When can a Maryland car dealer legally advertise a vehicle that was previously sold and returned as 'new' again?

Plain-English summary

In 1989, Maryland's Motor Vehicle Administrator asked the Attorney General to sort out a recurring problem: when a dealer sells a vehicle to a buyer who then, for one reason or another (financing fell through, the buyer's check bounced, the vehicle turned out to be defective under the Lemon Law, or a "try it and return it" promotion), gives the vehicle back to the dealer shortly after taking possession, is that vehicle still legally "new," or has it become "used"? The answer mattered for advertising the vehicle again, for whether the MVA should return the manufacturer's certificate of origin (proof a vehicle has never really been owned by anyone but a dealer), for whether the buyer's excise tax should be refunded, and for what the dealer had to tell the next buyer. The opinion concluded that Maryland's MVA could keep using factors like mileage driven, damage, and title status to decide whether a vehicle counted as new or used, but had to formalize that policy into an actual regulation. More importantly, it concluded that, except in the unusual case where a vehicle was returned so quickly and driven so little that its use looked just like an ordinary test drive, a dealer could not advertise a reacquired vehicle as "new" again once a buyer had driven it more than a brief distance or the vehicle had been damaged, altered, or subjected to unusual driving. And regardless of whether the vehicle could still technically be called new, the opinion concluded a dealer always had to disclose the fact of the vehicle's prior ownership to the next buyer, since that fact is plainly the kind of thing a reasonable buyer would want to know before purchasing.

Currency note

This opinion was issued in 1989. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

In 1989, could a Maryland dealer sell a car as "new" after a buyer took it home and then gave it back? Generally no, according to this opinion, unless the return happened so quickly and after so little driving that the vehicle's use was indistinguishable from a typical test drive. If the buyer drove it more than a brief distance, or it was damaged, altered, or driven under unusual conditions, the opinion concluded the vehicle had permanently lost its "new" status.

Did it matter whether the vehicle had actually been titled to the first buyer? Not by itself. The opinion concluded, following Thomassen Lincoln-Mercury, Inc. v. Goldbaum and Wheaton Dodge City, Inc. v. Baltes, that whether a vehicle was still "new" turned on what actually happened to it (mileage, damage, use), not merely on whether a certificate of title had been issued to a prior buyer.

Did the dealer have to tell a later buyer that the car had been previously sold and returned? Yes. The opinion concluded that fact was material under Golt v. Phillips's standard, since a significant number of consumers would attach importance to a vehicle's prior ownership history in deciding whether to buy it or what to pay, so the dealer had to disclose it regardless of whether the vehicle could still be marketed as "new."

Did the buyer get their excise tax back if they returned the car? It depended on why. The opinion concluded the MVA was required to refund the excise tax when a vehicle was returned under Maryland's Lemon Law, but had discretion to decide whether to refund the tax in other return situations, and recommended the MVA adopt a regulation spelling out the factors it would use to make that call.

Background and statutory framework

The dispute arose from ordinary friction in vehicle sales: a "spot delivery" where a dealer releases a vehicle before financing, insurance, or a check has actually cleared, only to later reclaim it if the financing or check falls through; a Lemon Law return under Commercial Law Article §14-1502(c)(1)(ii) for an uncorrectable defect; or a promotional "try it and return it" program. The MVA's informal practice was to look at mileage, damage, and title status to decide whether a returned vehicle was still "new," but it had no regulation actually setting out that policy.

Maryland's statutory definition of "new vehicle" in Transportation Article §11-138 is famously circular: a vehicle owned by a manufacturer, distributor, or dealer that "never has been used to destroy its newness ... as these terms are commonly used or understood in trade or business," essentially unchanged since its original 1943 enactment (Chapter 1007, Laws of Maryland 1943, former Article 66 1/2, §1-152); a "used vehicle" under §11-175 is simply anything that doesn't meet that definition. The opinion found Maryland case law had already moved past a pure title-status test: Thomassen Lincoln-Mercury, Inc. v. Goldbaum upheld a jury's finding that a vehicle sold as new was actually used because it had, in fact, been previously sold, driven, and damaged, regardless of the seller's argument that title had never passed to the first buyer; and Wheaton Dodge City, Inc. v. Baltes held that whether a vehicle's newness had been "destroyed" was a factual question, not a legal one turning on title alone. The opinion surveyed a wide range of out-of-state cases reaching the same conclusion, that mileage driven, damage, and actual use, not merely title or warranty status, determine whether a vehicle remains "new," including Krause v. Eugene Dodge (rejecting a trade-only definition of "new car" in favor of the ordinary meaning understood by consumers), Brooks v. Hurst Buick-Pontiac-Olds-GMC (transit damage made a never-titled vehicle "used"), Buechin v. Ogden Chrysler-Plymouth (mileage alone isn't dispositive; the question is whether the buyer got an unowned car), Jack Criswell Lincoln-Mercury, Inc. v. Haith (600+ miles made a dealer-titled vehicle used despite a manufacturer's warranty), and similar holdings in Bell v. Kent Brown Chevrolet, Lewis v. Worldwide Imports, Watkins v. Roach Cadillac, Searcy v. Bend Garage Co., and McInnis & Co. v. Western Tractor & Equipment Co. The opinion also noted the FTC's own regulatory definition of "used vehicle," 16 C.F.R. §455.1(d)(2), reaching any vehicle driven beyond the limited use of moving or road-testing it before delivery, and Weigel v. Ron Tonkin Chevrolet Co.'s statement that incidental driving during the sales process (test drives, transport to the dealer) does not destroy newness, but that once destroyed, as the Court of Special Appeals put it in Baltes, a vehicle's "new" status, "like 'chaste,' is not a matter of degree, and once lost may only be referred to thereafter in the comparative sense, never again as an absolute."

Applying this framework, the opinion approved the MVA's practice of weighing mileage, damage, and title status, but concluded that under State Government Article §10-101(e), that practice amounted to a "regulation" (a statement of general application and future effect adopted to carry out a law the agency administers) that the MVA was legally required to adopt through the formal rulemaking procedures of SG §§10-105 through 10-117, not just apply informally. On the certificate of origin, the opinion concluded under Transportation Article §13-101 that the MVA should return the certificate, which travels with a vehicle to certify it has never been transferred to a consumer, only if the MVA's own regulation determined the vehicle remained "new." On the excise tax, the opinion distinguished the Lemon Law's mandatory refund requirement under Commercial Law Article §14-1503(a) from the MVA's broader discretion to refund taxes in other return situations under Transportation Article §13-817(b), noting the excise tax attaches to the issuance of a certificate of title, a different triggering event than the sales-tax refund rule in Tax-General Article §11-403(c), which attaches to a rescinded sale.

Finally, the opinion turned to a dealer's disclosure obligations to a later buyer. Only the Lemon Law expressly required disclosing that a vehicle had been previously sold and returned, under Commercial Law Article §14-1502(g)(2), but the opinion found several other statutes independently reached the same result: Transportation Article §§15-312(b) and 15-313(a), barring material misrepresentations and deceptive advertising in vehicle sales; the Maryland Consumer Protection Act's bars on false or misleading representations and failures to disclose material facts, Commercial Law Article §13-301(1)-(3); the Commercial Law Article's false advertising provisions, §§11-701 through 11-707; and the express and implied statutory warranties of Commercial Law Article §2-313(1). Applying Golt v. Phillips's materiality standard, that an omission is material if a significant number of unsophisticated consumers would attach importance to it, the opinion concluded a vehicle's prior sale and return to the dealer was unquestionably material, distinguishing State v. Action TV Rentals, Inc. (where advertising appliances "for rent" itself signaled likely prior use) as not suggesting otherwise. The opinion concluded that, regardless of whether a vehicle could still be marketed as "new," a dealer always had to disclose its prior ownership history to a subsequent buyer.

Citations and references

Statutes and regulations:

• Transportation Article §11-138 and §11-175, defining "new vehicle" and "used vehicle," tracing to former Article 66 1/2, §1-152 and Chapter 1007, Laws of Maryland 1943
• Transportation Article §12-104(b), the MVA's general rulemaking authority
• Transportation Article §§13-101, 13-102(2), 13-104, 13-104(d), and 13-104.1, defining a certificate of origin and the vehicle titling process
• Transportation Article §13-113(e) and §§13-602 and 13-605, dealer tax-collection and temporary tag requirements
• Transportation Article §§13-808, 13-809, 13-809(b)(1), 13-809(c), 13-809(d), 13-812, 13-817(b), and 13-901, the vehicle excise tax and its refund provisions
• Transportation Article §§15-312(b), 15-313(a), and 15-315(a)(4) and (b), barring material misrepresentations and deceptive vehicle advertising, with license and fine sanctions
• COMAR 11.12.01.12, 11.12.01.14A, 11.12.01.14E(1) and (4), 11.12.01.14I, 11.12.01.14I(2), 11.12.01.14J, 11.12.01.14K, 11.12.01.16, and 11.12.01.20, MVA dealer-licensing regulations covering temporary tags, demonstrators, and disclosure
• State Government Article §10-101(e), §10-101(e)(1), §10-101(e)(2)(i), and §§10-105 through 10-117, defining "regulation" and the required rulemaking procedure
• Commercial Law Article §14-1502, §14-1502(c)(1)(ii), and §14-1502(g)(2), and §14-1503(a), Maryland's Lemon Law (Automotive Warranty Enforcement Act)
• Commercial Law Article §13-301(1), (2)(iii), (2)(iv), and (3), and §§13-406 through 13-411, the Maryland Consumer Protection Act's deceptive practice bars and enforcement provisions
• Commercial Law Article §§11-701, 11-704(2), 11-705, and 11-707, the false advertising statute and its remedies
• Commercial Law Article §2-313(1), statutory express warranties for goods
• Tax-General Article §11-403(c), the sales and use tax refund rule for rescinded sales
• 16 C.F.R. §455.1(d)(2), the FTC's used-vehicle trade regulation rule

Cases:

• Thomassen Lincoln-Mercury, Inc. v. Goldbaum, 45 Md. App. 297, 304, 413 A.2d 218, cert. denied, 288 Md. 744 (1980), and Wheaton Dodge City, Inc. v. Baltes, 55 Md. App. 129, 133, 461 A.2d 38, cert. denied, 297 Md. 315 (1983), holding whether a vehicle's "newness" is destroyed is a factual question turning on actual use, not title status alone
• Krause v. Eugene Dodge, 509 P.2d 1199 (Or. 1973), rejecting a trade-only definition of "new car" in favor of the ordinary consumer understanding
• Brooks v. Hurst Buick-Pontiac-Olds-GMC, Inc., 491 N.E.2d 345, 350 (Ohio App. 1985), Bell v. Kent Brown Chevrolet, 561 P.2d 907 (Kan. 1977), and Lewis v. Worldwide Imports, 395 P.2d 922 (Or. 1964), on damage or prior use making a vehicle "used" regardless of title history
• Watkins v. Roach Cadillac, Inc., 637 P.2d 458 (Kan. App. 1981), holding a repainted leased vehicle was not "new" because materially different from what was represented
• Buechin v. Ogden Chrysler-Plymouth, 511 N.E.2d 1330, 1336 (Ill. App. 1987), holding the focus is whether the buyer got an unowned car, not merely the mileage disclosed
• Jack Criswell Lincoln-Mercury, Inc. v. Haith, 590 S.W.2d 616, 619 (Tex. Civ. App. 1979), Searcy v. Bend Garage Co., 592 P.2d 558 (Or. 1979), and McInnis & Co. v. Western Tractor & Equipment Co., 388 P.2d 562 (Wash. 1964), on mileage driven before sale defeating "new" status regardless of dealer title or warranty
• Weigel v. Ron Tonkin Chevrolet Co., 690 P.2d 488, 491 (Or. 1984), on incidental test-drive and transport mileage not destroying newness
• Golt v. Phillips, 308 Md. 1, 10, 517 A.2d 328 (1986), the materiality standard for consumer protection disclosure obligations
• State v. Action TV Rentals, Inc., 297 Md. 531, 467 A.2d 1000 (1983), distinguished as not suggesting prior use is immaterial

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1989/Volume74_1989.pdf (this opinion appears at printed pages 303-319 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Vehicle Law - Consumer Protection - "New" And "Used" Vehicles - Except In Unusual Circumstances, Dealer May Not Advertise Vehicle Reacquired From First Buyer As "New" - Dealer Must Disclose All Material Facts About Prior Ownership

December 22, 1989

Mr. W. Marshall Rickert
Motor Vehicle Administrator

You have asked several questions about the proper definition of a "new" versus a "used" vehicle. Whether a vehicle is properly described and treated as "new" has significant implications for enforcement by the Motor Vehicle Administration ("MVA") of various provisions of the Maryland Vehicle Law. The problem of differentiating between a "new" vehicle and a "used" one also might arise under various other laws, including the Maryland Consumer Protection Act and the Automotive Warranty Enforcement Act, commonly called the Lemon Law.

Your questions focus on the status of a vehicle that is first sold by a dealer to a consumer but then reacquired by the dealer shortly after the buyer takes possession. Specifically, you ask:

1. Is the MVA's policy of weighing certain factors to determine if a vehicle is "new" or "used" permissible? If so, must the MVA adopt regulations that identify these factors?

2. May or must the MVA refuse to return the certificate of origin to the dealer when the vehicle is reacquired by the dealer?

3. Under what circumstances must the MVA refund the excise tax collected from the buyer?

4. May a dealer again advertise the vehicle as "new" after it has been reacquired?

5. Must the dealer disclose a vehicle's prior ownership to a subsequent potential buyer?

For the reasons stated below, we conclude as follows:

1. The MVA's policy of weighing certain factors to determine if a vehicle is "new" or "used" is permissible. The MVA must adopt a regulation implementing this policy, however.

2. The MVA may not return the certificate of origin to the dealer if, applying its regulation, the MVA concludes that a vehicle is "used," notwithstanding the dealer's reacquisition of the vehicle.

3. The MVA must refund the excise tax to a buyer who returns a vehicle under the Lemon Law. The MVA has the authority to determine by regulation the criteria that it will use to decide whether to refund the excise tax under any other circumstance.

4. A dealer may not advertise as "new" a vehicle that has been reacquired by the dealer from an original buyer if: (i) the buyer drove the vehicle for more than a brief period of time or for a distance greater than that ordinarily involved in a test drive or (ii) the vehicle was damaged, altered, or subjected to unusual driving conditions.

5. A dealer must disclose all material facts about a vehicle's prior ownership to a subsequent potential buyer.

I

Background

In the typical sale of a new vehicle, the buyer makes the necessary down payment, arranges for financing, and takes possession of the vehicle under a conditional sale contract. The buyer then applies to the MVA to have the vehicle titled in his or her name. §13-104.1 of the Transportation Article ("TR" Article).1 The dealer collects the tax and fees that are due and, within 20 days of the date on which the purchaser takes possession of the vehicle, forwards them to the MVA.

1 The application must be on a form required by the MVA and must be accompanied by a certificate of origin. See TR §§13-104 and 13-104.1. The application must be accompanied by verification that the excise tax required by TR §§13-808 and 13-809 has been paid, along with any fees attendant to the titling of the vehicle. See TR §§13-809(d) and 13-901.

TR §13-113(e).2 As long as the consumer has tendered a good down payment, obtains the necessary financing, and is satisfied with the vehicle, the transaction is complete.

However, matters are not always so simple. Through a practice known as "spot delivery," a dealer might release a vehicle to a buyer although financing is not yet complete, necessary insurance is not yet obtained, or the buyer's check has not yet cleared. Then, sometimes, the dealer cannot obtain the financing needed by the buyer, the buyer cannot get insurance, or the buyer's check is dishonored. In these cases, either the buyer will return the vehicle voluntarily or the dealer will retrieve it.3

In other cases, a vehicle might be returned to the dealer because of buyer dissatisfaction. Under Maryland's Lemon Law, a vehicle with an uncorrectable defect that "substantially impairs the use and market value of the motor vehicle" may be returned to the dealer. §14- 1502(c)(1)(ii) of the Commercial Law Article ("CL" Article). A dealer might also agree to accept the return of a vehicle under a promotional program in which a buyer is permitted to "try out" the vehicle and return it to the dealer if dissatisfied for any reason.4

We understand that, while there are no regulations governing this subject, the MVA's general practices are as follows: If a customer's check is dishonored, or if the customer is unable to obtain financing, the MVA returns both the certificate of origin and the excise tax on the theory that no "sale" has been consummated. Similarly, if a vehicle is returned to a dealer for "mechanical" reasons within 30 days of the sale, the MVA returns both the certificate of origin and the excise tax. By contrast, the MVA generally will return neither the certificate nor the tax under other circumstances.

2 The dealer must issue temporary tags good for 45 days to the buyer for display on the new vehicle. See TR §§13-602 and 13-605; COMAR 11.12.01.12.
3 The latter is technically not a "repossession," because the dealer does not have a security interest in the vehicle. We assume that the dealer's right to retrieve the vehicle is defined in the contract between the buyer and the dealer.
4 This list does not pretend to be exhaustive of the circumstances under which a vehicle leaves the control of a dealer and later is reacquired by the dealer. For example, a vehicle might be stolen and then recovered.

The MVA takes the position, for purposes of its enforcement responsibilities, that whether a vehicle is to be considered new or used depends on a variety of factors, including the miles traveled by the vehicle; whether the vehicle has been damaged, regardless of its mileage; and the status of the title, that is, whether the vehicle has been titled to a buyer.

II

"New" and "Used" Vehicles

A. Statutory Definition

A "new vehicle" is statutorily defined, with exquisite circularity, as a vehicle "(1) [t]he owner of which is a manufacturer, distributor, or licensed dealer; and (2) [t]hat never has been used to destroy its newness or to convert it into or make it a used or secondhand vehicle, as these terms are commonly used or understood in trade or business." TR §11-138.5 A "used vehicle" means any vehicle that does not fit the definition of a new vehicle. TR §11-175.

B. Maryland Cases

In Thomassen Lincoln-Mercury, Inc. v. Goldbaum, 45 Md. App.
297, 304, 413 A.2d 218, cert. denied, 288 Md. 744 (1980), the Court of Special Appeals approved a jury's finding that an automobile sold as "new" was actually "used." The seller presented testimony from other dealers that they regarded the vehicle as new within the meaning of TR §11-138, because the MVA had not issued a certificate of title to the prior buyer, so that title remained with the dealer under the manufacturer's certificate of origin. 45 Md. App. at 310. Characterizing this as a "strained and inappropriate construction," the court concluded that "the far more significant circumstance [was] that

5 This definition is substantially unchanged from its original enactment in Chapter 1007 of the Laws of Maryland 1943. See former Article 66 1/2, §1-152.

the car was in fact previously sold, previously used, and previously damaged." 45 Md. App. at 304.6

Three years later, the Court of Special Appeals explicitly held that, at least in the context of an auto buyer's action against the seller for fraud, "[w]hether a vehicle 'has been used to destroy its newness or to convert it into or make it a used or secondhand vehicle' is clearly a factual determination, not a legal one." Wheaton Dodge City, Inc. v. Baltes, 55 Md. App. 129, 133, 461 A.2d 38, cert. denied, 297 Md. 315 (1983).7

The teaching of these cases is that, when the MVA gives content to the definition in TR §11-138, it should look further than the status of the vehicle's title. What actually happened to the vehicle is more likely to be determinative.

C. Out-of-State Cases

Courts in other states have similarly indicated that a variety of practical factors, not merely the status of the vehicle's title or warranty, enter into the determination of whether a vehicle is new or used.

For example, in Krause v. Eugene Dodge, 509 P.2d 1199 (Or.
1973), the court rejected the seller's argument that the determining factors were whether the vehicle had been "licensed to another purchaser, and whether [it] could still qualify for the factory 'new car warranty' ...." Rather, the court held:

6 Goldbaum purchased a car for $10,600 that was represented to him as being "new." The car had been sold previously to a Mr. Booher for $10,300. Booher had driven the car 276 miles over a period of nearly two weeks and experienced overheating when driving the car, for which he returned the car several times for adjustments. The latest episode of overheating caused the car's wiring to catch fire, damaging not only the wiring itself but the air conditioner as well. Booher then rescinded the sale. He received all but $300 of his purchase price. The dealer deducted $300 to cover the loss he expected from having to resell the car as used.
7 The van that Baltes bought from Wheaton Dodge had been purchased previously by a Mr. Burroughs, who had assumed possession under temporary tags, installed air conditioning, driven the van over 50 miles, returned it numerous times for repairs, and then rescinded the sale. Burroughs had paid $5,962.86 for the van; Baltes paid $7,978.45.

It may be that among automobile dealers a current model car which had been previously sold to another purchaser ... and driven ... a distance of over 5,000 miles, would still be considered as a "new car," rather than a "used car," within the trade meaning of that term as used by automobile dealers .... It does not follow, however, that members of the public who purchase automobiles are bound by the "trade meaning" among automobile dealers of the words "new car." Indeed, a member of the public who purchases a car which is represented to him as a "new car" is entitled to understand the words "new car" by giving those words their ordinary meaning, at least in the absence of evidence that he understood and intended that term to have some other meaning.

509 P.2d at 1208.

In Brooks v. Hurst Buick-Pontiac-Olds-GMC, Inc., 491 N.E.2d 345, 350 (Ohio App. 1985), the court held that a jury had properly found a seller to have misrepresented a used vehicle as new, albeit the vehicle had never been transferred to a buyer other than the plaintiff. The vehicle had apparently been damaged by the carrier in transit to the seller's place of business. Notwithstanding testimony that similar damage is not uncommon and that the damage in this case was not significant, the court concluded that the jury, "us[ing] its own common sense," properly determined on the basis of the damage that the vehicle was used. Accord, Bell v. Kent Brown Chevrolet, 561 P.2d 907 (Kan. 1977); Lewis v. Worldwide Imports, 395 P.2d 922 (Or. 1964). See also Watkins v. Roach Cadillac, Inc., 637 P.2d 458 (Kan. App. 1981) (leased car repainted by lessor because of inferior factory paint job was held not "new" because materially different from the new vehicle it was held out to be).

In Buechin v. Ogden Chrysler-Plymouth, 511 N.E.2d 1330, 1336 (Ill. App. 1987), the dealer argued that its representation of a previously owned vehicle as new could not have defrauded the buyer because the buyer knew of the vehicle's mileage, albeit she did not

know it had been previously owned.8 In rejecting this argument, the court held that it would "not focus on the number of miles on the car, but on whether Buechin got a 'new' car as she and the general public understand the ordinary meaning of that word, that is, a car which has not been previously owned."

Similarly, in Jack Criswell Lincoln-Mercury, Inc. v. Haith, 590 S.W.2d 616, 619 (Tex. Civ. App. 1979), the dealer argued that the automobile at issue was new because it was owned by a dealer, sold on a manufacturer's certificate, and covered by a manufacturer's 12,000 mile warranty, regardless of the number of miles it had been driven prior to sale. The court found no error in the trial court's determination that the vehicle, which had been driven more than 600 miles, was used. See also Searcy v. Bend Garage Co., 592 P.2d 558 (Or. 1979) (car driven 4,590 miles is not new); McInnis & Co. v. Western Tractor & Equipment Co., 388 P.2d 562 (Wash. 1964) (tractor that had been used as a demonstrator for 68 hours and showed evidence of wear was not new).

D. Federal Regulation

The Federal Trade Commission has adopted a trade regulation rule prohibiting certain misrepresentations and requiring certain disclosures when a dealer sells a used vehicle. The FTC's definition of "used

8 The vehicle had been sold to another person, driven for some 650 miles, and then returned.

vehicle," like the cases differentiating between new and used vehicles in consumer transactions, focuses on the actual operation of the vehicle: "'Used vehicle' means any vehicle driven more than the limited use necessary in moving or road testing a new vehicle prior to delivery to a consumer ...." 16 C.F.R. §455.1(d)(2).

E. Conclusion

The case law and the FTC rule reflect a common principle: The consumer's understanding of the facts that change a "new" vehicle into a "used" one is the focus of the inquiry, even if the industry prefers to focus solely on titling and warranty status.

To be sure, not every operation of a new vehicle necessarily transforms it into a used one. Any buyer will recognize that a new vehicle will have been driven some miles during test drives by prospective buyers or the transport of the vehicle to the dealer; driving of this kind, incidental to the sales process, does not deprive a vehicle of its "newness." See 16 C.F.R. 455.1(d)(2); Weigel v. Ron Tonkin Chevrolet Co., 690 P.2d 488, 491 (Or. 1984).

We can even envision the extraordinary case in which a vehicle has been sold and then returned so promptly, and after such minimal driving, that its status as a new vehicle is not compromised. For example, suppose that a dealer agrees to take back an undamaged vehicle that was sold the day before and driven no more miles and under no different circumstances than the typical road test. Under such circumstances, that vehicle "never has been used to destroy its newness ..." and therefore may be sold as "new."9

But whenever a dealer releases a vehicle to be driven by the buyer as he or she pleases, the vehicle's status as "new" is jeopardized. If the buyer then drives the vehicle more than an insignificant number of miles, damages it, alters it, or subjects it to unusual driving conditions (racing, for instance), the vehicle is no longer "new," regardless of the status of its title. As the Court of Special Appeals held in Baltes:

"New," like "chaste," is not a matter of degree, and once lost may only be referred to thereafter in the

9 The fact of the vehicle's prior ownership undoubtedly is material, however, and must in any event be disclosed to a subsequent buyer. See Part VI below.
comparative sense, never again as an absolute. The subject of that adjective may be just-like-new or even just- as-good-as-new, but it can never again be new.

55 Md. App. at 132.

III

MVA's Interpretation

A. Current Practice

As explained in your letter, the MVA primarily considers three factors in determining whether a vehicle is "new" or "used," for purposes of its administration of the Vehicle Law: (i) the miles traveled by the vehicle; (ii) whether the vehicle has been damaged, regardless of its mileage; and (iii) the status of the title.

We have no doubt that MVA may continue to use these criteria to determine whether a vehicle "has been used to destroy its newness or to convert it into or make it a used or secondhand vehicle ...." TR §11-138. (As discussed in Part II above, the third of these, whether a certificate of title has been issued to the buyer, is by no means dispositive.) Although the list of factors considered by the MVA is not exhaustive, these factors are consistent with those relied on by courts in similar contexts. Indeed, as long as the MVA does not depart from the principles discussed in Part II above, it has the discretion to add pertinent additional factors to those it already considers.10

B. The Need for Regulations

The Motor Vehicle Administrator has broad authority to "adopt rules and regulations to carry out" all provisions of law enforced by the MVA. TR §12-104(b). Under §10-101(e) of the State Government Article ("SG" Article), a "regulation" is defined as follows:

10 For example, the MVA might choose to identify in its regulation specific durational or mileage limits beyond which a vehicle could not be considered "new."

"Regulation" means a statement or an amendment or repeal of a statement that:

(i) has general application;

(ii) has future effect;

(iii) is adopted by a unit to

1. detail or carry out a law that the unit administers;

... and

(iv) is in any form, including:

1. a guideline;
2. a rule;
3. a standard;
4. a statement or interpretation; or
5. a statement of policy.

The factors that the MVA uses to determine whether a vehicle is new or used amount to a statement having "general application" and "future effect," adopted to detail or carry out the law regulating motor vehicle dealers. Hence, the criteria used amount to a "regulation" under SG §10-101(e)(1).11

The MVA, like many other units of State government, not only has the authority to adopt regulations but also the corresponding duty to adopt them in accordance with the procedures set out in SG §§10-105 through 10-117. In short, the MVA must spell out by regulation its approach to determining whether a vehicle is "new" or "used." The regulation should include all of the factors that the MVA currently uses to make its determination, as well as any other factors it finds relevant. Of course, the regulation must be consistent with the proper construction of TR §11-138, discussed in Part II above.

In addition, as we explain in Part VI below, other statutes, in particular, the Consumer Protection Act, require disclosure of all material facts about a vehicle. For example, if the MVA's regulation defined narrow circumstances under which a vehicle that was sold and promptly reacquired by a dealer may be sold again as "new," nevertheless the fact of prior ownership must be disclosed to a

11 The criteria used by MVA do not qualify under the "internal management" exception in SG §10-101(e)(2)(i), given their substantial effect on the public. See generally 72 Opinions of the Attorney General 230, 234-36 (1987).

subsequent buyer. The MVA's regulation should be consistent with the dealer's affirmative disclosure obligations.

IV

Return of Certificate of Origin

A "certificate of origin," as defined in TR §13-101, is a "certification by the manufacturer ... that ... the vehicle described in it has been transferred to the dealer or other person named and that the transfer is the first transfer of the vehicle in ordinary trade and commerce ...." The certificate of origin travels with the vehicle from the manufacturer to the distributor to the dealer and serves to evidence the dealer's interest in the vehicle, just as a certificate of title evidences a subsequent owner's interest. See TR §13-102(2) (certificate of title not required for new vehicle owned by manufacturer or dealer and held for sale). Compare TR §13-104(d) with TR §13-104.1.

Possession of a certificate of origin also indicates that the vehicle to which it applies is indeed new. The return of the certificate of origin to a dealer after possession and any significant use of the vehicle by a buyer is inconsistent with the changed status of the vehicle and is inherently deceptive. Hence, the MVA should return the certificate of origin only if, by applying its regulation, the MVA determines that the vehicle is still "new."12

V

The Excise Tax

Under TR §13-809(b)(1), "an excise tax is imposed ... [f]or each original and each subsequent certificate of title issued in this State for

12 Even if the certificate of origin is not returned to the dealer because the vehicle is no longer "new," the dealer may easily sell the vehicle as used. If the dealer already has sent the required paperwork to the MVA, but the transaction is not yet complete, the MVA, upon request of the dealer, may return the title to the dealer in the name of the first "buyer." The "buyer" will assign the title to the dealer in a tax-free transaction, known as a "sale on die title."

a motor vehicle ...." Invariably, when a dealer sells a vehicle, the dealer collects the excise tax and remits it to the MVA. See TR §§13- 113(e) and 13-812.

Except when the Lemon Law applies, the MVA has broad discretion to decide whether to refund the excise tax after a vehicle has been returned to the dealer. TR §13-817(b) provides as follows:

The [MVA] may refund the full or any portion of the excise taxes paid by a consumer for a motor vehicle, if the dealer, manufacturer, factory branch, or distributor, by voluntary agreement or subject to the provisions of §14- 1502 of the Commercial Law Article, refunds the full or any portion of the purchase price or accepts return of the motor vehicle.

(Emphasis added).

If the return is made under the Lemon Law, the MVA's discretion is limited. Once the MVA determines that the provisions of CL §14- 1502 have been satisfied, it is required by the Lemon Law to refund the excise tax paid for the titling of that vehicle:

If a dealer, manufacturer, factory branch, or a distributor is required under a judgment, decree, arbitration award, or settlement agreement to accept, or by voluntary agreement accepts, return of a motor vehicle from a consumer, the consumer shall be entitled to recover from the [MVA] the excise taxes originally paid by the consumer ....

CL §14-1503(a) (emphasis added).

If the dealer has accepted return of a motor vehicle for some reason other than an uncorrectable mechanical defect, the MVA may exercise its discretion about the refund of the excise tax. This grant of discretion to the MVA is in notable contrast to the statute requiring

13 The tax is 5% of the fair market value of the vehicle. TR §13-809(c).

refund of the sales and use tax if a sale is cancelled and the purchase price returned. §11-403(c) of the Tax-General Article.14 Presumably, this statutory difference reflects the differing events that give rise to the respective taxes: "The Retail Sales Tax is an excise tax upon the occurrence of an event, a purchase .... The Motor Vehicle excise tax is a tax upon the occurrence of a different kind of event, the issuance of a certificate of title." 61 Opinions of the Attorney General 851, 858 (1976).

These two events are indeed different for purposes of tax refunds:
When an item is returned and the purchase price refunded, it is as if the original sales transaction, the event giving rise to the sales tax, did not occur. But the issuance of a vehicle title, the event giving rise to the excise tax, cannot be treated as a nullity. A new title can be issued on the same vehicle, of course, but that subsequent event is also taxable and does not undo the prior issuance of a title.15

We recommend that the MVA adopt a regulation setting out the criteria under which it will exercise its discretion to refund the excise tax. In this regulation, the MVA may take into account whatever factors it reasonably considers pertinent to this judgment, for example, the time that has elapsed since issuance of the title, the reasons given for the return of the vehicle, and any simultaneous sales transaction between the consumer and the dealer.

14 This provision is as follows:
A vendor shall refund to a buyer the proportionate amount of sales and use tax that the buyer has paid if:
(1) (i) A sale is rescinded or cancelled; or (ii) The property sold is returned to the vendor; and (2) The purchase price is wholly or partially repaid or credited.
15 Moreover, in the real world of vehicle transactions, the MVA is entitled to view with skepticism an assertion that a vehicle has been accepted for return long after the issuance of a title. The decline in the value of a new vehicle coincident with its use after sale suggests that at least some purported returns of vehicles long after sale are in fact disguised trade-ins.

VI

Dealer's Obligation to a Subsequent Buyer

Only the Lemon Law explicitly requires disclosure of the fact that a vehicle offered for sale has been previously sold and returned by a buyer. CL §14-1502(g)(2). See also COMAR 11.12.01.14I(2). However, several other consumer protection statutes also potentially apply if a dealer advertises or sells a vehicle as "new" when it is in fact used or if a dealer fails to disclose the material facts about its prior ownership and use.

TR §15-312(b) prohibits "any material misrepresentation in obtaining a vehicle sales contract." Similarly, TR §15-313(a) prohibits any advertisement "that is in any way false, deceptive, or misleading." Violation of these prohibitions would subject a dealer to any or all of a variety of sanctions, including refusal, suspension, or revocation of a license or imposition of a fine not exceeding $1,000 for each violation. See TR §§15-315(a)(4) and 15-315(b); COMAR 11.12.01.14A, E(1) and (4), I, J, and K; COMAR 11.12.01.16; and COMAR 11.12.01.20.

The Maryland Consumer Protection Act also prohibits a variety of unfair or deceptive trade practices. These practices include any "[f]alse, falsely disparaging, or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers" [CL §13-301(1)]; any representation that "[d]eteriorated, altered, reconditioned, reclaimed, or secondhand consumer goods are original or new" [CL §13-301(2)(iii)]; any representation that consumer goods "are of a particular standard, quality, grade, style, or model which they are not" [CL §13-301(2)(iv)]; and any "[f]ailure to state a material fact if the failure deceives or tends to deceive" [CL §13-301(3)]. A finding that a merchant has engaged in any of these practices may invoke a variety of enforcement provisions, including civil fines, criminal penalties, and liability to the consumer for damages. See CL §§13-406 through 13-411.

In addition, the false advertising provisions of the Commercial Law Article prohibit the use of "any advertisement, including a label, which is misleading in a material respect." CL §11-701. A determination of whether an advertisement is misleading must be based on consideration

of "[t]he extent to which the advertisement fails to reveal a fact which, in light of any representation made, is material with respect to the advertised commodity or service ...." CL §11-704(2). The statutory remedy for such a violation is $500 per violation assessable in a civil action instituted by the Attorney General. CL §11-705. These provisions do not affect the right of a consumer to bring an individual action against a false advertiser. CL §11-707.

Finally, a dealer who improperly sells a used vehicle as new may be liable to the consumer for breach of the statutory warranties encompassed in CL §2-313(1):

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

These consumer protection provisions raise the question of whether the facts about a vehicle's prior use and return are "material." "An omission is considered material if a significant number of unsophisticated consumers would attach importance to the information in determining a choice of action." Golt v. Phillips, 308 Md. 1, 10, 517 A.2d 328 (1986). In our view, the fact that a vehicle was previously transferred from the control of the dealer to a buyer and then returned to or otherwise reacquired by the dealer is unquestionably material to a subsequent buyer of that vehicle. Surely a significant number of consumers, unsophisticated or not, would attach importance to this information about a vehicle's prior history in determining whether to buy it or what to offer to pay for it.16

16 In State v. Action TV Rentals, Inc., 297 Md. 531, 467 A.2d 1000 (1983), the Court of Appeals affirmed without analysis the trial court's finding that an appliance rental agency did not violate the Consumer Protection Act by failing to disclose that the appliances it rented were used, rather than new. The trial court's reasoning was that the advertising of appliances "for rent" sufficiently conveyed the fact that they were likely to be used. 297 Md. at 556-57. Neither court intimated that the fact of prior use was not material.

Hence, a dealer generally may not sell or advertise a vehicle as new after it has been "physically used by anyone for purposes beyond the uses incidental to the sales process ...." Weigel v. Ron Tonkin Chevrolet Co., 690 P.2d at 491.17 In addition, a dealer must disclose all material facts about a vehicle's history to a subsequent buyer.18

VII

Conclusion

In summary we conclude as follows:

1. The MVA's policy of weighing certain factors to determine if a vehicle is "new" or "used" is permissible. The MVA must adopt a regulation implementing this policy, however.

2. The MVA may not return the certificate of origin to the dealer if, applying its regulation, the MVA concludes that a vehicle is "used," notwithstanding the dealer's reacquisition of the vehicle.

3. The MVA must refund the excise tax to a buyer who returns a vehicle under the Lemon Law. The MVA has the authority to determine by regulation the criteria that it will use to decide whether to refund the excise tax under any other circumstance.

4. A dealer may not advertise as "new" a vehicle that has been reacquired by the dealer from an original buyer if: (i) the buyer drove the vehicle for more than a brief period of time or for a distance greater than that ordinarily involved in a test drive or (ii) the vehicle was damaged, altered, or subjected to unusual driving conditions.

17 The only conceivable exception is if a vehicle is returned so quickly, and had been driven so little, that its post-sale use is indistinguishable from a typical test drive. See Part III E above.
18 If a vehicle has been used as a "demonstrator," as defined in COMAR 11.12.01.14I(2), that fact must be disclosed to a subsequent buyer. See COMAR 11.12.01.14J. This opinion is not intended to address disclosure or other issues regarding demonstrators, a unique and long-accepted subcategory of vehicles.

5. A dealer must disclose all material facts about a vehicle's prior ownership to a subsequent potential buyer.

J. Joseph Curran, Jr.
Attorney General

Risselle Rosenthal Fleisher
Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice