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Lemon Laws Made Easy

Lemon Laws can be confusing, read our 101 to get a solid understanding of the lemon law.

State and federal statutes offer a wide array of relief for businesses saddled with a bad car or truck. At the same time, these statutes provide for recovery of costs and attorney fees – a strong incentive for attorneys who would like to take up the cause on behalf of unhappy lemon owners. This article will provide a brief overview of the many statutes than can be used to assist these potential clients, along with practice tips and case law.

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Michigan Lemon Law 101

Michigan Lemon Law - MCLA 257.1401, et seq.

Michigan’s lemon law applies to new passenger cars and trucks purchased after June 25, 1986. Relief may be had only against the manufacturer or distributor of the vehicle, as opposed to the new vehicle dealer. MCLA 257-1401(b).

A “prima facie” lemon is a vehicle that continues to have a defect or condition which “substantially impairs the value of the vehicle, despite having been subjected to a “reasonable number of repair attempts.” It is presumed that a reasonable number of attempts have occurred if either of the following criteria have been met:

(a) The vehicle has been out of service for repairs at least 30 days (or parts of days) during the first year of ownership for the same or different problems; or

(b) The vehicle has been subjected to four or more repair attempts for the same problem, provided that the first repair attempt occurred within the first year of ownership. MCLA 257.1403(a)-(b).

Once the vehicle has been out of service for 25 days or subject to repair for the same problem on three occasions, the buyer is required to notify the manufacturer, by certified mail, return receipt requested, of the need for repair. MCLA 257.1403(3). The manufacturer must then notify the buyer “as soon as reasonably possible” of a “reasonably accessible repair facility.” MCLA 257.1401(3)(a), (b). The manufacturer has five business days after delivery of the vehicle to the repair facility to complete the repairs. If repairs are not completed within the five days, the buyer is entitled to a refund or replacement vehicle “acceptable to the consumer.” MCLA 257.1403(1). See, also, Ayer v Ford Motor Company, 200 Mich. App 337 (1993) (summary disposition in favor of buyer affirmed, where manufacturer failed to complete repairs in 5 business days, despite manufacturer’s argument that delay was due to unavailability of parts).

The refund or replacement must take place within 30 days after the final repair attempt. A refund is to include the purchase price, sales taxes and transfer fees, interest on any finance contract, and dealer installed options or accessories, less a statutory offset for use. MCLA 257.1403(1). The offset for use is calculated based on a statutory formula:

  • Step 1. Determine the miles “attributable to the consumer” by taking the mileage at the time of the first repair and subtracting: (a) the miles on the vehicle at delivery, (b) miles back and forth to the shop, (c) miles put on by the repair facility.  CM = consumer mileage.
  • Step 2. Determine the “purchase price” of the vehicle. This is the price of the vehicle before taxes, title and registration fees, etc.  PP = purchase price.
  • Step 3. Calculate offset:  CM/100,000 x PP = Offset

If the manufacturer has an “alternative dispute resolution mechanism” (ADR) that meets Federal Magnuson-Moss guidelines (see discussion, infra), the buyer must first resort to that mechanism before filing suit, in order to protect his or her right to recover costs and attorney fees. MCLA 257.1405. The result of the ADR is binding only on the manufacturer, and not on the consumer. Thus, if the ADR does not result in appropriate relief (which it rarely does), the consumer is free to pursue his or her claim in court. It should be noted that the lemon law does not supersede other remedies afforded under state or federal law. MCLA 257.1404.

Practice tip: It is often productive to file a motion for summary disposition pursuant to Ayer v Ford, supra, shortly after filing suit. Even if the motion is lost, this will force the defendant to put its best evidence forward at an early stage. You can then focus your discovery on dissipating the defendant’s line of defense.

Uniform Commercial Code

The warranty provisions of the Uniform Commercial Code (MCLA 440.2313, 440.2316), can be used alone or in conjunction with a lemon law claim. Among the remedies available under the Code are revocation of acceptance (MCLA 440.2608), and recovery of costs and attorney fees as incidental or consequential damages under MCLA 440.2719. See Kelynack v Yamaha Motor Corp. 152 Mich App 102 (1986). These remedies are also available under the Lease provisions of Article 2A of the Code, MCLA 440.2802, et seq.

MCLA 440.2608, governing revocation, provides that the buyer is entitled to revoke acceptance where the defect or nonconformity is either difficult to discover or remains unresolved after reasonable efforts to cure and “substantially impairs the value of the goods” to the buyer. In Colonial Dodge v Miller, 420 Mich 452 (1984), the Supreme Court made it clear that “substantial impairment” is a subjective test, to be measured from the actual buyer’s perspective. Thus, the Court held that the buyer, Mr. Miller, was entitled to revoke his acceptance of a vehicle delivered without a spare tire.

The Code has several distinct advantages over lemon law. First, revocation is available upon a showing of “substantial impairment” without the buyer having to subject himself or herself to the frustration of enduring four repair attempts or 30 days in the shop. Kelynack, supra (revocation permitted where engine failure occurred within first three months of ownership, despite replacement of engine under warranty). Second, the buyer need not resort to the manufacturer’s ADR program in order to recover costs and attorney fees. Third, there are no formal notice requirements which are conditions precedent to relief. See, e.g., King v Taylor Chrysler Plymouth, 184 Mich. App 204 (1990) (no particular words or form required to give notice; filing of the Complaint is sufficient notice under UCC). Finally, the Code applies to sales or leases of new and used vehicles, and covers a broader range of vehicles and products than the lemon law (e.g. boats, motor homes, motorcycles, snowmobiles, ATVs, commercial vehicles, industrial machinery, farm equipment, etc.).

Practice tip: Always include the claims available under the UCC, even where you are confident that the vehicle qualifies as a lemon under Michigan’s Lemon Law. Doing so will help to protect your client against an adverse result in the event that there is a technical defect in the “lemon” claim.

Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act, 15 USC 2301, et seq, is designed to put “teeth” into state law warranty rights. The Act applies to all consumer goods with a value of $25.00 or more, and covers express written warranties, as well as warranties “arising under state law”. 15 USC 2301 (1), 15 USC 2310(d)(3). The Act prohibits the disclaimer of the implied warranty of merchantability (MCLA 440.2314) if the vehicle is sold with a written warranty or service contract. See, 15 USC 2308(c) (warranty disclaimer ineffective even where permitted under state law). Further, the Act nullifies the privity defense, expressly permitting revocation against a remote manufacturer. See, Ventura v Ford Motor Co., 180 NJ Super 45, 433 A2d 801 (App Div 1981) (Act broadens remedies available to consumers by eliminating state law privity requirements).

Remedies under the Act include a refund or replacement (at the consumer’s option), as well as recovery of costs and attorney fees. 15 USC 2310 (d). In Jordan v Transnational Motors, 212 Mich. App 94 (1995), the Court of Appeals held that the trial court had abused its discretion in failing to consider the remedial nature of the Act in determining appropriate attorney fees. Essentially, the Court opined that the remedial nature of the Act would be thwarted if attorneys were unable to obtain a reasonable return in these cases.

Practice tip: Pre-litigation resort to the manufacturer’s ADR is required only if the ADR program meets Magnuson-Moss guidelines. The guidelines dictate that the warranty must include a statement requiring the consumer to resort to ADR before pursuing a civil action. If the warranty does not include such a statement, then the consumer is free to proceed immediately to court. The guidelines further require that the ADR process be completed within 40 days after the consumer notifies the ADR mechanism of the dispute. At least with respect to the “big three” (GM, Ford and Chrysler), it is this author’s experience that the ADR process is almost never timely completed, and that the warranty documents do not contain the requisite statement requiring the consumer’s participation. Thus, for all practical purposes, the ADR requirement is rarely an impediment to recovery of fees and costs.

The Motor Vehicle Finance Act, MCLA 492.114a(b), and the Federal Trade Commission’s “Holder Rule” 16 CFR 433, provide that where financing is arranged by the dealer, the finance company will be subject to all of the consumer’s claims and defenses arising out of the transaction. Thus, the buyer or lessee of a defective vehicle will be able to assert his or her claims against the seller and manufacturer against the finance company, as well. Under 16 CFR 433, the finance company must place notice of the Holder Rule in the body of the contract. The consumer’s damages against the finance company will be limited to the amounts paid under the contract. MCIA 492.114a(b). The Motor Vehicle Finance Act (MVFA) further bars a finance company who is on notice of the consumer’s complaints from exercising self-help repossession in the absence of an evidentiary hearing and a court order. MCLA 492.114a(e). The purpose of the evidentiary hearing is to establish that the consumer would not be “unreasonably burdened nor deprived of adequate transportation by making payments.

Practice tip: It is often wise to seek ex parte temporary restraining order or a preliminary injunction prohibiting the finance company from reporting adverse credit information and/or repossessing the vehicle during the pendency of the litigation. Although most finance institutions’ legal departments are aware of the law, many of the collection departments are not. If the finance company pleads a counter-complaint, the consumer’s affirmative defenses should include not only the MVFA and the Holder Rule but, also, MCLA 440.2711 and MCI 440.2717 (granting the buyer a security interest in the vehicle to secure damages and permitting withholding of payment, respectively).

Other Statutes

Other statutes which should be reviewed in preparing consumer claims include: (1) the Michigan Consumer Protection Act, MCLA 445.901, et seq; (2) the Motor Vehicle Service and Repair Act, MCLA 257.1301, et seq; and (3) the Garage keeper Liability Act, MCLA 256.54.

Motorcycle Lemon Law 101

The frustration of owning or leasing a defective motorcycle is all too familiar to many consumers. State and federal consumer statutes provide important remedies to these consumers, ranging from monetary damages to buy-backs of defective motorcycles. These often overlooked statutes also provide for the recovery of costs and attorney fees to the successful plaintiff’s attorney. Thus, the attorney who tackles these cases usually reaps a twofold benefit — the professional reward of having served a client well, and the financial reward of obtaining a fee well earned.

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Lemon Quiz

Let’s find out if you have a lemon.

This form is a simple assessment of the law and your experience with the vehicle. This quiz is for informational purposes only and not for the purpose of providing legal advice. Upon completion of the survey, we may contact you for a clearer picture of your problems to determine if we can help.

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