Can An Unhappy Consumer Refuse To Pay a Car Loan?

The recent decision of the Ontario Court of Appeal in BMW Financial Services Canada, a Division of BMW Canada Inc. v. McLean provides some useful insight into the relationship between automobile dealers and the financing arms of the manufacturers for whom those dealers are franchisees.

In this case, Ms. McLean purchased a BMW from a BMW dealership in 2009. The purchase price was just under $110,000.

BMW Financial Services Canada financed the purchase. The financing agreement assigned the dealership’s rights entitled to the car to BMW Financial, which registered a security interest in the car in the usual manner.

Ms. McLean was dissatisfied with the vehicle. She returned to the dealership for service a number of times. Ultimately, she made a unilateral decision to return the car to the dealership in late 2010 and stopped making payments to BMW Financial.

BMW Financial sold the car at an auction for less than the amount owing on the loan and sued Ms. McLean for the balance owing of about $41,000 plus interest at 18 percent.

Ms. McLean defended the action, in part, on the basis that the dealership had made false and misleading representations to her that had induced her to buy the car. She argued that the relationship between the dealership and BMW Financial was a close and continuing one and as a result, she should be able to raise defences available against the dealership in the action brought by BMW Financial.

BMW Financial moved for judgment. The motion judge concluded that the dealership and BMW Financial were separate entities, independent from each other with nothing more than the trade name “BMW” common to them.

Ms. McLean appealed to the Court of Appeal. The Court of Appeal agreed with the motion judge and dismissed the appeal.

The reasoning in the case is straightforward and not particularly surprising. An unsophisticated consumer might assume that the presence of the BMW name in the name of the dealership and the name of the financing entity would indicate a connection such that one of them might be held accountable for the wrongdoing of the other. Clearly, that is not the case. Presumably it would have been open to Ms. McLean to assert a third-party claim against the dealership when she was sued by BMW Financial so that she could raise her arguments and complaints about the pre-contractual misrepresentations in that manner. There is no indication in the case that such an approach was made or even considered. Nevertheless, for at least some people, this case may illuminate the important distinction between dealerships and the financing arms of auto manufacturers.

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