ESTELLA KING V FORD MOTOR CREDIT COMPANY
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STATE OF MICHIGAN
COURT OF APPEALS
ESTELLA KING, DENNIS KOCHAN, DENISE
REED, and CHARLES PORTER,
FOR PUBLICATION
June 24, 2003
9:30 a.m.
Plaintiffs-Appellees,
v
FORD MOTOR CREDIT COMPANY,
GENERAL MOTORS ACCEPTANCE
CORPORATION, CHRYSLER FINANCIAL
COMPANY, LLC, RIVERSIDE FORD SALES,
INCORPORATED, MEROLLIS CHEVROLET
SALES & SERVICE, INCORPORATED,
VILLAGE JEEP EAGLE, INCORPORATED, and
ZUBOR BUICK, INCORPORATED,
Defendants-Appellants.
No. 233931
Wayne Circuit Court
LC No. 00-015553-CK
Updated Copy
August 15, 2003
Before: Jansen, P.J., and Kelly and Fort Hood, JJ.
FORT HOOD, J.
Defendants1 appeal by leave granted from the trial court's order granting in part and
denying in part cross-motions for summary disposition. We reverse and remand for entry of an
order granting defendants' motion for summary disposition and denying plaintiffs' motion for
summary disposition.
I. BASIC FACTS AND PROCEDURAL HISTORY
1
Defendants Riverside Ford Sales, Incorporated (Riverside Ford), Merollis Chevrolet Sales &
Service, Incorporated (Merollis), Village Jeep Eagle, Incorporated (Village Jeep), and Zubor
Buick, Incorporated (Zubor), are the automotive dealerships from which plaintiffs purchased
their vehicles. Plaintiffs Estella King, Dennis Kochan, Denise Reed, and Charles Porter are
individual car purchasers and, for ease of reference, will be referenced by their last names.
Defendants Ford Motor Credit Company (Ford Credit), General Motors Acceptance Corporation
(GMAC), and Chrysler Financial Company, LLC (CFC), were the financing agencies utilized by
plaintiffs and defendant dealerships.
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Plaintiffs filed a class action complaint and demand for a jury trial alleging violations of
the Michigan Motor Vehicle Sales Finance Act (MVSFA), MCL 492.101 et seq., and a violation
of the Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. In 1997, plaintiff
King entered into a retail installment contract with defendant Riverside Ford for the purchase of
a new 1998 Ford Windstar with an extended service contract purchase price of $1,165. In 1998,
plaintiff Kochan entered into a retail installment contract with defendant Merollis for the
purchase of a new 1997 Chevrolet Venture with an extended service contract price of $520. In
1997, plaintiff Reed entered into a retail installment contract with defendant Village Jeep for the
purchase of a new 1997 Plymouth Voyager with an extended service contract price of $1,495.
Defendants Ford Credit, GMAC, and CFC provided the financing for the purchase of the
vehicles and the service contracts. Each dealership received a portion of the price of the service
contract. Plaintiffs brought suit on behalf of themselves and "thousands" of other consumers
who have financed the purchase of a motor vehicle and extended service contract through a retail
installment contract, alleging that defendants engaged in a scheme to sell motor vehicle service
contracts to car buyers at inflated prices to include car dealer commissions in violation of
statutory and common law. It was alleged that the financing of the purchase of a motor vehicle
and the service contract in the retail installment contract violated the MVSFA. Any charge in
excess of the dealers' cost for the service contracts also was an alleged violation of the MVSFA.
It was alleged that the holders of the retail installment contracts, defendants Ford Credit, GMAC,
and CFC, were liable to the same extent as the car dealerships. Lastly, plaintiffs alleged that the
contracts violated the MCPA.
In lieu of answering dispositive motions filed by defendants, plaintiffs filed a first
amended complaint. This complaint added plaintiff Porter. In 1998, plaintiff Porter entered into
a retail installment contract with defendant Zubor for the purchase of a Buick Century, which
included a service contract price of $1,090, financed by defendant GMAC. Plaintiffs' first
amended complaint alleged five counts: (I) violation of provisions of the MVSFA that preclude
a car dealer from extending credit to a car buyer to finance service contracts;2 (II) that even if a
car dealer may extend credit to a car buyer to finance a service contract, the car dealer is
prohibited by the MVSFA from directly or indirectly receiving part of the sale price; (III)
defendants Ford Credit, GMAC, and CFC were also liable under the MVSFA for directly or
indirectly receiving part of the sale price of the service contracts and financing service contracts;
(IV) reformation/breach of contract on the basis that the retail installment contracts created
contractual relationships between the parties and the contracts, in violation of the MVSFA,
resulting in illegal and unenforceable payments; and (V) unjust enrichment on the basis that
defendants received and continued to receive the benefit of unlawful payments from plaintiffs.3
Both parties filed cross-motions for summary disposition. Defendants alleged that the
MVSFA did not prohibit the sale and financing of extended-protection service plans. Defendants
noted that the Division of Financial Institutions, the body charged with the administration and
2
The trial court ultimately ruled against plaintiffs on this issue, and plaintiffs have not filed a
cross-appeal. Therefore, we do not address it.
3
The amended complaint did not pursue any claim based on the MCPA.
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oversight of the statute, consistently concluded that automotive dealerships may sell and finance
extended service protection, and the Legislature had acquiesced in that determination. Rather,
the only requirement imposed by administrative bulletins was that the cost of the warranty be
expressed as a separate item. It was further alleged that the extended service contract qualified
as a travel-emergency benefit, an item that was offered to the buyer through the principle of
liberty of contract. The buyer was not required to purchase the extended service contract, which
was the result of a negotiation between the car buyer and seller. Lastly, defendants alleged that a
private right of action was not provided for in the MVSFA.
Plaintiffs alleged that the MVSFA was enacted in 1950 to regulate retail and installment
sales of motor vehicles and eliminate the abuse occurring in the transactions. The abuse included
unreasonable and unjust finance charges, failure to disclose exact fees, "kickbacks," inadequate
remedies to purchasers, and inadequate insurance protection for purchasers. While a
manufacturer's suggested retail price for a new car must be disclosed to consumers, there was no
comparable disclosure requirement with respect to an extended service contract. Plaintiffs
alleged that "[c]onsumers d[id] not regularly bargain over the price of a service contract, but
pa[id] whatever the dealer ask[ed]." Consequently, the dealer charged as much as six to twelve
times the dealer cost for a service contract. Plaintiffs alleged that the MVSFA precluded the
seller from collecting fees in excess of premium costs, fees, and expenses that were authorized
by the act. By statute, the Legislature had not authorized the service contract as a cost to the
buyer; therefore, it could not be included in an installment sale contract. Additionally, any fee or
cost was limited to the actual charge. Thus, the dealer could not earn a profit on the sale of an
extended service contract. Plaintiffs alleged that because the contracts were illegal, plaintiffs
were entitled, as a matter of law, to a refund or credit for the excess charges collected by
defendants. Plaintiffs also alleged that defendants were liable on the basis of unjust enrichment.
Plaintiffs filed a response to defendants' motions, alleging that the statute, by referencing
enforcement of a judgment, did, in fact, provide for a private cause of action against defendants.
Plaintiffs also asserted that an extended service contract could not qualify as an option,
accessory, or travel-emergency benefit. Options and accessories were hardware features that
were physically installed on a vehicle. Furthermore, the claim of unjust enrichment could
proceed as an alternative theory to the claim of breach of contract in the event it was not upheld.
A written order granting in part and denying in part the cross-motions for summary
disposition was entered. The trial court held that the MVSFA did not prohibit the sale or
financing of the extended service contracts by the dealers. Therefore, defendants prevailed on
that issue, and count I of plaintiffs' first amended complaint was dismissed. The trial court
further held that the MVSFA did not limit the price that defendants could charge and that they
could finance a travel-emergency benefit component of an extended service contract. Therefore,
to the extent that count II of the first amended complaint alleged a violation for the sale of an
extended service contract at a profit for the component part of travel-emergency benefits, the
count was dismissed. The trial court held that the MVSFA limited the price of nontravelemergency benefits of extended service contracts, and defendants could not charge and finance
an amount in excess of the actual cost of the nontravel-emergency benefit component. Thus,
plaintiffs' motion for summary disposition with regard to this portion of count II was granted and
defendants' motion was denied. The trial court further held that, to the extent that a profit was
earned in excess of the cost of nontravel-emergency benefits of extended service contracts,
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defendants breached their contracts with plaintiffs, and summary disposition in favor of plaintiffs
with respect to count IV was proper. Lastly, the trial court held as a matter of law that the
MVSFA did provide for a private right of action.
II. STANDARD OF REVIEW AND RULES OF STATUTORY CONSTRUCTION
The trial court's grant or denial of summary disposition is reviewed de novo. Stone v
Michigan, 467 Mich 288, 291; 651 NW2d 64 (2002). This issue also presents a question of
statutory construction. Issues of statutory construction present questions of law that are reviewed
de novo. Cruz v State Farm Mut Automobile Ins Co, 466 Mich 588, 594; 648 NW2d 591 (2002).
The primary goal of statutory interpretation is to give effect to the intent of the Legislature. In re
MCI Telecom Complaint, 460 Mich 396, 411; 596 NW2d 164 (1999). This determination is
accomplished by examining the plain language of the statute. Id. If the statutory language is
unambiguous, appellate courts presume that the Legislature intended the meaning plainly
expressed and further judicial construction is neither permitted nor required. DiBenedetto v West
Shore Hosp, 461 Mich 394, 402; 605 NW2d 300 (2000). Statutory language should be
reasonably construed, keeping in mind the purpose of the statute. Draprop Corp v Ann Arbor,
247 Mich App 410, 415; 636 NW2d 787 (2001).
If reasonable minds could differ regarding the meaning of a statute, judicial construction
is appropriate. Adrian School Dist v Michigan Pub School Employees' Retirement Sys, 458 Mich
326, 332; 582 NW2d 767 (1998). When construing the statute, a court must look at the object of
the statute in light of the harm it is designed to remedy and apply a reasonable construction that
will best accomplish the purpose of the Legislature. Marquis v Hartford Accident & Indemnity
(After Remand), 444 Mich 638, 644; 513 NW2d 799 (1994). Michigan recognizes the maxim
"expressio unius est exclusio alterius" that the express mention in a statute of one thing implies
the exclusion of other similar things. Bradley v Saranac Community Schools Bd of Ed, 455 Mich
285, 298; 565 NW2d 650 (1997). However, this maxim is merely an aid to interpreting
legislative intent and will not govern if the result would defeat the clear legislative intent. Grand
Rapids Employees Independent Union v Grand Rapids, 235 Mich App 398, 406; 597 NW2d 284
(1999). The legislative history of an act may be examined to ascertain the reason for the act and
the meaning of its provisions. DeVormer v DeVormer, 240 Mich App 601, 607; 618 NW2d 39
(2000). A preamble is not to be considered authority for construing an act, but it is useful for
interpreting statutory purpose and scope. Malcolm v East Detroit, 437 Mich 132, 143; 468
NW2d 479 (1991). In 2A Singer, Sutherland Statutory Construction (6th ed), § 47:04, pp 219226, the following statements addressing preambles are instructive:
A preamble consists of statements which come before the enacting clause
in a statute. It usually gives reasons for the operative provisions which follow . . .
.
* * *
The preamble can neither limit nor extend the meaning of a statute which
is clear. Similarly, it cannot be used to create doubt or uncertainty. If the statute
is clear and the whole act method of interpretation is used, the true meaning is
derived from all parts of the act regardless of whether the preamble is more or less
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extensive than the purview. Whole act interpretation produces a more defensible
result than exclusion of the preamble even though the result may be the same.
The preamble may be employed to extend the meaning of an ambiguous
statute beyond the limited language of the purview. This rule must be qualified
by the explanation that the result must be consistent with other rules of
interpretation.
III. HISTORICAL STATUTORY CREATION AND ANALYSIS
According to the Michigan Legislature's website,4 a resolution is
[a] document expressing the will of the House or the Senate (or both, in the case
of concurrent resolutions). Resolutions are used to urge state agencies or the
Congress to take certain actions; to formally approve certain plans of
governmental agencies; to conduct certain legislative business; or to establish
study committees to examine issues. Some resolutions are also offered by
members as an expression of congratulations, commemoration or tribute to an
individual or group.
On January 31, 1950, a meeting of the Senate Committee to Investigate Motor Vehicle Financing
resulted in the following resolution:
Whereas, This Committee has conducted an investigation into the cost of
financing and purchasing motor vehicles, pursuant to the provisions of Senate
Resolution No. 34 of the 1949 Session of the Michigan Legislature; and
Whereas, The investigation of this Committee has disclosed that abuses by
finance companies engaged in financing the purchase of motor vehicles by the
public, as heretofore reported by a prior committee which was created during the
1948 Special Session of the Legislature pursuant to Senate Concurrent Resolution
No. 14, are continuing; and
Whereas, A recent study of this Committee has disclosed that as regards
finance charges arising from the installment sale of motor vehicles within the state
of Michigan, 28.48% of such charges are in excess of 25%, 14.7% of such
charges are in excess of 50%, 7.66% of such charges are in excess of 75%, and
5% of such charges are in excess of 100%; and
Whereas, It is the sense of this Committee that all finance charges in
excess of 25% are unreasonable and unjust and constitute an usurious practice
inimical to the public interest; and
4
www.michiganlegislature.org
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Whereas, The investigation of this Committee indicates that finance
companies in Michigan, among other things, are not required by law to make a
just rebate to purchasers of finance charges which are unearned and which arise
when purchasers of motor vehicles discharge their retail installment retail
contracts, in nearly all instances, in advance of the maturity date, and that, in
some instances, the failure to rebate such unearned finance charges results in
interest rates in excess of 1000% in the purchase of motor vehicles; and
Whereas, The investigation of this Committee indicates that there is no
disclosure of the exact amount of finance charges and automobile insurance to the
purchaser of a motor vehicle at the time and place of sale, and that as a result of
said non-disclosure, free competition in the financing of motor vehicles is
discouraged and, in most cases, the purchaser is mislead [sic] as to the exact
amount of finance charges which are being included in the purchase contract;
which constitutes, in the judgment of this Committee, a practice inimical to the
public interest; and
Whereas, The investigation of this Committee discloses that retail
installment sales contracts of motor vehicles contain concealed charges in the
nature of "kickbacks", which are in no way regulated as to amount and are
payments made by finance companies to motor vehicle dealers for the purpose of
securing business from such dealers, and are in the nature of concealed charges
and a deceptive trade practice in the judgment of this Committee; and
Whereas, The investigation of this Committee discloses that, under the
present law, purchasers of motor vehicles are not properly protected in the
repossession procedure, in that the seller is not required to give notice of the
amount necessary to redeem a repossessed motor vehicle, and in that the law
contains no requirements establishing the place of resale of such motor vehicle;
and
Whereas, The investigation of this Committee discloses that the
purchasers of motor vehicles on retail installment sales contracts are given
inadequate legal and equitable remedies under the present law, in that actions to
maintain their rights are costly, time consuming, and are often fraught with the
necessity of costly and ineffective disclosure proceedings to uncover dealings
between finance companies and motor vehicle sales agencies, as a result of which
few actions are brought to enforce the right of purchasers and the regulation of
abuses is consequently imperfect and ineffectual and it is the sense of this
Committee that laws and regulations should be instituted and made effective to
provide a remedy for an aggrieved purchaser procuring redress short of court
action; and
Whereas, The investigation of this Committee has revealed that, in the
retail installment sales of motor vehicles, all too frequently insurance is provided
to the purchaser which only insures the interest of the finance company in the
unpaid balance of retail installment sales contracts, which practice is not unjust
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provided that the purchaser know and realize the nature of the insurance so
provided, but which information is all too frequently found in small print and is
not disclosed to the purchaser; and
Whereas, It is the sense of this Committee that legislation should be
enacted to control and regulate retail and installment sales of motor vehicles and
to eliminate the abuses some of which are hereinbefore set forth, now therefore be
it
Resolved by the Committee of the Senate, created by Senate Resolution
No. 34 of the 1949 Regular Session of the Michigan Legislature, That the
Governor of the State of Michigan, G. Mennen Williams, be requested to include
in his message to the 1950 Special Session of the Michigan Legislature, a
recommendation that the Legislature consider the enactment of legislation to
control and regulate retail installment sales of motor vehicles; and be it further
Resolved, That said committee does also recommend the enactment of an
act similar to that contained in Senate Bill No. 60, as originally introduced in the
1949 Session of the Michigan Legislature by Senator Harry F. Hittle, and as
passed by the Michigan State Senate, and does further suggest that the Governor
of the State of Michigan include such recommendations in his message to the
Legislature at the forthcoming Session, if such be the Governor's desire.
The Legislature did, in fact, act with respect to the resolution. The Motor Vehicle Sales
Finance Act became effective on March 31, 1951. The act contains the following preamble:
AN ACT defining and regulating certain installment sales of motor
vehicles; prescribing the conditions under which such sales may be made and
regulating the financing thereof; regulating and licensing persons engaged in the
business of making or financing such sales; prescribing the form, contents and
effect of instruments used in connection with such sales and the financing thereof;
prescribing certain rights and obligations of buyers, sellers, persons financing
such sales and others; limiting charges in connection with such instruments and
fixing maximum interest rates for delinquencies, extensions and loans; regulating
insurance in connection with such sales; regulating repossessions, redemptions,
resales and deficiency judgments and the rights of parties with respect thereto;
authorizing extensions, loans and forbearances related to such sales; authorizing
investigations and examinations of persons engaged in the business of making or
financing such sales; transferring certain powers and duties with respect to
finance companies to the commissioner of the financial institutions bureau; and
prescribing penalties. [1950 PA 27, amended by 1970 PA 114, effective July 23,
1970.]
Thus, an examination of the resolution underlying the impetus for the legislation and the
preamble to the legislation, Marquis, supra; Malcolm, supra, indicates that the MVSFA was
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designed to address usurious fees and improper conduct that occurred in the financing of an
automobile. The act does not place any constraints or limitations on the profit earned from the
sale of a motor vehicle and any accessories or purchaser options that may be included or
negotiated with the sale.
Furthermore, review of the statute reveals that its predominant purpose is to set forth
licensing and procedural requirements governing a motor vehicle installment sale. Briefly, a
person may not engage in the sale of motor vehicles under installment contracts unless the seller
is licensed in accordance with the terms of the act. MCL 492.103. An application for a license
to engage in installment sales must be in writing to the administrator, MCL 492.104, with the
administrator defined as the commissioner of the Financial Institutions Bureau, Department of
Commerce. MCL 492.102(17). Renewal of existing licenses must occur annually. MCL
492.104(e). In order to obtain the license, a bond must accompany the request to the
administrator, MCL 492.105, and the fees to be charged the applicant are set forth by statute.
MCL 492.106. Upon receipt of a license, it must be posted in a conspicuous place in the
business, the license is not transferable or assignable, and the rejection of any application may be
appealed to the circuit court. MCL 492.107; MCL 492.108.
The administrator has the authority to revoke or suspend any license if he finds various
violations. MCL 492.109. Significantly, the administrator has the right to revoke where the
"licensee has violated any provisions of this act . . . . " MCL 492.109(a)(2). In conjunction with
that authority, the administrator is authorized to investigate and examine the business records of
any licensee or any person engaged in business contemplated by the act. MCL 492.110(a). The
administrator is also "empowered" to require the attendance and testimony of witnesses and the
production of records, and, if disobedience occurs, the administrator may seek aid from any
circuit court to obtain an order that requires a witness to obey. Any failure to obey the order may
be punished as a contempt of court. MCL 492.110(b). The administrator also has the authority
to "make rules and regulations relating to the enforcement of this act." MCL 492.110(c).
The act also precludes an acceleration clause, places limitations on repossession, and
prohibits the inclusion of certain provisions in the installment sale contract. MCL 492.114.
Notice of any sale, transfer, or assignment must be given to the buyer. MCL 492.115. While the
buyer may be required to obtain insurance under the installment sale contract, there are
limitations. MCL 492.116. The statute contains additional regulations regarding extension of
the contract, refinancing charges, defaults, collection, prepayment, payment, and the requirement
that the act comply with the Federal Truth in Lending Act, 15 USC 1601 et seq. MCL 492.119,
492.120, 492.121, 492.122, 492.122a. An entity that operates under the act without a license or a
licensee that violates the act may be found guilty of a misdemeanor and sentenced to pay a fine
of not more than $500 for the first offense, and face imprisonment, not to exceed a year, for
subsequent offenses. MCL 492.137. Thus, an overall review of the statute reveals that it is
regulatory, setting forth the licensing and procedural fees charged in the sale of a motor vehicle
through an installment sale contract without restricting the parties' ability to negotiate the terms
of the sale or the profit margin earned on the sale.
The issue in this litigation is whether the dealerships are entitled to earn a profit on the
sale of extended service contracts or extended warranties in light of provisions of the MVSFA
that regulate fees. Following review de novo, Stone, supra, we conclude that the challenge to the
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profit earned on an extended service contract is not governed by the MVSFA. Section 17 of the
MVSFA, MCL 492.117, concerns installment sale contracts and additional costs and fees
relating thereto, and provides:
(a) In addition to the cost of insurance premiums and travel emergency
benefits authorized in the preceding section of this act, the seller of a motor
vehicle under an installment sale contract may require the buyer to pay certain
other costs incurred in the sale of a motor vehicle under such contract as follows:
1. Fees, payable to the state of Michigan, for filing a lien or
encumbrances on the certificate of title to a motor vehicle sold under an
installment sale contract or collateral security thereto.
2. Fees, payable to a public official, for filing or recording and satisfying
or releasing the installment sale contract or instruments securing the buyer's
obligation.
3. Fees for notarization required in connection with the filing and
recording or satisfying and releasing a mortgage, judgment lien or encumbrance.
(b) The seller of a motor vehicle under an installment sale contract may
also contract with the buyer to pay, on behalf of the buyer, such other costs
incidental to the sale of a motor vehicle and contracted for voluntarily by the
buyer as follows:
Fees, payable to the state of Michigan for registration of the motor vehicle
and issuance or transfer of registration plates.
(c) The foregoing costs may be charged, contracted for, collected or
received by the seller from the buyer independently of the installment sale
contract, or the seller may extend credit to the buyer for the amount of such costs
and include such amount in the principal amount financed under the installment
sale contract.
(d) Such other costs paid or payable to the buyer shall not exceed the
amount which the seller expends or intends to expend therefor. Any such costs
which the seller has collected from the buyer, or which have been included in the
buyer's obligation under the installment sale contract which are not disbursed by
the seller, as contemplated, shall be immediately refunded or credited to the
buyer.
On the basis of the plain language of subsection 17(a), In re MCI, supra, extended service
contracts or extended warranties are not covered by the statute because they are not an item that
the buyer is required to purchase. Rather, like the sale of a motor vehicle, the extended service
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contract is the result of a negotiation between the buyer and the seller.5 The resolution leading to
the enactment of the act, the preamble to the act, and the text of the act demonstrate that it was
designed to prevent the addition of usurious fees and costs following the negotiation of a
purchase price of a motor vehicle, not to limit profit margins for items sold in conjunction with a
motor vehicle.
Plaintiffs allege that the plain language of subsection 17(b) precludes a dealership seller
from contracting for the sale of extended warranties because it identifies "other costs" as
permissible, but then limits the list of "other costs" to registration and license-plate fees. Thus,
under the maxim of expressio unius est exclusio alterius, plaintiffs allege that extended
warranties may not be offered by the seller at a profit. However, this rule regarding the
delineation of one thing implying the exclusion of other similar things will not govern if the
result would defeat the clear legislative intent. Grand Rapids Employees Independent Union,
supra. To apply this maxim, as urged by the plaintiffs, would defeat the purpose of the statute.
The MVSFA was not designed to limit the freedom of contract regarding the profit made on a
motor vehicle and negotiated additions to the vehicle. In essence, the MVSFA is a regulatory
statute designed to set forth a procedure and place restrictions on the fees and costs, not the
profits, associated with an automotive installment sale contract.
Alternatively, plaintiffs allege that profits may not be earned on the sale of an extended
warranty or service contract in light of MCL 492.131:
(a) A licensee under this act shall not charge, contract for, collect, or
receive from the buyer, directly or indirectly, any further or other amount for
costs, charges, examination, appraisal, service, brokerage, commission, expense,
interest, discount, fees, fines, penalties, or other thing of value in connection with
the retail sale of a motor vehicle under an installment sale contract in excess of
the cost of insurance premiums, other costs, the finance charges, refinance
charges, default charges, recording and satisfaction fees, court costs, attorney's
fees, and expenses of retaking, repairing, and storing a repossessed motor vehicle
which are authorized by this act.
* * *
(d) Whenever in an installment sale contract under this act the seller or
any subsequent holder has charged, contracted for, collected, or received from the
buyer prohibited costs or charges in connection with the contract, all the costs and
charges in connection with the contract, other than for insurance, shall be void
and unenforceable and any amounts paid by the buyer for such costs and charges,
other than insurance, shall be applied on the principal of the contract.
5
Plaintiffs did not, by allegation in the complaint or through documentary evidence, dispute that
the purchase of the extended service contract was the result of a negotiation between the buyer
and the seller.
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Again, plaintiffs rely on general, undefined, and broad language such as "other costs" to allege
that defendants may not earn a profit on the sale of an extended service contract. However, the
reference to "other costs" is utilized in conjunction with statutory provisions outlining what the
dealer may or may not require with respect to the amount of insurance and the amount of fees.
The plain language of the statute in no way alters the profit margin the dealership may receive on
the sale of a motor vehicle and any additions the purchaser selects. In re MCI, supra.
Additionally, there is no indication that the freedom of contract to negotiate luxury items or
warranties was intended to be altered by the creation of the MVSFA. Rather, on the basis of the
language of the resolution and the preamble, it is clear that the MVSFA was designed to address
what was occurring after the price of a car and any accessories had been negotiated.
Specifically, after the purchaser negotiated a price, hidden charges and fees would then be added
on to the sale contract. The act, it appears, was designed to remedy the price gouging with
respect to procedural fees that were being added after the negotiation.
The trial court's conclusion that the MVSFA was violated was based on § 16 of the
MVSFA, MCL 492.116. Subsection 16(a) provides, in relevant part:
The buyer of a motor vehicle under an installment sale contract may be
required to provide insurance on such motor vehicle at the buyer's expense for the
protection of the seller or subsequent holder. Such insurance shall be limited to
insurance against substantial risk of damage, destruction or theft of such motor
vehicle: Provided, however, That the foregoing shall not interfere with the liberty
of contract of the buyer and seller to contract for travel emergency benefits
pertaining to the operation of the automobile or other or additional insurance as
security for or by reason of the obligation of the buyer, and inclusion of the cost
of such insurance premium and said travel emergency benefits in the principal
amount advanced under the installment sale contract.
Although the statute contains a definitional section, MCL 492.102, it does not define travelemergency benefits. The trial court noted that the extended service contracts contained language
to indicate that coverage for rental vehicles and towing repairs was included in the extended
service contracts. Therefore, to the extent that these items were not regulated with respect to
profits because of liberty of contract, the trial court held that the travel-emergency benefits
portion of the extended service contracts was not a violation of the statute. However, the
sentence in subsection 16(a) at issue also contains the undefined terms "other" and "additional
insurance":
Such insurance shall be limited to insurance against substantial risk of
damage, destruction or theft of such motor vehicle: Provided, however, That the
foregoing shall not interfere with the liberty of contract of the buyer and seller to
contract for travel emergency benefits pertaining to the operation of the
automobile or other or additional insurance as security for or by reason of the
obligation of the buyer, and inclusion of the cost of such insurance premium and
said travel emergency benefits in the principal amount advanced under the
installment sale contract. [Emphasis added.]
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The parties fail to address how an extended service contract or warranty operates. We note that
the extended service contract is, in effect, insurance. Insurance is a contract in which one party,
for consideration, assumes delineated risks of the other party. St Paul Fire & Marine Ins Co v
American Home Assurance Co, 444 Mich 560, 564; 514 NW2d 113 (1994).6 That is, the
purchaser of a motor vehicle buys an extended service contract to cover parts and labor for
problems that may arise after the expiration of the manufacturer's warranty. There is no
guarantee that the purchaser will ever seek service following the purchase of the extended
service contract and thus derive a benefit from the consideration paid. However, in the event that
vehicle maintenance is required, the purchaser is protected against contingencies delineated in
the extended service contract. The statute provides that "liberty of contract" is not affected with
respect to "additional insurance as security for or by reason of the obligation of the buyer . . . ."
MCL 492.116(a). Consequently, if the buyer chooses to purchase an extended service contract,
the plain language of the statute provides that limitations on the ability to contract for this type of
insurance option are not governed by the MVSFA. In re MCI, supra. Thus, the trial court erred
in dividing extended service contracts into travel-emergency benefits and nontravel-emergency
benefits and concluding that the profit on an extended service contract violated the provisions of
the MVSFA. A division of the extended service contract into travel-emergency benefits and
nontravel-emergency benefits is inappropriate where the statute expressly provides that "other or
additional insurance" items pertaining to the operation of a motor vehicle are not affected
because it would cause an interference with liberty of contract.7
Plaintiffs contend that consumers need the protections of the MVSFA to prevent price
gouging with respect to extended service contracts. However, an educated consumer has options
to negotiate the purchase price of an extended service contract. Extended warranties may be
purchased from the automobile manufacturer, new and used car dealerships, and independent
companies or third parties.8 Extended warranties may be purchased online9 and may extend for a
period past that offered by a dealership or manufacturer. Consumers are urged to research
whether an extended warranty is necessary in light of the cost. Indeed, Michigan's Attorney
6
See also Allstate Ins Co v Elassal, 203 Mich App 548, 555; 512 NW2d 856 (1994), noting
additional definitions of insurance: (1) "'coverage by contract whereby one party undertakes to
indemnify or guarantee another against loss by a specified contingent or peril,'" (2) "'the sum for
which something is insured,'" and (3) "'any means of guaranteeing against loss or harm.'" (further
citations omitted.)
7
We note that plaintiffs cite a study by the attorney general of New York in 1990 that identified
a significant "mark up" charged by dealerships over the manufacturer's suggested retail price of
the extended service contract or warranty. While the study identified a significant price increase
and noted that customers frequently do not barter over the price of the extended service contract,
the study failed to identify the actual profit margin earned following the expiration of the
service-contract period.
8
See http://auto.consumerguide.com/auto/editorial/features/index.cfm/act/feature14
9
However, California, Florida, and Wisconsin prohibit the online purchase of certain auto
warranties. http://auto.consumerguide.com/auto/editorial/features/index.cfm/act/feature14
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General has issued a warning in a consumer alert on the Attorney General's website10 regarding
extended service contracts that provides:
Some dealers offer "extended service contracts" to supplement the
protection of new vehicle warranties. These contracts should be reviewed with
great caution. Many companies that provide extended service contracts have no
affiliation with the vehicle dealership. They have less incentive to encourage
repeat business. The benefits of an extended service contract usually do not
become effective until your vehicle's manufacturer's warranty expires. Unlike
manufacturer's warranties, extended service contracts are usually not
comprehensive. Rather than listing components and claims that are excluded
from coverage, extended service contracts may identify a short list of components
and claims that are covered. These contracts may also place an upper limit on the
amount that will be paid on a claim. They may also impose complicated
procedures for obtaining approval for covered repairs, including a requirement
that the vehicle be inspected by the company selling the contract. Consumers
should also be wary of contracts that exclude coverage for "preexisting
conditions" as well as those that require the consumer to pay the cost of
diagnosing the cause of a component failure. On the whole, extended service
contracts provide substantially less protection than manufacturer's warranties and
are riskier. You should carefully consider whether the total costs of such a plan
outweighs the likely benefits. [Emphasis in original.]
Thus, it is noteworthy that the Attorney General has not issued a plea to the Legislature to
regulate the sale of extended service contracts or warranties and does not take action on behalf of
consumers or urge the consumer to take action consistent with the MVSFA.11 Rather, the
statement by the Attorney General, notes, in essence, the maxim "caveat emptor," or let the
purchaser take care of his own interests. See Achenbach v Mears, 272 Mich 74, 78; 261 NW 251
(1935). The trial court erred in concluding that the protections against fees and costs offered by
the MVSFA governed the sale of an extended service contract. The profit margin of an extended
service contract was not contemplated by the Legislature, Marquis, supra, and the plain language
of the statute forecloses the regulation of extended service contracts, which operate as an
additional form of insurance for the purchaser. In re MCI, supra; St Paul, supra.12
10
See http://www.michigan.gov/ag/0,1607,,7-164-17343_18163-44647--,00.html
11
The consumer advisory is merely noteworthy and is not referenced as authoritative in any
regard. See Danse Corp v Madison Hts, 466 Mich 175, 182 n 6; 644 NW2d 721 (2002).
12
We also note that proposed and enacted amendments of the MVSFA do not aid plaintiffs'
position. The proposed amendment in 1995, House Bill 5659, would have removed unclear
references to a "judgment" by expressly providing for a cause of action to be brought by the
Attorney General, county prosecuting attorney, or person injured. This proposed amendment
was not enacted. The MVSFA was amended in 2002, House Bill 6446, 2002 PA 699, to provide
for increased document preparation fees that could be charged by installment sellers despite
opposition from the administrator of the act. The administrator noted that language to modernize
(continued…)
-13-
The trial court also held that the violation of the MVSFA provided plaintiffs with an
action for breach of contract. Following review de novo, Stone, supra, we disagree. Review of
the first amended complaint reveals that the alleged breach of contract was based on the statutory
violation. The sale of an extended service contract at a profit is not in violation of the statute.13
Therefore, the claim of breach of contract on that basis also fails. Furthermore, a contract will
not be implied under the doctrine of unjust enrichment where a written agreement governs the
parties' transaction. Barber v SMH (US), Inc, 202 Mich App 366, 375; 509 NW2d 791 (1993).
Because the parties' transactions were governed by written documentation, plaintiffs cannot rely
on a claim of unjust enrichment, and our reversal of the trial court's order does not result in
reinstatement of this claim.
Reversed and remanded for entry of an order granting defendants' motion for summary
disposition and denying plaintiffs' motion for summary disposition. We do not retain
jurisdiction.
/s/ Karen M. Fort Hood
/s/ Kathleen Jansen
/s/ Kirsten Frank Kelly
(…continued)
the act was being prepared and a bill to increase fees to consumers without other necessary
changes was premature. This activity regarding the MVSFA, while not dispositive or
controlling, demonstrates that the extension of consumer protections beyond regulatory fees and
costs has not been realized despite the potential for price gouging in the sale of extended service
contracts.
13
Because of our conclusion that extended service contracts do not fall within the purview of the
MVSFA, we need not address the circumstances under which a private right of action may be
maintained under the MVSFA, leaving resolution of that issue for another day. In re MCI, supra
at 424 n 4; Van v Zahorik, 460 Mich 320, 331 n 3; 597 NW2d 15 (1999).
-14-
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