulations in a way that leaves no room for speculation that a corner was cut a lot of time and money could have been saved. Needless transaction complications like this one produce no business benefit, and they wipe out profit, even when the Court rules in favor of the business.

One sales “instrument” of whatever number of pages easily could be drafted with a single signature page and each parties initials affixed to each page and even saved the exposure of a published appellate opinion.