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Lawsuits fly, but dealer cleared, in complicated 'spot' delivery case

November 23, 2010
Troy Smith bought a Mitsubishi Eclipse from a used-car dealer in Marion, Iowa. Smith financed the car, agreeing to put $1,000 down and filling out an application for a $9,295 loan. The loan was approved the same day by Arco Financial. Smith returned to the dealership later that day to sign his loan papers. He also gave the dealership a postdated check for $500, drawn from his girlfriend's account. The next day, Smith brought $500 in cash to complete the down payment and left in the Eclipse with temporary tags and registration papers identifying him as owner of the car. However, Smith was not able to get insurance on the vehicle, a requirement of the installment loan contract. He promised to return in two days with proof of insurance. One day later, Smith drove two friends to a restaurant for dinner, during  which they all admittedly had several drinks. En route home, Smith accepted a challenge to see how fast the Eclipse could go. He lost control of the car, and one friend died in the accident. Immediately after the accident, Smith's girlfriend stopped payment on her down payment check. Who got sued? Everybody. Of interest is who was held liable. The injured friend and the dead friend's estate both sued Smith and the dealership, claiming the dealer still owned the car since all the conditions for ownership had not been fulfilled. Arco Financial cancelled its loan commitment. The dealership sued Smith for non-payment and won a default judgment. At trial, the court found that since Smith had made a down payment and the dealer had transferred title to the vehicle, a legitimate sale had occurred. Importantly, the court also drew a distinction between the sale agreement and the finance contract. Although Smith was unable to provide all the documentation necessary to complete the financing contract, the court ruled that action did not void the sales agreement. Since the dealership was the only party with any money, all the losing plaintiffs appealed the ruling. But an appeals court upheld the trial judge, holding that the dealer was not liable for any damages.