Article - Consumer Law

Who Is Liable If A Car Is Defective?

I have purchased a car recently and the engine keeps losing power.  Who is liable for this fault?

The person who is liable for a defective car depends on how you purchased your car.  As you will be aware, there are three main methods to purchase a car, and these are discussed below. 

Cash

If a customer purchases a car from a dealer and pays cash, then the customer has a right of redress against the dealer only for breach of contract or, alternatively, breach of the implied terms of the Sale of Goods Act 1979 if the car is not of satisfactory quality or fit for a purpose which was specified by the customer prior to conclusion of the contract ('Implied Terms').

Loan

If a personal loan is taken out by the customer, then the customer will have the same Implied Terms and these will be enforceable against the dealer.

The Consumer Credit Act 1974 ('CCA') provides further valuable rights to the customer against the provided of the loan if the lender was 'connected'.  This basically means that there must be some business agreement with the supplier of the goods.

The lender is jointly responsible with the dealer pursuant to Section 75 of the CCA for any misrepresentation or breach of contract if:

  1. the cash price of the car is more than 100 but no more than 30,000 (including VAT); and

  2. the agreement is for credit which does not exceed 25,000 which is made to an individual which includes sole traders, partnerships and unincorprated businesses; and

  3. the lender is in the business of granting credit; and

  4. the loan has been made by a 'connected' lender. 

Hire Purchase

As a hire purchase agreement effectively means that the finance company purchases the car and then finance it to the customer, the customer's contract is with the finance company and not the dealer.  Again, the customer will have the express terms of the contract and the Implied Terms.  However, an implied condition of a specific use for the car can arise if the use is stated to the dealer - it does not necessarily have to be stated to the finance company.

The dealer should be aware, however, that it may still be liable for any misrepresentations made by them which induce the customer to enter into a contract with the finance company to purchase the car for an unregulated agreement.  In such cases, the Court will imply that a collateral contract between the dealer and the customer was entered into and therefore the customer may sue the dealer for the misrepresentations.  The customer has further redress against the finance company for any misrepresentations as pursuant to Section 56 of the CCA, the finance company is bound by any representations made by the dealer.  In order to protect itself, the finance company should enter into a recourse agreement with the dealer to indemnify the finance company against any misrepresentations.

Conclusion

It would therefore appear that if a customer is concerned about any potential problems which may arise with their purchase then they should consider purchasing the car with the use of a loan or on hire-purchase as additional rights are provided.  However, the trade-off for this is that the customer will have to pay the interest on top of the purchase price of the car and, therefore, the customer may ultimately feel that they are willing to take a risk and pay cash.

Article First Published: 17 June 2005

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The views on this website are not necessarily those of the Student Law Journal and is not intended to provide legal advice.  Any legal problems should be specifically addressed to a solicitor.

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