Sale of a repossessed vehicle by a lessor - how to combat the sale of a car at a lower price?

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Piotr Kłodziński|
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Financial problems often cause many consequences, like one move of dominoes - in the case of leasing a car, this often results in, among others, termination of the leasing contract by the financing party, i.e. the leasing company. After recovering the vehicle, the lessor will most often sell the leased item to another entity, unfortunately, often at a price much lower than the market value. How unfavorable is this for the lessee and how to combat it? Based on our practice, we respond in this article regarding the (often alleged) sale of cars by leasing companies at low prices.

Briefly – what is leasing and what can be the subject of leasing

There are several types of leasing, and the most common is operational leasing. Under such an agreement, the financing party (lessor) undertakes to purchase the item from a designated seller on the terms specified in this agreement and to hand over the item to the user (lessee) for use or to use and derive benefits for a specified period of time, and the user undertakes to pay the financing party in agreed installments. monetary remuneration, equal to at least the price or remuneration for the purchase of the item by the financing party. The subject of leasing is not only motor vehicles - it may also include production lines or specialized equipment (construction equipment, ultrasound, night vision devices, lasers used in cosmetology, etc.). In fact, most users decide to "lease" a car - often a relatively new one, the value of which is quite high, depending on the make and model of the vehicle.

 

Vehicle recovery and sale

The act regulating the leasing contract includes, among others: Civil Code. It provides for regulations not only protecting the lessor, but also the user of the leased item, taking into account, first of all, the often dominant position of the financing party under this agreement. One of the rights of the financing party is the possibility of terminating the leasing contract with immediate effect. Pursuant to Art. 70913 Civil Code, if the beneficiary delays payment at least one installment, the financing party should set an appropriate additional deadline in writing for the user to pay the arrears, with the risk that in the event of ineffective expiry of the specified deadline, it may terminate the leasing contract with immediate effect, unless the parties have agreed on the notice period. In the event of such termination of the contract, the financing party will most often immediately start recovering the vehicle he owns and then lease it to another person or, most often, simply sell it.

 

What impact does the sale of the leased item after early termination of the contract have on the rights of the original, vindicated lessee?

Well, according to Art. 70915 Civil Code, in the event of termination of the leasing contract by the financing party as a result of circumstances for which the lessee is responsible (most often due to: delay in payment of leasing installments), the financing party may demand that the lessee immediately pay all unpaid installments provided for in the contract, less the benefits that the financing party obtained as a result of their payment before the agreed date and due to termination of the leasing contract. The highlighted fragment is important - if the financing party obtains benefits as a result of terminating the leasing contract, the user will be able to effectively demand that the amount of the claimed sum of leasing installments be reduced by this amount. Unfortunately, leasing companies often act incorrectly - they sell the vehicle at a lower price - so that the user does not "see" any benefits.

 

Sale of a recovered vehicle at a lower price – what do the courts say about it?

Certainly one of the most interesting "current" topics, because currently the use of car leasing and others is very popular. Therefore, we reviewed the case law that addressed this issue.

An often discussed issue is obligation to behave due diligence by the lessor. What does this statement mean? Due diligence within the meaning of the Civil Code is: the care generally required in a given type of relationship. This term is used to describe diligence, conscientiousness and accuracy, taking into account the professional nature of the activity - so the lessor must act as if he himself wanted another entity to act on his behalf - that is, in order to achieve the best economic effect. If a vehicle is sold at its market price on the day of sale, or even higher, it will certainly be considered due diligence. Selling a vehicle at a lower price - and, as case law shows - sometimes below half of its value, does not lead to the same conclusions.

 

In one of the judgments[1] the lessor financed equipment used in aesthetic medicine, which was then vindicated and sold due to the user's delay in paying installments. A significant problem in this case was that in the General Contractual Conditions the parties agreed that "(...) in the case of, among others, sale of the leased item by the plaintiff [financier], the sum of leasing receivables will be reduced by the sales price of the leased item net of VAT. Therefore, the issue of selling the leased equipment at the highest possible price was important for the user, as it would result in a reduction of the debt. As of the date of collection of the equipment, their rounded value was as follows: PLN 89,500, PLN 23,700, PLN 36,400.00, PLN 72,600 and PLN 48,500. After the auction of all items, the following net sales prices were finally achieved: PLN 2,900, PLN 5,000, PLN 8,600, PLN 34,500 and PLN 21,000. Therefore, each of them was sold for a price lower than 50% of the value on the date of return (collection) of the equipment (or even close to 3% of value!), which had an unfavorable impact on the user, as only a small amount was deducted from the existing debt.

In order for the court to resolve this issue, evidence was obtained from an expert opinion, where he stated that: (1) the financing party sold all the devices for a price lower than the market value in the conditions of forced sale; (2) the net amount of PLN 2,900 obtained for a device worth less than PLN 90,000 is particularly striking. Therefore, the court found that the auction was conducted by the plaintiff was not carried out with due care.

“The documents submitted to the case files clearly showed that the starting amount of the auctioned items was reduced every two or four days until they were sold significantly below their value. According to the District Court, a rather common procedure is to keep the starting amount of the auctioned item at a stable level for a longer period of time, and not to reduce it two days after the item is put up for auction (...). Moreover, according to the Court of First Instance, the plaintiff's financial situation did not force him to sell the equipment as soon as possible, regardless of the amount obtained. The plaintiff, while exercising due diligence in conducting the auction and being aware of the value of the medical devices being sold, could certainly have achieved higher amounts."

As a result of the appeal, the Court of Second Instance found, based on another expert opinion, that "(...) in the case of forced sales, there is a time factor that is too short to properly display the item on the market, so that it can be sell in a shorter time, the price must be more attractive. (…) The expert additionally pointed out that the market for the sale of post-lease items is characteristic because this market is where opportunities are sought.” Nevertheless, the expert also noted that the sales price of the devices was understated, which was the reason gross negligence on the part of the plaintiff (i.e. the financing party), and in the case of the items covered by the opinion, there were no grounds to determine a price reduction level other than 50%. Thus, the courts of both instances correctly stated that maintaining due diligence in the contractual relationship with the lessee obliges the lessor to take actions aimed at selling the recovered items at a price corresponding to their actual value.

The case in question is one of the first judgments (although not fully favorable) in which the problem of grossly negligent practice of companies specializing in leasing contracts was noticed.

Gross negligence of the lessor as an argument for underselling the vehicle

The Supreme Court considered another leasing case[2], where its examination resulted in the complete repeal of the contested judgment and remittance of the case for re-examination by the Court of Appeal. The original judgment upheld the payment order, obliging the defendants (beneficiaries) to pay the lessor over PLN 50,000.

The subject of the leasing in this case was a MAN TGA tractor unit (colloquially speaking - TIR). Due to the ineffective expiry of the deadline for payment of overdue periodic installments, the lessor terminated the leasing contract with immediate effect and asked the users to return the leased item, and the vehicle was returned only after the financing party commenced extraction activities with the help of a debt collection company. As determined, the market value of the TIR on the date of recovery was PLN 165,400 gross, while on the date of sale - PLN 84,400. For what amount did the lessor sell the vehicle? Too abnormally low PLN 32,300 gross.

Originally, the Court of Appeal found that in accordance with the above-mentioned Art. 70915 The Civil Code determines the benefits of the financing party in the event of sale of the leased item after termination of the contract the price obtained from its sale, not its value. However, the court had to assess whether there was a failure to perform or improper performance of the obligation provided for in the lessee's interest, i.e. deduction from the requested amount of the benefits that the financing party obtained as a result of terminating the leasing contract and selling the vehicle. The lessor did not provide any evidence that would allow it to be concluded that with due diligence it was impossible to obtain a higher price corresponding to the market value of the item. This circumstance was important because the examined contract also included a provision similar to that in the first case, i.e. obliging the lessor to reduce the amount of compensation (demanded from the user) by the net sales price of the leased item. Having regard to all the circumstances, the Court of Appeal found that that the sale of a tractor-trailer for less than half of its value was a breach of the obligation, due diligence, as well as a violation of Art. 70915 Civil Code.

As a result of the users filing a cassation appeal, the Supreme Court, as already mentioned, overturned the judgment in its entirety and ordered the case to be re-examined by the Court of Appeal.

According to the legal justification of the judgment, the liability of the beneficiary of Art. 70915 Civil Code (i.e. the obligation to pay the remaining leasing installments minus the factors enumerated there) is a liability compensation. Because compensation in this case may not exceed the damage to the injured party's property, the compensation due to the financing party is reduced by the benefits obtained by him - one of them is the amount obtained from the sale of the leased item (selling price, not the value of the vehicle):

"The benefits obtained should be related to the actual, and not only potentially obtainable, income from the thing, and therefore primarily to the sales price obtained by the lessor (seller) (...). During the period that elapses from the time of returning the item to the financing party until its sale, the item may lose value, which affects the amount of the price that can be obtained for it. Sometimes, depending on the current market situation in relation to the item being leased, it may be necessary to sell it below the market price so that the delay in its sale does not cause a further decrease in its value and, consequently, also in the price obtainable for this item. (…) This does not mean, however, that it is irrelevant how long after the return of the item, the financing party concluded a contract for the sale of the item that was previously the subject of leasing."

"If the subject of the leasing contract is an item (as in the case of motor vehicles), the value of which depends to a large extent on its age, it should be assessed whether the financing party has undertaken the required diligence to sell it with the smallest difference in relation to its market value. from the moment of its return. (...) In the light of the findings, it follows that the tractor unit, two years after its return to the plaintiff, had a much lower value than at the time of its return, and consequently, it is justified to conclude that its faster sale could have led to a higher price than the value finally accepted by the court of second instance for settlement. In the event of inappropriate diligence of the financing party in taking actions aimed at selling the thing that is the subject of leasing for settlement - as part of the benefits referred to in Art. 70915 kc – it is not the objective (market) value of the item at the time of its return that is taken into account, but the most likely price at which the financing party could have sold the item if he had taken steps to sell it with due diligence."

The last sentence of this judgment is important - in the event of such gross negligence of the lessor, the deduction should not be the amount of the price actually obtained, but the price at which he could sell the item if he took steps to sell it with due diligence. This position of the Supreme Court, which has not been repeated too many times yet, but is obvious in the light of the current market crisis, gives some hope to lessors who are in trouble. It also indicates the possibility of pursuing claims against leasing companies and defending against their claims.

 

Sale of the leased item at an "abnormal" price - i.e. the first sale of the vehicle to a related company

Unfortunately, a very common phenomenon is that leasing companies circumvent the law. The provisions of the Civil Code almost directly indicate that the benefits obtained within the meaning of Art. 70915 they only apply to the first sale of the vehicle - i.e. the one where the seller is the lessor. This provision, or any other, does not address the problem of the financing party selling a given vehicle to a company de facto completely controlled by him (daughter company), and only then sells it at a "normal", higher price to another customer. Only at this stage does the lessor obtain real benefits, which unfortunately will not be deducted from the compensation demanded by the user, because this fact is simply elusive in the light of applicable regulations. However, it seems that the courts will slowly be convinced to appropriately apply certain standards of the Code of Civil Procedure, which will enable the detection and stigmatization of such phenomena.

The existence of such a legal loophole is to an exaggerated extent to the detriment of leasing users. It allows lessees to sell leased items de facto themselves, treating the entire possibility of reducing the lessee's compensation artificially, enabling them to make a second, legally unlimited commercial transaction from which they can really gain a lot. Therefore, if you get into any dispute with the lessor, it is worth requesting information about who purchased the vehicle.

 

Our law firm helps clients pursue claims against lessors, and based on our current practice, the problem of debt collection and sale of motor vehicles at a lower price is becoming more and more common. Unfortunately, many people feel cheated by leasing companies, and we try to fight unfair leasing companies.
Please contact us, after fully reviewing the facts of your case, we will prepare an action plan appropriate to the given situation in order to obtain the best possible effect - for your settlement with the leasing company. Also one that happened a year or two ago.

 

[1] Judgment of the Court of Appeal in Warsaw of July 24, 2019, VII AGa 1204/18, LEX

[2] Judgment of the Supreme Court of October 28, 2016, I CSK 649/15, LEX

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