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Lazareff v. Ocean Beach Marina, Inc.

A-2481-98T1 (N.J. Super. App. Div. 2000) (Unpublished)

CONSUMER FRAUD; WARRANTIES—A dealer that sells an extended warranty but fails to submit the application to the warranty company can not substitute itself for the warranty company and can be in violation of the Consumer Fraud Act.

A purchaser bought a boat from a boat dealer and paid for an extended warranty. Under the agreement between the dealer and the warranty company, the dealer was obligated to forward the money for the warranty together with a completed application. The dealer never did so. About eight months later, the buyer brought the boat to another dealer for repairs, believing that it was covered under the extended warranty. That dealer contacted the warranty company and discovered that no warranty had been issued. It then contacted the selling dealer, who acknowledged that no warranty had been issued and agreed to pay the repair cost. The purchaser was ignorant of this set of facts. About three months later, the buyer brought the boat to a second dealer for additional repairs. She was prepared to pay for some uncovered repairs, but expected that the others would be covered by the warranty. When this dealer discovered that no extended warranty was issued, it notified the buyer. The buyer paid the bill and contacted the original seller. The seller offered to pay the bill, but the buyer declined. The dealer never disclosed that it had failed to send the money for the warranty. At trial, the dealer contended that its failure to submit the application and premium was an oversight but the lower court observed that the dealer had failed on two occasions to inform its buyer of the true facts concerning the warranty. Instead, according to the lower court, “the dealer’s statements misled the plaintiff into believing that there was a warranty,” telling its buyer that the problem was with the warranty company rather than with itself. As a result, the lower court concluded that the dealer’s conduct constituted “clear violations of the Consumer Fraud Act.” The Appellate Division affirmed, finding it clear that the dealer’s contention that its failure to submit the application and pay the premium amounted to a mere oversight on its part could not stand in the face of its duplicity and its obligation to tell the truth. The buyer’s refusal to accept the dealer’s offer to pay the second repair deal did not constitute bad faith. By that time, the buyer had the right to believe that there had been significant misrepresentations and that some fraud had been committed. According to the Court, the buyer had not been made whole and had not received the benefit of its bargain. When the dealer agreed to pay the second repair bill without also returning the balance of the premium, it was putting itself in the place of the warranty company, an insurer, a role that it had no authority to undertake. Consequently, it was unjustly enriched to the extent that it withheld the balance of the premium above that part which it had paid for the first repair and then offered to pay for the second repair. This constituted an unlawful practice within the meaning of the Consumer Fraud Act.


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