Claim of Unilateral Mistake Confers Right to Repossess Non-Financed Car?

A quick contracts/property/tort/consumer law hypothetical for incoming first-year law students (and their professors) to ponder over:

Car dealer sells a used pick-up truck to Buyer for $8,100 and a trade-in. Buyer pays the full amount by personal check and drives the truck off the lot. Dealer then calls Buyer at home and tells him that they looked up the wrong number in their book; the truck actually costs $10,000 more. Dealer tells Buyer that either he has to return the car and they’ll pay him $500 for his trouble, or he needs to cough up the extra $10,000. Buyer refuses.

In the middle of the night, the Dealer comes and “repossesses” the truck from Buyer’s driveway. Buyer’s trade-in is returned to him. Buyer’s check is not cashed.

Dealer claims that the contract was invalid because “one party ma[de] a mistake, and the other party knew or should have known that a mistake was made.” (See here for more details from WTVF-Nashville, and note the video link on the upper right. The file-dropping bit seems right off the Daily Show.) Assume that the Blue Book value of the truck is $21,240, and the trade-in was worth only a nominal amount.

Discuss; was there a valid contract? What claims does Buyer have, and even more important, what remedies should he get?

(HT: Consumerist)

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13 Responses

  1. No Person says:

    Not commenting on the legality of this…but it’s a standard scam to sell a car, and then call the buyer to say that the financing was not approved. At that point, the dealer pushes the buyer to some high-interest, terrible credit situation that costs thousands more than the original deal. Now, it would be interesting if all the thousands of customers ripped off on credit terms could return their cars or get a new financing deal!

  2. KipEsquire says:

    This isn’t first-year Contracts law, it’s Judge Judy law. Unilateral mistake is never a defense to contract formation.

    And besides, even if there was no contract (yeah, right…), what about the proper remedy (i.e., for Seller)? Since when is repossession an authorized form of self-help to “no contract” as opposed to “breach of contract”?

    At best, Seller could have sought equitable relief on unconscionability grounds (yeah right…), but self-help would, again, not be an option.

    As for Buyer, the default measure of damages is expectation damages, which could take the form of either physical return of the vehicle (i.e., a replevin action) or the FMV of said vehicle (NOT the purchase price).

    If, for some reason, Buyer wanted reliance damages (i.e., recission), then he’s entitled to that in the alternative.

    Add on some incidental and consequential damages, and you’ve got yourself an A- exam answer (can’t get an A without discussing UCC Article 2).

    Shall we discuss the torts? Start with conversion and, time premitting, try for intentional misrepresentation (i.e., fraud) by Seller (i.e., this was all a scam from the outset).

  3. M says:

    Under the Restatement (Second) of Contracts, a unilateral mistake is not grounds for recission unless the non-mistaken party knew or should have known of the mistake. Here, the buyer paid $8,100 (plus a nominal trade-in), while the truck was actually worth $21,240. A reasonable person would likely have known that a truck actually worth $21,240 would not be knowingly sold by a seller for $8,100, so the seller can request a court in equity to rescind the contract by using the defense of mistake.

    However, the seller has another problem: while the owner of chattel may enter another’s land to repossess such chattel, under the Restatement (Second) of Torts the rightful owner must make a reasonable demand upon the possessor for the chattel, then must provide notice of the re-possession of such chattel, and must re-possess at a reasonable time and in a reasonable manner. Here, the seller provided no notice of their proposed repossession, and, further, conducted their repossession in an unreasonable manner by entering the buyer’s property in the middle of the night. The seller will thus be liable for trespass to land because they intentionally entered the land of another without a privilege to do so.

    [All from memory; I take the bar next week]

  4. Paul Gowder says:

    Even if unilateral mistake was a defense, mistake as to value? As I dimly recall (from good old Sherwood v. Walker), doesn’t even MUTUAL mistake have to go to the “substance of the thing bargained for?”

    Imagine if everyone could set aside contracts because they didn’t realize the market price of the item being sold! I paid too much for a piece of consumer electronics on ebay a few months ago — should I get to set it aside?

  5. Paul Gowder says:

    Oh, as for remedies, that’s easy. Expectation damages are expectation damages. He gets specific performance, or the difference in cost for an equivalent truck elsewhere. Contract law is a harsh mistress.

  6. PK says:

    There is a valid contract but it may be voidable on the grounds of unilateral mistake. If the contract is voided, the buyer has no remedies. If the contract is not voided, the buyer’s remedies are in tort and property, not in contract as Paul claims.

    Absent recission of the contract, the truck is his. By taking the truck, the dealer is guilty of conversion and is therefore liable for the full fair market value of the truck. In addition, there appears to be a trespass for which the dealer is liable.

    In addition, the dealer and his agent likely are guilty of criminal larceny. Their only defense appears to be to try to negate intent by claiming that had a reasonable belief that the law allowed them to repossess under these circumstances. Since this is a mistake of law that negates intent, it is a valid defense. But can a dealer really claim that it doesn’t know what the law is in this situation?

  7. Bruce Boyden says:

    PK, the news report says that the D.A. has decided not to prosecute. I think the situation gets interesting given what “No Person” pointed out, which is that there is a very good chance that this is part of a shady business practice by Dealer, and that Buyer was simply one of the few who didn’t knuckle under. FMV may not be enough to deter such actions. In that case, there should be some way to make it an unprofitable business practice (assuming regulators don’t get involved) — punitive damages for conversion, perhaps?

    And M, good luck, and stop reading blogs!!!!

  8. Paul Gowder says:

    PK: that’s definitely a better bar exam answer than mine, but since I, for one, loathe formalism, I’ll offer another question. Is there any real reason that the 24 hours difference between failing to deliver the truck and going to take the truck back should route the problem to tort law rather than contract law?

  9. PK says:

    Paul: Like M I’m taking the bar exam next week so all my thoughts formal.

    As for your question, failure to deliver could also lead to tort liability if there’s fraud, e.g., the dealer never intended to turn over the truck. However, if the dealer entered the contract with the intent to complete and only later changed his mind, there’s no intent to commit fraud, thus no tort. Here, the same seems to apply. The dealer fulfilled his duty under the contract by tendering the truck to the buyer. He later decided to take the truck back. It would be different if he never intended to tender the truck and the buyer simply drove off of the dealer’s lot with it without permission. It’s when the intent to deprive the buyer of his truck was formed that controls why type of remedy and what cause of action are available.

  10. Paul Gowder says:

    PK: You’ll pass. đŸ™‚

  11. Learned Fist says:

    When I was in law school I worked at a PI firm and we had a case with almost identical facts. However, our case wasnt based on the breach of K – our client (the buyer) came running out of his house as the new car was being repoed. The client lived on a cul-de-sac.

    The repo man (an employee of the dealer, not a “real” repo man) left the client’s driveway heading the wrong way. Client then runs into the middle of the street, arms waving. Repo man turns around at the end of the cul-de-sac and runs the client over, head on, breaking both of the client’s legs. Repo man does not stop. Case settled for above the policy limits after we amended the complaint to add punitives.

    I had asked the attorney on the case if we should add a breach of K claim; she looked at me like I was retarded.

  12. michael rafuls says:

    i bought ah used finace car and is not working rigth,and un top the dealer gave me wrong plate so i am driving with one plate in the front and ah difrent one in the back so what can i do i dont want the car anymore coz the sent me ah letter from the fiancial service saying the wont fiance the car but i had the car oh and the offer me ah job i bought the car affter i got the car they told me they took ah difrent direction so what can i do now

  13. michael rafuls says:

    i bought ah used finace car and is not working rigth,and un top the dealer gave me wrong plate so i am driving with one plate in the front and ah difrent one in the back so what can i do i dont want the car anymore coz the sent me ah letter from the fiancial service saying financing was not approved coz the car was to old, but i had the car and the offer me ah job if bought the car affter i got the car they told me they took ah difrent direction so what can i do now