Court of Appeal (Cal.) Says Bank Did Not Waive Buy-Back Rights Against Dealer under Dealer Agreement By Allowing Post-Repossession Reinstatement of RISC

Dealer contends that by at least September 11, 2012, Bank had actual and constructive knowledge that Dealer had breached the Master Sale Agreement, that is, that it had knowingly sold Bank a Third-Party Transaction. Thus, by permitting Edgardo to reinstate the Edgardo Contract on September 13, 2012, Bank knowingly waived its rights to sue Dealer for breach of the Master Sale Agreement. We disagree.  Dealer’s contention that Bank knew, by September 11, 2012, that Dealer had knowingly sold it a Third-Party Transaction, directly contradicts its answer and amended answer (filed in 2014 and 2016), denying any such breach. Dealer nonetheless cites the following evidence in support of its contention: (1) Wendy telephoned Bank in September 2011 and stated that there was a “mistake” in the coupon book; (2) in August 2012, Edgardo told Bank that Wendy possessed and paid for the vehicle; and (3) on September 11, 2012, Bank discussed the reinstatement with Wendy and accepted proof of insurance from her.   April Curtis, Assistant Vice President of Bank, responsible for collections at Bank, testified that as of September 2012, Bank knew of the existence of the Third-Party Transaction. While this evidence supports Dealer’s argument that by September 2012, Dealer knew of the Third-Party Transaction, it does not establish that Bank also knew that Dealer was aware of the Third-Party Transaction at the time it sold the Edgardo Contract to it. The trial court expressly found that “[a]s of September 11, 2012, [Bank] had no reason to suspect that [Dealer] had violated any of its warranties with respect to the Contract.” This finding was supported by substantial evidence. Curtis testified that in November 2012, Bank did not know that Dealer had been “at fault” in the creation of the Edgardo Contract.⁴ Also, prior to 2013, Bank had not contacted Dealer to determine whether Dealer had knowledge of the Third-Party Transaction. Nor had Bank asked Edgardo or Wendy whether Dealer knew about the Third-Party Transaction. Curtis explained that on those occasions when Bank learned that a third party was in possession of a vehicle, it did not assume that Dealer knew of the Third-Party Transaction at the time that it sold the contract to Bank. She also testified that Bank first learned Dealer may have knowingly sold it a loan containing a Third Party Transaction, on or about October 3, 2013. Finally, Kelly Burfict, a credit supervisor at Bank, testified that when Bank purchased a sale contract from a dealer pursuant to the Master Sale Agreement, it assumed that the dealer had confirmed a third party was not in possession of the vehicle because of the representations and warranties it provided to Bank. Thus, the trial court’s conclusion that Bank was not aware of Dealer’s breach in September 2012, and did not know of such breach until at least October 2013, is supported by substantial evidence.  Dealer next argues that Bank, by allowing Edgardo to reinstate the Edgardo Contract, knowingly relinquished its rights under the Master Sale Agreement. According to Dealer, Bank was not required, under the Automobile Sales Finance Act, to allow Edgardo to reinstate the Edgardo Contract and the trial court therefore erred when it concluded that Bank was so obliged. This argument misses the point. The issue for the trial court was not whether the Automobile Sales Finance Act required Bank to permit Edgardo to reinstate the Edgardo Contract, but whether by permitting such reinstatement, Bank intentionally relinquished its rights against Dealer. Under the Automobile Sales Finance Act, “a defaulting buyer whose car has been repossessed by … a creditor must be given the opportunity to reinstate the contract, absent proof of certain statutory circumstances, including that the buyer (1) ‘intentionally provided false or misleading information of material importance on his or her credit application’….” (Ramirez v. Balboa Thrift & Loan (2013) 215 Cal.App.4th 765, 780-781 [citing Civ. Code, § 2983.3.] ) The creditor must “reasonably and in good faith determine[ ]” that one of the statutory circumstances apply. (Civ. Code, § 2983.3, subd. (b).) The creditor must determine whether a buyer is entitled to reinstatement within 60 days of repossession. (Ramirez v. Balboa Thrift & Loan, supra, 215 Cal.App.4th at p. 781 [citing Civ. Code, §§ 2983.2, subd. (a)(2) and 2983.3, subd. (b)].) We need not decide whether Bank would have prevailed under the Automobile Sales Finance Act had it decided to deny Edgardo reinstatement. Rather, we must determine whether substantial evidence supports the trial court’s conclusion that Bank did not waive its rights under the Master Sale Agreement by allowing such reinstatement. Curtis testified that at the time of the reinstatement, she did not believe there were any conditions that allowed Bank to deny reinstatement. She further testified that she did not believe Edgardo had provided any misleading information on his credit application. The trial court reasoned that under these circumstances, “[t]he Bank, like any seller or holder of a sales contract, faces significant liability and damages if it wrongfully refuses to allow reinstatement and violates the statute.”⁵ Thus, the trial court’s finding that Bank did not waive its rights is supported by substantial evidence.