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Does California’s Lemon Law Apply Where the Selling Dealer is Out of State?

by JohnSDLL in Buying Cars & Dealerships, Consumer Protection, Hanson Law Firm News

California’s lemon law, the Song-Beverly Consumer Warranty Act, applies only to goods sold in California. But determining where the sale occurred can be more complicated than you might think. It depends on where “title passes.” This is a term of art. Unless the parties otherwise expressly agree, title passes to the buyer when and where the seller completes performance of the physical delivery of the vehicle. That, in turn, means 1) at the time and place of shipment if the sales contract requires or authorizes the seller to send the goods to the buyer but does not require delivery at the destination (“shipment contract”); or 2) on tender at the destination if the contract requires delivery there (“delivery contract”). (Cal.Com.Code Section 2401(2).) The presumptive form of contract in California is the “shipment contract.” ( Cal.Com.Code Section 2503.)

California Buyers Beware: if you are located in California, but buying a vehicle from a dealer that is out of state, be sure the contract language states it is a “delivery contract” or “destination contract” and that title is to pass in California. Make sure that the seller assumes all risks until delivery at your specific location in California and that you are to inspect and accept the vehicle in California. Even though the contract may be entered into out of state, if it requires delivery at a specific destination in California, title passes on tender at that destination. Cal. Comm.Code § 2401(2)(b). This is called a “delivery” or “destination” contract.

If, however, you are buying from a California dealer, but intend to take delivery out of state, you should make sure the contract is a “shipment contract.” Then title will still pass in California, and you will have California lemon law protection.

Important note: Provisions as to where it is to be registered or where taxes and fees are to be paid are not enough!

Here are some terms that are used in commercial shipping contracts that, if present, might help decide whether it is a destination or shipment contract:

Shipment Contract Definitions

There are many terms you may see on a shipping contract that you don’t use in everyday life. Most are abbreviations:

FOB: “Free on Board,” commonly referred to as F.O.B., is a shipping designation used to specify obligations and responsibilities for goods when they are shifted from seller to buyer as sea freight. FOB is part of the incoterms list published by the International Chamber of Commerce. These terms are used to standardize shipping and freight contracts and avoid lengthy negotiations by expressing contractual obligations in simple phrases. Specifically, FOB indicates at which point the responsibility (and risk) of the shipped goods transfers from the seller to the buyer
FOB place of shipment: This term is used to specify that the freight must be brought to the place of the carrier by the seller. It might be the carrier’s distribution or transportation center.
FOB seller’s location: When you see this term on a shipping contract, it means the freight must be loaded onto the carrier at the seller’s location which could be a factory or store.
FOB destination: This is usually only used on destination contracts. It means the liability shifts to the buyer only when the delivery reaches their destination. “FOB Destination Point” means the seller retains responsibility for the goods until they reach the buyer’s location or another agreed-upon destination. The seller covers the shipping costs and remains accountable for the goods during their transit. Only upon delivery, at the predetermined destination, do the costs and responsibilities transfer to the buyer.
FOB buyer’s factory: Similar to FOB destination, this term means the liability shifts to the buyer only when the freight reaches their factory.
FAS: This stands for free alongside ship. If your goods are going on a freight carrier ship, once they are delivered to the port and placed next to the ship they are going on, the liability transfers to the buyer.
CIF: It stands for cost, insurance, and freight. It’s used to say who is responsible for these items at each point in the shipping process.
Ex Ship: In destination contracts, this means that the buyer is responsible for unloading the ship after the liability has shifted to them.
No arrival no sale: This term is sometimes offered to buyers on destination contracts. It means that they can cancel the shipment or receive a discount if the freight has been lost of damaged while the seller still has the liability.
FOB [Place of Origin], Freight Collect indicates that the buyer has assumed responsibility for the freight at its origin and will pay associated freight charges at the destination.
FOB [Place of Destination], Freight Prepaid indicates that the seller is responsible for the freight during the shipping process and the associated freight charges have already been prepaid by them.

FOB and Transfer of Ownership

Point of Transfer in FOB Shipping Point

In an FOB Shipping Point agreement, the transfer of ownership happens the moment the goods are loaded onto the transportation vehicle at the seller’s location.

From this moment, the buyer is legally the owner of the goods and is responsible for any potential loss or damage that might occur during the transit.

Point of Transfer in FOB Destination Point

For FOB Destination Point agreements, ownership transfers at the opposite end of the journey.

Only once the goods have safely reached their intended destination does the ownership transfer from the seller to the buyer.

Throughout the transportation process, the seller remains the legal owner of the goods.

No other state’s laws are as good as the California lemon law, and often other state’s laws provide no, or virtually no protection, against a lemon. Make sure you keep California’s landmark consumer lemon-law protection!

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