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             1     

MOTOR VEHICLE BUSINESS AMENDMENTS

             2     
2010 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Don L. Ipson

             5     
Senate Sponsor: Stephen H. Urquhart

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Motor Vehicles Code by amending provisions relating to motor
             10      vehicle business.
             11      Highlighted Provisions:
             12          This bill:
             13          .    amends priority rights for certain security interests in certain motor vehicles;
             14          .    amends constructive notice provisions for liens and encumbrances against vehicles,
             15      vessels, and outboard motors;
             16          .    provides that certain corporate surety bonds shall be conditioned upon the dealer
             17      not violating certain provisions;
             18          .    provides that reasonable cause for denial, suspension, or revocation of a license
             19      includes having had a license revoked within five years from the date of
             20      application;
             21          .    specifies certain acts or practices that are unlawful for a motor vehicle business
             22      licensee to engage in;
             23          .    amends provisions relating to the payoff of liens on motor vehicles traded in; and
             24          .    makes technical changes.
             25      Monies Appropriated in this Bill:
             26          None
             27      Other Special Clauses:
             28          None
             29      Utah Code Sections Affected:


             30      AMENDS:
             31          41-1a-601, as last amended by Laws of Utah 2007, Chapter 272
             32          41-1a-604, as last amended by Laws of Utah 1992, Chapter 218 and renumbered and
             33      amended by Laws of Utah 1992, Chapter 1
             34          41-1a-606, as last amended by Laws of Utah 2000, Chapter 252
             35          41-3-205, as last amended by Laws of Utah 2007, Chapter 267
             36          41-3-209, as last amended by Laws of Utah 2008, Chapter 382
             37          41-3-402, as last amended by Laws of Utah 2006, Chapter 108
             38      ENACTS:
             39          41-3-211, Utah Code Annotated 1953
             40      REPEALS AND REENACTS:
             41          41-1a-605, as last amended by Laws of Utah 2006, Chapter 252
             42     
             43      Be it enacted by the Legislature of the state of Utah:
             44          Section 1. Section 41-1a-601 is amended to read:
             45           41-1a-601. Lien validity -- Security interest.
             46          (1) Except as provided under Subsection (2) or (3), a lien upon a vehicle, vessel, or
             47      outboard motor, except a lien dependent upon possession, is not valid against the creditors of
             48      an owner acquiring a lien by levy or attachment, or subsequent purchasers, or encumbrancers
             49      without notice until Sections 41-1a-602 through 41-1a-606 have been complied with.
             50          (2) Security interests in inventory consisting in part of vehicles subject to registration
             51      under this chapter, that are held for sale by a person in the business of selling goods of that
             52      kind, shall be perfected under Section 70A-9a-310 , except that:
             53          (a) buyers in the ordinary course of business, as defined in Section 70A-1a-201 , take
             54      free of the security interests as provided in Section 70A-9a-320 [.]; and
             55          (b) security interests of persons extending credit to buyers in the ordinary course of
             56      business, as defined in Section 70A-1a-201 , take free of the security interests as provided in
             57      Section 70A-9a-320 .


             58          (3) Security interests in inventory consisting in part of vehicles subject to registration
             59      under this chapter, which are held for sale by a person in the business of selling goods of that
             60      kind, shall be perfected under Section 70A-9a-310 , except that a lienholder with a security
             61      interest noted on the title shall have priority unless the lienholder has been paid in full in
             62      accordance with Section 41-3-402 .
             63          Section 2. Section 41-1a-604 is amended to read:
             64           41-1a-604. Filing effective to give notice of liens.
             65          The filing and the issuance of a new certificate of title under Sections 41-1a-602 and
             66      41-1a-603 constitute constructive notice of all liens and encumbrances against the vehicle,
             67      vessel, and outboard motor to creditors of the owner, to a person financing the inventory of a
             68      motor vehicle dealer that sells or offers the vehicle for sale, and to subsequent purchasers and
             69      encumbrancers.
             70          Section 3. Section 41-1a-605 is repealed and reenacted to read:
             71          41-1a-605. Constructive notice.
             72          (1) If a person files an application in the form for an original certificate of title in
             73      accordance with Section 41-1a-602 within 30 days after the owner receives a delivery of the
             74      vehicle, vessel, or outboard motor, constructive notice dates from the time of the execution of
             75      the document creating the security interest, and the security interest takes priority over the
             76      rights of a buyer, lessee, or lien creditor which arise after the time of execution of the
             77      document creating the security interest.
             78          (2) If a person files an application in the form for an original certificate of title
             79      pursuant to Section 41-1a-602 after 30 days after the owner receives delivery of the vehicle,
             80      vessel, or outboard motor, constructive notice dates from the time of filing of the document
             81      creating the security interest, and the security interest takes priority over the rights of a buyer,
             82      lessee, or lien creditor as of the time of filing.
             83          (3) If a person relocates a motor vehicle within the state with a title issued by another
             84      state bearing a lien, the rights of the lienholder are perfected in accordance with the law of the
             85      state issuing the title.


             86          Section 4. Section 41-1a-606 is amended to read:
             87           41-1a-606. Method of giving notice -- Exceptions.
             88          The method provided in Sections 41-1a-602 through 41-1a-605 , for giving
             89      [constructive] notice of a lien or encumbrance upon a registered vehicle is exclusive except for
             90      liens dependent upon possession and any lien or encumbrance filed as provided under this
             91      chapter, which are exempt from the provisions of Section 70A-9a-311 , and other provisions of
             92      law that otherwise require or relate to the recording or filing of instruments creating or
             93      evidencing title retention or other liens or encumbrances upon vehicles of a type subject to
             94      registration under this chapter.
             95          Section 5. Section 41-3-205 is amended to read:
             96           41-3-205. Licenses -- Bonds required -- Maximum liability -- Action against
             97      surety -- Loss of bond.
             98          (1) (a) Before a dealer's, special equipment dealer's, crusher's, or body shop's license is
             99      issued, the applicant shall file with the administrator a corporate surety bond in the amount of:
             100          (i) $50,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a motor
             101      vehicle dealer's license;
             102          (ii) $20,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a special
             103      equipment dealer's license;
             104          (iii) $10,000 for a motorcycle, off-highway vehicle, or small trailer dealer's or
             105      crusher's license; or
             106          (iv) $20,000 for a body shop's license.
             107          (b) The corporate surety shall be licensed to do business within the state and have a
             108      rating of at least B+ by the A.M. Best Company.
             109          (c) The form of the bond:
             110          (i) shall be approved by the attorney general;
             111          (ii) shall be conditioned upon the applicant's conducting business as a dealer without:
             112          (A) fraud;
             113          (B) fraudulent representation; [or]


             114          (C) violating Subsection 41-3-301 (1) which requires a dealer to submit or deliver a
             115      certificate of title or manufacturer's certificate of origin; [and] or
             116          (D) violating Subsection 41-3-402 (1) which requires payoff of liens on motor vehicles
             117      traded in; and
             118          (iii) may be continuous in form.
             119          (d) The total aggregate liability on the bond to all persons making claims, regardless of
             120      the number of claimants or the number of years a bond remains in force, may not exceed the
             121      amount of the bond.
             122          (2) (a) A cause of action under Subsection (1) may not be maintained against a surety
             123      unless:
             124          (i) a claim is filed in writing with the administrator within one year after the cause of
             125      action arose; and
             126          (ii) the action is commenced within two years after the claim was filed with the
             127      administrator.
             128          (b) The surety or principal shall notify the administrator if a claim on the bond is
             129      successfully prosecuted or settled against the surety or principal.
             130          (3) (a) A surety or principal may not make a payment on a surety bond to any claimant
             131      until six months have expired from the date when the first claim on the bond was filed with the
             132      surety or principal in writing.
             133          (b) After six months have expired following the filing of the first bond claim, the
             134      surety or principal shall:
             135          (i) assess the validity of all claims on the bond; and
             136          (ii) submit a distribution assessment determined in accordance with Subsection (3)(c)
             137      regarding the bond proceeds to the claimants of valid claims for approval.
             138          (c) (i) If the total verifiable claims on the bond are less than the bond amount, then
             139      each bond claimant shall be entitled to the full amount of a valid claim.
             140          (ii) If the total verifiable claims exceed the bond amount, then the proceeds shall be
             141      distributed pro rata to the bond claimants of valid claims.


             142          (d) If the distribution assessment under Subsection (3)(b) is not unanimously approved
             143      by the claimants of all valid claims on the bond, the principal or surety shall file an
             144      interpleader action in the state district court where the defaulting dealer was licensed.
             145          (4) (a) A person making a claim on the bond shall be awarded [attorneys'] attorney
             146      fees in cases successfully prosecuted or settled against the surety or principal if the bond has
             147      not been depleted.
             148          (b) A surety or principal may not be awarded attorney fees that exceed $2,500 for an
             149      interpleader action filed under Subsection (3)(d).
             150          (5) (a) (i) If a dealer, body shop, or crusher loses possession of the bond required by
             151      this chapter, the dealer, body shop, or crusher license is automatically suspended.
             152          (ii) All licenses, pocket cards, temporary permits, and special plates issued to the
             153      licensee shall be immediately returned to the administrator.
             154          (b) A dealer, body shop, or crusher may not continue to use or permit to be used
             155      licenses, pocket cards, temporary permits, or special plates until the required bond is on file
             156      with the administrator and the license has been reinstated.
             157          (6) A representative or consignee of a dealer is not required to file a bond if the dealer
             158      for whom the representative or consignee acts fully complies with the provisions of this
             159      chapter.
             160          Section 6. Section 41-3-209 is amended to read:
             161           41-3-209. Administrator's findings -- Suspension and revocation of license.
             162          (1) If the administrator finds that an applicant is not qualified to receive a license, a
             163      license may not be granted.
             164          (2) (a) If the administrator finds that there is reasonable cause to deny, suspend, or
             165      revoke a license issued under this chapter, the administrator shall deny, suspend, or revoke the
             166      license.
             167          (b) Reasonable cause for denial, suspension, or revocation of a license includes, in
             168      relation to the applicant or license holder or any of its partners, officers, or directors:
             169          (i) lack of a principal place of business;


             170          (ii) lack of a sales tax license required under Title 59, Chapter 12, Sales and Use Tax
             171      Act;
             172          (iii) lack of a bond in effect as required by this chapter;
             173          (iv) current revocation or suspension of a dealer, dismantler, auction, or salesperson
             174      license issued in another state;
             175          (v) nonpayment of required fees;
             176          (vi) making a false statement on any application for a license under this chapter or for
             177      special license plates;
             178          (vii) a violation of any state or federal law involving motor vehicles;
             179          (viii) a violation of any state or federal law involving controlled substances;
             180          (ix) charges filed with any county attorney, district attorney, or U.S. attorney in any
             181      court of competent jurisdiction for a violation of any state or federal law involving motor
             182      vehicles;
             183          (x) a violation of any state or federal law involving fraud; [or]
             184          (xi) a violation of any state or federal law involving a registerable sex offense under
             185      Section 77-27-21.5 [.]; or
             186          (xii) having had a license issued under this chapter revoked within five years from the
             187      date of application.
             188          (c) Any action taken by the administrator under Subsection (2)(b)(ix) shall remain in
             189      effect until a final resolution is reached by the court involved or the charges are dropped.
             190          (3) If the administrator finds that the license holder has been convicted by a court of
             191      competent jurisdiction of violating any of the provisions of this chapter or any rules made by
             192      the administrator, or finds other reasonable cause, the administrator may, by complying with
             193      the emergency procedures of Title 63G, Chapter 4, Administrative Procedures Act:
             194          (a) suspend the license on terms and for a period of time the administrator finds
             195      reasonable; or
             196          (b) revoke the license.
             197          (4) (a) After suspending or revoking a license, the administrator may take reasonable


             198      action to:
             199          (i) notify the public that the licensee is no longer in business; and
             200          (ii) prevent the former licensee from violating the law by conducting business without
             201      a license.
             202          (b) Action under Subsection (4)(a) may include signs, banners, barriers, locks,
             203      bulletins, and notices.
             204          (c) Any business being conducted incidental to the business for which the former
             205      licensee was licensed may continue to operate subject to the preventive action taken under this
             206      subsection.
             207          Section 7. Section 41-3-211 is enacted to read:
             208          41-3-211. Unlawful acts or practices.
             209          (1) A licensee may not knowingly or intentionally engage in any of the following
             210      unlawful acts or practices:
             211          (a) provide a financial institution or person being contacted to provide financing for
             212      the purchase of a motor vehicle, a motor vehicle contract of sale, document of sale, contract,
             213      request for proposal, or other document that does not accurately state:
             214          (i) the terms of the motor vehicle purchase; or
             215          (ii) if the vehicle is a rebuilt vehicle;
             216          (b) sell a motor vehicle to a purchaser that is subject to financing that is not the motor
             217      vehicle described in a motor vehicle contract of sale, document of sale, contract, request for
             218      proposal, or other document as of the time the contract of sale, document of sale, contract,
             219      request for proposal, or other document provided to the financial institution or person
             220      providing financing; or
             221          (c) make payments on any loan or lease on a motor vehicle subject to a loan or lease
             222      that is subject to the payoff requirements of Subsection 41-3-402 (1).
             223          (2) The provisions of Subsection (1)(c) do not prohibit a dealer from making one or
             224      more loan or lease payments for a motor vehicle if making the payments is:
             225          (a) stated in writing in a motor vehicle contract of sale, document of sale, contract,


             226      request for proposal, or other document; or
             227          (b) stated in the notice to the lienholder of the trade-in of the vehicle as required by
             228      Subsection 41-3-402 (5).
             229          (3) A person who violates the provisions of this section is subject to the penalties
             230      provided in Section 41-3-701 and Subsection 41-3-702 (1)(a).
             231          Section 8. Section 41-3-402 is amended to read:
             232           41-3-402. Payoff of liens on motor vehicles traded in.
             233          (1) If a dealer takes a trade-in from a retail customer as part of the sale or lease of a
             234      motor vehicle and there is an outstanding loan balance owing on the trade-in, then the
             235      dealer[,]:
             236          (a) within 21 calendar days of the date of sale or lease, or within 15 calendar days of
             237      receiving payment in full for the motor vehicle it sold, whichever date is earlier, shall remit
             238      payment to the lienholder sufficient to pay off the lien on the traded in motor vehicle, unless
             239      the underlying contract of sale or lease contract has been rescinded before expiration of the 21
             240      days[.]; and
             241          (b) shall remit payment to the lienholder sufficient to pay off the lien on the traded in
             242      motor vehicle prior to selling the motor vehicle unless Subsection (2) is complied with.
             243          (2) (a) A dealer shall, at the time of sale of a motor vehicle with a trade-in, notify in
             244      writing the person trading in the vehicle that the person remains responsible for any unpaid
             245      loan, lease, or other obligation related to the vehicle being traded in.
             246          (b) The person trading in the vehicle must separately acknowledge receipt of the
             247      notice and acknowledge in writing the person's continuing obligation related to the vehicle
             248      being traded in.
             249          (3) The notice and acknowledgment required under Subsection (2) may be combined
             250      with an authorization for payoff and shall contain the following:
             251          (a) the customer's name;
             252          (b) the customer's address;
             253          (c) the dealer's name;


             254          (d) the dealer's address;
             255          (e) notice to the customer that the motor vehicle the customer is trading in is subject to
             256      an unpaid loan, lease, or other obligation;
             257          (f) notice to the customer that the customer remains responsible for the unpaid loan,
             258      lease, or other obligation despite the trade-in of the motor vehicle; and
             259          (g) acknowledgment by signature of the customer that the customer remains
             260      responsible for payment of the unpaid loan, lease, or other obligation.
             261          (4) (a) A dealer shall, within seven calendar days of the date of a trade-in, notify a
             262      lienholder on the motor vehicle that the vehicle has been traded in.
             263          (b) The notice under Subsection (4)(a) is not required if the lien is fully satisfied
             264      within seven calendar days of the date of a trade-in.
             265          [(2) A lienholder who has been paid in full by a dealer in accordance with the terms of
             266      this section shall deliver to the dealer a properly executed title that releases the lien within:]
             267          [(a) one business day after the business day on which the funds are received when the
             268      funds are in cash, cashier's check, certified check, teller's check, or other certified source of
             269      funds;]
             270          [(b) three business days after the business day on which the funds are received when
             271      the funds are in the form of a check drawn on a local originating depository institution; or]
             272          [(c) six business days after the business day on which the funds are received when the
             273      funds are in the form of a check drawn on a nonlocal originating depository institution.]
             274          (5) The notice to the lienholder required by Subsection (4) may be combined with an
             275      authorization for payoff or a notice to the person trading in the motor vehicle subject to the
             276      lien and shall contain the following:
             277          (a) notice that a motor vehicle subject to the lienholder's lien has been traded in;
             278          (b) notice that the person trading in the motor vehicle subject to the lien has been
             279      provided with a notice as required by Subsection (3);
             280          (c) the date the motor vehicle was traded in; and
             281          (d) (i) a statement that payment for the lien accompanies the notice; or


             282          (ii) a statement that payment will be made within the time frame required under
             283      Subsection (1).
             284          (6) A lienholder shall deliver to the dealer a properly executed title that releases the
             285      lien within nine calendar days after the day on which the funds are received if the lienholder:
             286          (a) has possession of the title for the motor vehicle; and
             287          (b) has been paid in full.
             288          (7) (a) A lienholder who does not have possession of the title but has its account paid
             289      in full by a dealer shall provide the dealer with a written statement that the lienholder no
             290      longer claims a lien against the motor vehicle.
             291          (b) The statement described in Subsection (7)(a) shall be provided within the time
             292      limit required by Subsection (6).
             293          [(3)] (8) If the final day for performing an act under this section falls on a Saturday,
             294      Sunday, or a legal holiday, then the time for performance is extended to the immediately
             295      following business day.
             296          [(4)] (9) A dealer's failure to comply with the provisions of this section subjects the
             297      dealer to the sanctions set forth in Section 41-3-701 .
             298          [(5)] (10) A person who trades in a motor vehicle to a dealer and who thereafter
             299      sustains loss or damage as a result of a dealer's failure to pay off a properly recorded lien on
             300      the traded in motor vehicle within the time specified by Subsection (1)[(b)], may bring an
             301      action against the offending dealer to recover damages proximately caused by the dealer's
             302      failure to comply with the provisions of this section, together with costs and reasonable
             303      [attorneys'] attorney fees.


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