Filed 5/13/19




                             CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                        DIVISION THREE


 FRONT LINE MOTOR CARS,

      Plaintiff and Appellant,                        G056061

          v.                                          (Super. Ct. No. 30-2017-00928836)

 KATHLEEN K. WEBB, as Acting                          OPINION
 Director, etc.,

      Defendant and Respondent.



                  Appeal from a judgment of the Superior Court of Orange County, Derek W.
Hunt, Judge. Affirmed.
                  Prenovost, Normandin, Bergh & Dawe, Michael G. Dawe, Charles “Mike”
Michaelis, and Nichole M. Wong for Plaintiff and Appellant.
                  Xavier Becerra, Attorney General, Chris A. Knudsen, Senior Assistant
Attorney General, and Kenneth C. Jones, Deputy Attorney General, for Defendant and
Respondent.
                                    *          *          *
              In two unrelated transactions, Front Line Motor Cars (Dealer), a used car
dealer licensed by the Department of Motor Vehicles (DMV), repossessed cars after the
                                   1
buyers failed to obtain financing. Dealer then refused to return the buyers’ down
payments. The buyers complained to DMV. DMV instructed Dealer to refund the
buyers’ down payments. Dealer refused, asserting its actions were proper under the
Rees-Levering Motor Vehicles Sales and Finance Act (Civ. Code, § 2981 et seq.; the
Act) and that DMV lacked the power to sanction Dealer. 2
              DMV then brought a disciplinary action against Dealer. DMV accused
Dealer of violating sections 2982.5, 2982.7, and 2982.9, which are the only sections of
the Act which require a seller to refund a buyer’s down payment upon the buyer’s failure
to obtain financing. After an administrative hearing, DMV adopted the administrative
law judge’s proposed order that Dealer’s license be conditionally revoked for two years
due to Dealer’s violation of the Act. Dealer petitioned the superior court for a writ of
administrative mandate, which the superior court denied.
              On appeal Dealer repeats the same arguments it made below. Dealer is
wrong. The Act does not sanction Dealer’s predatory conduct nor does it leave DMV
powerless to stop such abuse. As we shall explain, under the unique facts in this case
(which reveal Dealer lacked a good faith intent to enter into bona fide credit sales with
the buyers), the transactions involved seller-assisted loans subject to section 2982.5 of the
                                                                                3
Act, which expressly required Dealer to return the buyers’ down payments.

1
              In this opinion we use the terms “repossess” and “repossession”
colloquially to refer to Dealer’s taking back the cars, not in the legal sense of a seller
exercising a contractual remedy upon the buyer’s default.
2
              All further statutory references are to the Civil Code unless otherwise
stated.
3
               We discuss section 2982.5’s provisions on seller-assisted loans in more
detail in the Discussion section of this opinion.

                                               2
                                                     4
              Accordingly, we affirm the judgment.


                                          FACTS


DMV’s Accusation
              Vehicle Code section 11705, subdivision (a)(12) authorizes DMV, upon
notice and hearing, to suspend or revoke the license of a dealer who violates the Act.
DMV’s accusation against Dealer alleged Dealer failed to return the buyers’ down
payments after the buyers were unable to obtain financing in accordance with the
contractual terms. The accusation alleged Dealer violated sections 2982.5, subdivision
(b), 2982.7, and 2982.9 of the Act, and prayed for revocation or suspension of Dealer’s
license and an order that Dealer pay restitution to persons who suffered financial loss.


Administrative Hearing
              At the hearing before an administrative law judge (ALJ), the testimony and
documentary evidence showed the following.
              Twyla Davis purchased a car from Dealer. At Dealer’s office, Davis
applied for financing from First Credit Finance (Financier). Davis paid a $2,000 down
payment and was obligated under the retail installment sale contract to pay an additional
deferred down payment of $500 two weeks later. One week after Davis signed the
contract, Dealer told her she was to return the car because financing had been denied.
Three or four days after hearing from Dealer, and on the same day she received the
declination letter from Financier, Dealer repossessed the car. Davis asked Dealer to



4
             The court’s order denying Dealer’s writ petition constituted a final
determination of the entire action. We thus “construe the order to be an appealable final
judgment.” (Consaul v. City of San Diego (1992) 6 Cal.App.4th 1781, 1792, fn. 6.)

                                             3
refund her down payment. Dealer refused, telling Davis she would have to sue Dealer in
court for the money.
              Zaneicesha Phillips paid Dealer a $3,800 down payment and was obligated
under the retail installment sale contract to pay an additional deferred down payment of
$500. She had constant mechanical trouble with the car and tried to return it, but Dealer
refused, saying the deal was “finalized.” After the car was repossessed and Dealer’s
manager told Phillips the loan was denied, Phillips requested a refund of her down
payment. The manager “laughed and said, ‘No way, . . . your loss . . . take us to court.’”
              Davis and Phillips filed separate complaints against Dealer with DMV.
Wendell Lauderdale, a DMV investigator, and his partner interviewed Dealer’s owner,
Omar Torres. Torres stated the Davis and Phillips sales were unwound due to an inability
to obtain financing. Torres stated he did not plan to refund Phillips’ down payment and
that he had resold the car to another customer. He further stated he did not plan to refund
Davis’ down payment and intended to resell the car to another buyer. Torres showed
Lauderdale a copy of section 2983.3 (concerning acceleration of maturity and rights of
reinstatement following repossession) and of the installment sale contract (which Torres
had partially highlighted with pink marker). Torres believed these documents gave him
the “legal right to do what he did” and “not refund monies.” Torres declared this “was a
civil matter and [he] would gladly litigate with the customers if necessary.” Lauderdale
replied that, as a criminal investigator, he did not wish to “hurt” Torres but wanted to
give him an opportunity to pay back Davis and Phillips.
              Torres has a bachelor’s degree in finance and a master’s degree in business
administration. Prior to becoming a car dealer, he worked for 14 years in the automobile
finance industry. In that capacity, he would review a “credit application, time on the job,
income, debt-to-income ratio, [and] loan-to-value ratio.” He would “go beyond the credit
score and look at the actual trade lines,” and the applicant’s total debt, creditworthiness,
and ability to pay. He was “intricately knowledgeable” in the field.

                                              4
              Torres resold the vehicles he repossessed from Davis and Phillips to other
buyers.
              In response to questioning by DMV’s counsel, Torres estimated that about
25 percent of Dealer’s sales called for a deferred down payment. When DMV’s counsel
asked whether 90 percent of these transactions resulted in a repossession and resale of the
vehicle, Torres replied, “No.” But when DMV’s counsel asked whether 80 percent of
these transactions resulted in a repossession and resale of the vehicle, Torres could not
deny it, replying, “I have no idea.”


DMV’s Decision
              DMV adopted the ALJ’s proposed decision as the final decision. The
ALJ’s factual findings included: Davis purchased a car from Dealer “pursuant to a
conditional sales contract which required an approval of funding for the contract to be
completed” (fn. omitted), and paid Dealer $2,000 as a down payment. Dealer submitted a
loan application to Financier on Davis’ behalf. Six days later, Financier notified Davis it
could not approve her application because her income was below its minimum
requirement and her employment could not be verified. That same day, Dealer sent a tow
truck to Davis’ home and removed the car. Despite Davis’ attempt to obtain a refund, no
part of her down payment was refunded.
              Phillips purchased a car from Dealer “pursuant to a conditional sales
contract which required an approval of funding for the contract to be completed,” and
paid Dealer $3,800 as a down payment. Dealer submitted a loan application to Financier
on Phillips’ behalf. Financier notified Phillips it could not approve her application
because Financier lacked certain documentation and information needed to complete the
financing. Phillips learned from Dealer that Financier had denied her loan application
only after the car had been towed away. Less than 30 days after Phillips purchased the
car, Dealer “removed the car from Phillips’ place of employment. [Dealer] subsequently

                                             5
sold the car to another buyer.” Despite Phillips’ request for a refund, no part of her down
payment was refunded.
               “Torres testified at the hearing. He asserted that [Dealer] ha[d] no legal
obligation to return the down payments to Davis or Phillips after retrieving the vehicles.
Torres contended that [Dealer] was legally entitled to retrieve the vehicles because the
buyers had not provided valid employment or salary information on the credit
application. . . . [Dealer] asserted that Davis had committed fraud by falsely claiming she
was employed by Maxim Healthcare Services on her credit application. Davis testified
credibly that the information she provided on her credit application was truthful and that
she was employed at Maxim Healthcare Services when she applied for credit. [Dealer]
failed to present sufficient evidence to refute Davis’ testimony.”
               “After performing credit checks, [Financier] decided not to grant credit to
Davis and Phillips and sent notice that it was denying their applications for vehicle
financing.” Financier “clearly acted as a lender in these transactions, rather than a third
party investor.”
               Dealer wrongfully refused to return the buyers’ down payments after the
buyers failed to obtain financing. Dealer “did not establish that it suffered any financial
detriment in regard to the sale of the [cars]. After [Dealer] unwound the sales and took
back the vehicles, the cars were returned to [Dealer’s] inventory to be resold to other
purchasers. [Dealer] failed to establish a valid basis for its refusal to refund the down
payments . . . .”
               The ALJ’s legal conclusions included: DMV had cause to discipline
Dealer for violating sections 2982.5, subdivision (b), 2982.7, and 2982.9. Dealer relied
on Kunert v. Mission Financial Services Corp. (2003) 110 Cal.App.4th 242 (Kunert), but
Kunert is distinguishable. The facts here clearly establish a seller assisted loan under
section 2982.5. Dealer “does not acknowledge any wrongdoing whatsoever and has not



                                              6
established rehabilitation.” The “public can only be protected by revocation stayed and
issuance of a probationary license.”
              The ALJ’s proposed decision, adopted in its entirety by DMV, ordered
Dealer’s license revoked, then stayed the revocation for two years on condition, inter alia,
that Dealer be on a probationary license and make immediate restitution to Davis and
Phillips.


Petition for Writ of Administrative Mandate
              Dealer petitioned the Superior Court for a writ of administrative mandate
under Code of Civil Procedure section 1094.5. In its opening and reply briefs, Dealer
argued that section 2982.5, subdivisions (b) and (d) did not apply to the Davis and
Phillips transactions because, under Kunert, those deals involved “completed conditional
sales contracts and not seller assisted loans.”
              The court denied Dealer’s petition.


                                       DISCUSSION


We Do Not Presume the Superior Court Applied the Wrong Standard of Review
              Dealer contends the superior court “incorrectly applied the ‘traditional
mandate’ standard of review [(Code Civ. Proc., § 1085)] rather than the controlling
‘administrative mandate’ standard of review [(Code Civ. Proc., § 1094.5)].” Dealer
argues the court “did not recognize [its] duty to conduct an independent review of the
evidence” under Code of Civil Procedure section 1094.5.
              Code of Civil Procedure section 1094.5 governs “judicial review of a final
administrative determination by writ of mandate.” (Fukuda v. City of Angels (1999) 20
Cal.4th 805, 810 (Fukuda).) Under subdivision (b) thereof, the superior court determines
whether an agency prejudicially abused its discretion by making findings unsupported by

                                              7
the evidence. “Where it is claimed that the findings are not supported by the evidence, in
cases in which the court is authorized by law to exercise its independent judgment on the
evidence, abuse of discretion is established if the court determines that the findings are
not supported by the weight of the evidence.” (Code Civ. Proc., § 1094.5, subd. (c),
italics added.) Courts are authorized to exercise independent judgment on the evidence
when an administrative decision “substantially affects a fundamental vested right.”
(Strumsky v. San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 32.)
As relevant here, independent judgment review applies to an administrative suspension of
a professional license. (Fukuda, at p. 811.)
              But independent judgment review is subject to “sound” limits. (Drummey
v. State Board of Funeral Directors & Embalmers (1939) 13 Cal.2d 75, 86.)
“[C]onsiderable weight should be given to the findings of experienced administrative
bodies made after a full and formal hearing . . . .” (Ibid.) “It is presumed that official
duty has been regularly performed.” (Evid. Code, § 664.) “‘The findings of the [agency]
come before the court with a strong presumption of their correctness, and the burden
rests on the complaining party to convince the court that the board’s decision is contrary
to the weight of the evidence.’” (Fukuda, supra, 20 Cal.4th at p. 812.)
              Dealer contends the court failed to consider whether DMV’s findings were
contrary to the weight of the evidence. In its opening brief, Dealer argues: “A closing
remark by the court perhaps best evidences its apparent misapprehension of its role. At
page 19 [of the reporter’s transcript, the judge] notes: ‘But I’m not in a position to tell
[the agency] you sized up the facts the wrong way. I have to give [the agency] the same
consideration that I expect to get from the Court of Appeal myself.’” 5 Without more,

5
               In its reply brief on appeal, Dealer seems to retract its contention that the
court failed to weigh the evidence. In response to DMV’s statement in its respondent’s
brief that, under Fukuda, supra, 20 Cal.4th at page 817, the petitioner “‘bears the burden
of convincing the court that the administrative findings are contrary to the weight of the
evidence,’” Dealer argues the requirement that a trial court must “‘independently review

                                               8
this statement merely suggests the court was doing no more than according “a strong
presumption of . . . correctness” to the findings of the ALJ as required by Fukuda, supra,
20 Cal.4th at page 812.
              Other statements by the court suggest the court understood the proper
standard of review and that the proceeding was not one of ordinary mandate under Code
of Civil Procedure section 1085. At the hearing on Dealer’s writ petition, the court
stated, “This is a petition for administrative mandate.” Less than two months later, the
court held a hearing for “additional oral argument for administrative mandamus.”
              In the absence of a statement of decision, “all intendments favor the ruling
below [citation], and we must assume that the trial court made whatever findings are
necessary to sustain the judgment.” (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-
793, superseded by statute on another point.) Moreover, it is a tenet of appellate review
that an “‘order of a lower court is presumed to be correct on appeal, and all intendments
and presumptions are indulged in favor of its correctness.’” (Schnabel v. Superior Court
(1993) 5 Cal.4th 704, 718.)
              Thus, we will not presume the trial court applied the wrong standard of
review.

DMV’s Accusation Alleged Dealer Violated Sections 2982.5, 2982.7, and 2982.9.
              DMV’s accusation alleged Dealer violated sections 2982.5, subdivision (b),
2982.7, and 2982.9 of the Act, and therefore DMV was authorized to discipline Dealer by
suspending or revoking its license pursuant to Vehicle Code section 11705, subdivision
(a)(12).
              Section 2982.7 applies to conditional sales contracts (§ 2981, subd. (a)) for
the sale of vehicles under the Act. Section 2982.7, subdivision (a) provides: “Any


an administrative [agency’s] factual findings’” is not “relevant to the disposition of this
appeal” because the facts here are “uncontested.”

                                              9
payment made by a buyer to a seller pending execution of a conditional sale contract
shall be refunded to the buyer in the event the conditional sale contract is not executed.”
              We have found no case law interpreting this section. One might assume
“execution” of the contract means the signing of the document by all parties. (But see
Veh. Code, § 5901, subd. (d) [for purposes of requirement that dealer notify DMV of
transfer of vehicle, sale is “deemed completed and consummated” when purchaser alone
                                                    6
signs contract and takes possession of vehicle].)
              Sections 2982.5 and 2982.9, in contrast, involve loans between the buyer
and a third party lender. Section 2982.9 applies to a buyer’s attempt to obtain a direct
loan from a lender, and provides: “In the event a buyer obligates himself to purchase . . .
a motor vehicle pursuant to a contract . . . , and the seller knows that the buyer intends to

6
               We take judicial notice of the legislative history of the Act. (Maryland
Casualty Co. v. Andreini & Co. (2000) 81 Cal.App.4th 1413, 1420, fn. 10.) In 1961, the
Assembly Interim Committee on Finance and Insurance issued a report after conducting a
10-month “extensive investigation into the practices and activities of automobile dealers”
in sales and financing. (Assem. Interim Committee on Finance and Insurance, Rep. on
Assem. Bill No. 2252 (1961 Reg. Sess.) Appen. to Assem. J., p. 7 (Interim Committee
Report).) The committee concluded, inter alia, “New legislation to remedy deficiencies
in existing law is necessary if California is sincere in attempting to extend automobile
buyers protection analogous to that provided purchasers of other types of personalty on
retail installment contracts . . . .” (Id. at p. 39.) The findings of the Committee led to the
repeal of the [prior Automobile Sales Act] and to the enactment of” the Act. (Goldberg
& Goldman, Recent Legislation: The Rees-Levering Motor Vehicle Sales and Finance
Act (1962) 10 UCLA L.Rev. 125, 127.)
               Among “the major areas of abuse[,] malpractice[,]” legal ambiguities, and
deficiencies was the “FAILURE TO DELIVER FULLY EXECUTED COPY OF
CONTRACT AT TIME OF SALE.” (Interim Committee Report, supra, at p. 9.) The
committee concluded, “The only way to ensure that the buyer has an opportunity to know
his exact position at the time of agreement and the only way to discourage problems of
proof that will arise in later litigation, is to insist upon a definite and well-defined time of
closing, with no loose ends left to be tied up later which will provide either party with the
opportunity to complain that the deal is no longer exactly the deal originally agreed
upon.” (Ibid.)
               When the deal is contingent upon financing, all loose ends are not
necessarily tied up upon the signing of the contract by the seller and the buyer.

                                              10
obtain financing from a third party without the assistance of the seller, and the buyer is
unable to obtain such financing, the contract . . . shall be deemed rescinded and all
consideration thereupon shall be returned by the respective parties without demand.”
               Section 2982.5, subdivisions (b) and (d) apply to seller-assisted loans.
They establish an exemption from the Act for a seller-assisted loan from a lender to the
buyer to pay either the down payment or the purchase price, respectively, or any part
thereof, if certain specified conditions are met. Among these conditions is the
requirement that, if the buyer fails to obtain the loan, on the conditions stated in the
conditional sale contract, then the conditional sale contract “shall be deemed rescinded
and all consideration thereupon shall be returned by the respective parties without
demand.” (Id., subds. (b), (d)(5).) 7
               Our analysis will focus on section 2982.5 to determine whether Dealer
violated the Act, thereby subjecting itself to discipline by DMV. In this regard, we
observe that Dealer — by defending itself on the merits below against DMV’s arguments
that Dealer violated subdivision (d) — has forfeited the defense that DMV’s accusation

7
               Subdivisions of section 2982.5 are short cited herein by their subdivision
designation.
                 Subdivision (d) provides: “This chapter may not be deemed to prohibit the
seller’s assisting the buyer in obtaining a loan from any third party to be used to pay for
the full purchase price, or any part thereof, of a motor vehicle, if each of the following
provisions applies:” “(5) If the buyer becomes obligated to purchase, or receives
possession of, the motor vehicle prior to obtaining the loan [and if] the buyer upon proper
application for the loan is unable to obtain the loan, on the condition stated in the
agreement between the buyer and the seller, the agreement shall be deemed rescinded and
all consideration thereupon shall be returned by the respective parties without demand.”
                 Subdivision (b) provides: “This chapter may not be deemed to prohibit the
seller’s assisting the buyer in obtaining a loan upon any security from any third party to
be used as a part or all of the downpayment or any other payment on a conditional sale
contract . . . . If the buyer obligates himself or herself to purchase, or receives possession
of, the motor vehicle prior to securing the loan, and if the buyer upon appropriate
application for the loan is unable to secure the loan, on the conditions stated in the
conditional sale contract, the conditional sale contract . . . shall be deemed rescinded and
all consideration thereupon shall be returned by the respective parties without demand.”

                                              11
did not include that charge. (Keener v. Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 264
[“forfeiture rule generally applies in all civil and criminal proceedings”].) Further, the
gist of DMV’s accusation was simply that Dealer “failed to return the buyer’s down
payment after the buyer was unable to obtain financing for the vehicle pursuant to the
terms stated in the conditional” sale contract. And Dealer anticipated the invocation of
subdivision (d) when it stated in its hearing brief in the administrative proceeding that
DMV was no doubt relying on subdivision (d), but that (under Kunert, supra, 110
Cal.App.4th 242) subdivision (d) “is simply not applicable.” Thus, Dealer had a full
opportunity to respond to the invocation of subdivision (d), in both the administrative
proceeding and the mandate proceeding below.


The Law Distinguishes Between Credit Sales and Loans
              The distinction between a conditional sale contract (more generally known
as a credit sale) and a loan is central to the analysis in this case. A conditional sale
contract under the Act may include financing, whether provided by the seller or,
alternatively, by a financial institution to which the seller assigns the contract. In that
case, the entire transaction is subject to the Act’s consumer protections. (Kunert, supra,
110 Cal.App.4th at pp. 254, 258.) On the other hand, the buyer may obtain an
independently arranged third party loan or a seller assisted loan not subject to the Act
except as specifically stated in sections 2982.9 and 2982.5, respectively. (Kunert, at p.
258.)
              The distinction between credit sales and loans is the focus of the case law
discussed below.


              A. Boerner
              We begin with Boerner v. Colwell Co. (1978) 21 Cal.3d 37 (Boerner), the
seminal case differentiating a credit sale from a loan. Boerner examined an issue

                                              12
different from the one before us. The question posed to the Boerner court was whether
the defendant mortgage banking firm had made usurious loans. (Id. at pp. 40-41.) Here,
in contrast, DMV has not alleged usury or any other misconduct by Financier, but rather,
wrongful withholding of money by Dealer. Nonetheless, Boerner’s discussion of credit
sales is where we must start.
              In Boerner, supra, 21 Cal.3d 37, certain builders and their landowner
customers entered into installment contracts for the construction of vacation homes, and
the defendant mortgage banking firm financed the transactions by buying the contracts
from the builders. (Id. at p. 41.) The defendant, by virtue of its “significant
involvement . . . in the development and consummation of the bargain between the buyer
and the builder,” played a central role “in shaping the transactions from the outset.”
(Id. at p. 50.) The buyers desired financing for the construction of their vacation homes.
(Id. at p. 42.) In order to provide such financing, the builders followed the defendant’s
mandated process for obtaining funding at an interest rate higher than allowed under
usury law. (Id. at pp. 43-44, fns. omitted.) The defendant supplied forms — including a
credit application and a deed of trust — which were to be signed by the builder and the
buyer (id. at p. 41), and which “essentially set forth the terms under which [the
defendant], through the device of contemporaneous assignment at a prearranged discount,
would agree to finance the contemplated purchase and sale” (id. at pp. 50). The
defendant evaluated “the buyer’s credit reliability, and only when it determined that such
credit reliability was acceptable to it did it agree to participate in the transaction[] as the
financing agent.” (Id. at pp. 50-51.) The defendant would notify the builder and the
landowner of the defendant’s purchase of the contract and would pay the builder for the
contract. (Id. at p. 42.) The buyer then became “bound to pay [the defendant] the
deferred purchase price (cash price plus finance charge), in monthly installments as
reflected in the assigned lien contract — payment being secured by means of the assigned
trust deed.” (Ibid.)

                                               13
               The landowner plaintiffs brought a class action for usury against the
defendant mortgage banking firm. (Boener, supra, 21 Cal.3d at pp. 40-41.) The trial
court ruled against the plaintiffs, finding the transactions were bona fide credit sale
contracts assigned to the defendant, and not usurious loans. (Id. at p. 43.)
              A four justice majority of our Supreme Court affirmed the trial court’s
judgment. (Boerner, supra, 21 Cal.3d at p. 54.) The majority opinion explained that, in
determining whether a transaction is a loan, courts examine “the substance rather than the
form of such transactions in assessing their effect and validity.” (Id. at p. 44.) The issue
is whether “the bargain of the parties, assessed in light of all the circumstances and with a
view to substance rather than form, has as its true object the hire of money at an
excessive rate of interest.” (Id. at p. 44.) “The existence of the requisite intent is always
a question of fact.” (Ibid.)
              Traditionally, in most jurisdictions, courts have held “a bona fide credit sale
is not subject to the usury law because it does not involve a ‘loan.’” (Boener, supra, 21
Cal.3d at p. 45, italics added.) This is because a seller may “‘“name the price on which
he is willing to sell, and to refuse to accede to any other. He may offer to sell at a
designated price for cash or at a much higher price on credit, and a credit sale will not
constitute usury however great the difference between the two prices, unless the buying
and selling was a mere pretense.”’” (Ibid., italics added.)
              The Boerner majority concluded: “It is this principle which lies at the
foundation of consumer and commercial credit sales practices in this country, the massive
finance industry which has grown up to service and facilitate those practices, and the
body of statutory law which has been enacted to regulate the process for the common
good. In California the basic laws in the consumer area, which among other things set
limitations upon finance charges, are the Rees-Levering Act [citation], governing
installment sales of motor vehicles, and the Unruh Act [citation], governing installment
sales of other goods and services. These laws, it must be concluded, constitute a broad

                                             14
legislative approval of the credit-sale principle as an ‘exception’ to the usury laws and a
recognition that, whatever the rational weaknesses of the distinction on which it is based,
practical considerations of significant moment justify the regulation of credit sales by a
means more flexible than that provided by the usury laws.” (Boener, supra, 21 Cal.3d at
p. 46, fns. omitted.)
               This principle applies only to “bona fide” credit sales, where, as a factual
matter, the evidence shows the parties’ dealings were made in good faith. (Boener,
supra, 21 Cal.3d at pp. 50, 52.) For example, a bona fide credit sale would include “the
case where the builder is able to finance the sale itself without institutional assistance.”
(Id. at p. 52.) If the evidence shows a bona fide intent between a seller and a buyer to
consummate a credit sale, the participation in the transaction by a financing institution
does not result in “a ‘loan’ subject to the usury laws.” (Ibid.) “The role of the financing
institution in transactions of this kind is basically a beneficial one, for the essence of their
function is that of providing needed financial assistance to sellers unable to handle their
own consumer financing, thus permitting those sellers to compete on a more equal
footing with their more established competitors.” (Id. at p. 53.)
               Justice Mosk’s dissent in Boerner agreed with the majority that whether a
transaction is a credit sale or a loan is a factual question hinging on substance over form
in light of “all the circumstances surrounding the transaction.” (Boener, supra, 21
Cal.3d at p. 57 (dis. opn. of Mosk, J.).) Nonetheless, the three-justice minority
concluded, “All of the facts in this case indicate that the transactions were loans, not
credit sales.” (Id. at p. 58.)
               The disagreement in Boerner reveals that, in large part, policy
considerations and the realities of industry practice underlie the distinction between credit
sales and loans. “Underlying the judicial approval of what can best be described as the
artificial distinction between a credit sale and a loan of money is the perception that the
Legislature has given its broad approval to the credit sale principle as an exception to the

                                              15
usury law. It is deemed sufficient that the consumer receive the legislatively sanctioned
benefits of flexible credit arrangements rather than being denied those benefits because of
the rigidity of the usury laws.” (DCM Partners v. Smith (1991) 228 Cal.App.3d 729,
733-734, fn. omitted.) The “difference between a loan, which is subject to the usury
laws, and a credit purchase . . . calculated on a time-price differential, which has
traditionally been exempt from the usury statutes, is tenuous . . . .” (9 Williston on
Contracts (4th ed. 2019) § 20:13, fn. omitted.)


              B. Kunert
              Kunert, supra, 110 Cal.App.4th 242, applied the credit sale/loan distinction
in the area of automobile sales financing. In consolidated appeals, buyers sued “various
individual lenders” (id. at p. 248), challenging the legality of arrangements whereby
automobile dealers assign conditional sale contracts “to finance companies, and the
finance companies pay the dealers a portion of the finance charges (called a ‘dealer
participation’ or ‘dealer reserve’) due under the assigned contract” (id. at p. 247). 8 The
plaintiff consumers asserted the dealer reserve was a commission prohibited under
section 2982.5. 9 (Kunert, at pp. 247, 249.)


8
              Such an arrangement is “[f]requently used in the auto industry” and occurs
where “a retail installment contract is sold in the secondary market under an arrangement
in which the seller or originator of the contract (. . . often a dealer) ‘splits’ the difference
between the annual percentage rate (APR) reflected on the face on the contract and the
assignee’s lower ‘buy rate’ (the buyer’s minimum acceptable rate).” (Kelley, Jr., et al.,
APR Splits: Still Legal After All These Years (Summer/Fall 2002) 56 Consumer Fin. L.Q.
Rep. 296.) Dealer participations are also referred to as “APR splits.” (Ibid.)
Nationwide, class action lawsuits against dealers for APR splits reflect “a relatively
unsuccessful search for a legal ‘wrong’” “absent evidence of serious dealer misconduct or
affirmative misrepresentations.” (Id. at p. 297.)
9
            Both subdivisions (b) and (d) specify that the seller may not “receive any
commission or other remuneration for assisting the buyer to obtain the loan.”

                                               16
               The Kunert court analyzed the issue in terms of the credit sale/loan
dichotomy: “This case requires us to determine first whether the financing transactions
described in the complaints are dealer-assisted loans — in which case the commission
paid to the dealer is prohibited by [the Act] — or bona fide conditional sale contracts
followed by assignments to the lenders — in which case the commission is not prohibited
by [the Act]. California law clearly distinguishes between loans and bona fide credit
sales, and allows financial institutions to shape and facilitate a credit sale between buyer
and seller without transforming the transaction into a loan.” (Kunert, supra, 110
Cal.App.4th at p. 252, italics added.)
               The Kunert court found “no basis to conclude that the transactions are
actually loans rather than conditional sale contracts, or that the transactions are structured
to evade the consumer protections provided in the . . . Act.” (Kunert, supra, 110
Cal.App.4th at p. 252, fn. omitted.) The Kunert holding was based on legal precedent
and policy considerations. (Id. at p. 258.) As to legal precedent, Kunert found Boerner
“compels” the conclusion that lender participation — even if it is extensive and
controlling — does not, in and of itself, convert an otherwise bona fide credit sale into a
loan. (Kunert, at p. 254; see id. at p. 257.) In this respect, the Kunert court emphasized
that the facts before it were “not contested”: “It is undisputed that the lenders pay the
dealers a commission; indeed, such payments have been an integral part of the indirect
auto finance market since at least the 1960’s.” (Id. at p. 256.) “[T]here is no question of
good faith or intent . . . .” (Ibid.) “When parties intend to finance a bona fide sale of
property, real or personal, the transaction is a credit sale, not a loan.” (Ibid., italics
added.)
               From a policy perspective, Kunert explained that if dealer participation
were held to transform conditional sales contracts into seller assisted loans, consumers
would lose the Act’s protections other than those specified in section 2982.5. (Kunert,
supra, 110 Cal.App.4th at p. 257.) The lost protections include the Act’s requirements of

                                               17
a single document (§ 2981.9) and single security (i.e., the vehicle) (§ 2984.2; Kunert, at
p. 258). Kunert explained such a holding would be contrary to “a sensible construction
of the statutory scheme.” (Id. at p. 254.) The Act was not intended to protect consumers
from a finance company’s payment of commissions to dealers. (Id. at p. 257.) Rather,
the Act “was directed at protecting the unwary, unsophisticated consumer against such
evils as excessive interest charges; lack of full disclosures to the buyer; taking of security
in addition to the car to assure repayment; the use of more than one document in
connection with the sale and financing; and lack of protection in the event of default and
repossession.” (Id. at p. 258, italics added.)

The Davis and Phillips Contracts Each Required Dealer to Refund the Buyer’s Down
Payment If Dealer Exercised Its Right to Cancel the Contract If It was Unable to Assign
the Contract
              Before proceeding to our holding, we summarize relevant contractual
provisions. In the Davis and Phillips transactions, dealer used “LAW® FORM NO. 563-
CA (REV. 7/13)” entitled “RETAIL INSTALLMENT SALE CONTRACT — SIMPLE
FINANCE CHARGE.”
              On the first page, a box for “SELLER ASSISTED LOAN” was left blank
on both the Davis and Phillips contracts.
              A separate box on page 1 concerns the seller’s right to cancel and reads:
“SELLER’S RIGHT TO CANCEL. If Buyer and Co-Buyer sign here, the provisions of
the Seller’s Right to Cancel section on the back giving the Seller the right to cancel if
Seller is unable to assign this contract to a financial institution will apply.” Both Davis
and Phillips signed this box.
              In a large box toward the bottom of the second page is a section entitled,
“Seller’s Right to Cancel.” The section reads: “a. Seller agrees to deliver the vehicle to
you on the date this contract is signed by Seller and you. You understand that it may take
a few days for Seller to verify your credit and assign the contract. You agree that if

                                              18
Seller is unable to assign the contract to any one of the financial institutions with whom
Seller regularly does business under an assignment acceptable to Seller, Seller may
cancel the contract. [¶] b. Seller shall give you written notice (or in any other manner in
which actual notice is given to you) within 10 days of the date this contract is signed if
Seller elects to cancel. Upon receipt of such notice, you must immediately return the
vehicle to Seller in the same condition as when sold, reasonable wear and tear excepted.
Seller must give back to you all consideration received by Seller, including any trade-in
vehicle.”


Dealer Lacked the Requisite Intent for a Seller in a Bona Fide Credit Sale
              In Boerner and Kunert, the sellers successfully assigned their contracts to
finance companies, and the sales were consummated. As a result, an indisputable
predicate fact in Boerner and Kunert is that the credit sales were bona fide. The issue in
those cases was whether — given the buyers’ and sellers’ mutual intent to consummate
bona fide credit sales — the participation of the finance companies converted the credit
sales into transactions involving loans.
              Here, in contrast, Financier refused to buy the Davis and Phillips contracts.
Dealer thereupon took back the cars and wrongfully withheld Davis’ and Phillips’ entire
down payments. The ALJ found (and the superior court affirmed the finding) that both
contracts required funding for the purchase and sale transactions to be completed.
              Implicit in a bona fide credit sale is (1) the buyer’s intent to purchase the
property and pay contractually required installments; and (2) the seller’s intent to sell the
property in a binding contract, but — if financing is denied — to rescind the contract and
return the buyer’s down payment as provided in the contract. Here, the overwhelming
weight of the evidence was that Dealer intended to be bound only if it was able to assign




                                             19
the contract to a finance company and, if unable to do so, to reclaim the car without
                                       10
restoring the buyer’s down payment.
              Intent is a factual question elevating substance over form and taking into
account all the circumstances. (Boener, supra, 21 Cal.3d at p. 45.) Substantial evidence
supports the ALJ’s implied factual finding (as affirmed by the superior court) that Dealer
                                                                                             11
did not intend in good faith to enter into bona fide credit sales with Davis and Phillips.
Dealer’s intent (i.e., Torres’ mindset) must be viewed in light of (1) its conduct of
repossessing used cars and reselling them while keeping the prior buyers’ down payments
— a behavioral pattern which recurred in a significant portion of its sales requiring the
                                  12
buyer’s deferred down payment; (2) its failure to abide by the contractual provision
governing the seller’s right to cancel, which required the seller to refund the buyer’s
consideration; (3) its challenging Davis and Phillips to sue it in court; (4) Torres’
sophistication resulting from 14 years of prior employment in the automobile sale finance
industry; and (5) Torres’ presumption he could act with impunity under the Act. These
circumstances show Dealer intended to enter into a binding contract only if and when the




10
               At oral argument on appeal, Dealer insisted that upon the failure of the
financing company to purchase the contract, the buyers could have simply made their
monthly payments to Dealer. Nonsense. The argument raises a formalism that flies in
the face of what happened here. There is no evidence that either Davis or Phillips was
offered this accommodation. Instead, their cars were simply towed away.
11
              The “standard of review on appeal of the trial court’s determination is the
substantial evidence test.” (Fukuda, supra, 20 Cal.4th at p. 824.)
12
              Dealer’s counsel stated at the administrative hearing: “If he did this 95
times out of a hundred transactions, it’s irrelevant. [¶] The question is: . . . Did he
violate any of those three laws alleged in the Accusation?”
              At oral argument on appeal, DMV’s counsel pointed out that, unlike new
cars, used cars do not depreciate when driven off the lot. Thus, there was no financial
disincentive to Dealer’s conduct.

                                             20
condition of financing was met, and consequently, under these particular facts, the
transactions involved attempted seller assisted loans.
              Our conclusion must be viewed in the context of some harsh realities of the
automobile sales world. Many of these hard truths were documented in the Interim
Committee Report, which recommended passage of the Act. (Hernandez v. Atlantic
Finance Co. (1980) 105 Cal.App.3d 65, 79.)
              First, customers whose contracts require deferred down payments are
particularly vulnerable and are the type of buyers who most need seller assisted loans,
                                   13
i.e., nonconventional financing.        (Conventional financing generally involves contract
assignment and dealer participation; is ubiquitous in the automobile industry nationwide;
and was the subject of the dispute in Kunert.) The legislative history of subdivision (d)
reveals that an automobile dealer association requested the legislation, apparently
desiring the ability to offer seller assisted loans to customers unable to qualify for
conventional financing. (Assem. Com. on Finance and Insurance, Analysis of Sen. Bill
No. 143 (1983-1984 Reg. Sess.) as amended May 5, 1983, p. 4.) The legislation enabled
sellers to assist buyers “in obtaining financing from a supervised financial organization
for the purchase of an automobile” and primarily helped “those prospective purchasers
who were otherwise unable to qualify” for an automobile sales contract under the Act.
(Assem. Com. on Finance and Insurance, com. on Sen. Bill No. 143, supra, June 7, 1983,
pp. 1-2.) The evolving versions of the bill during the legislative process reveal the
Legislature’s intent to protect vulnerable buyers who cannot qualify for conventional
financing. (Sen. Bill No. 143, supra, as introduced on Jan. 12, 1983; Sen. Bill No. 143,
supra, as amended May 5, 1983.) “[T]hose with the lowest income and fewest economic
resources are the most likely to be afforded a seller-assisted personal loan, rather than a

13
              For example, Davis was a Compton, California resident who worked as a
personal care assistant for various clients of a home care provider. After Dealer
repossessed the car, Davis was unable to work because she had no transportation.

                                                21
regulated loan embodied in a conditional sale contract.” (Hernandez, supra, 105
Cal.App.3d at p. 80.)
              Second, customers rarely sue dealers. As stated in the general conclusions
of the Interim Committee Report: “Where existing law provides a wronged individual
with a legal remedy (as in the case of fraud) or with a legal defense (as in the case of
violation of provisions of the Civil Code governing the sale of motor vehicles), such an
individual seldom avails himself of those legal rights and remedies because they are
generally too expensive and of too little practicable value to him to be worth his while to
pursue.” (Interim Committee Report, supra, at p. 38.)
              Third, a known form of dealer misconduct is the wrongful retention of
down payments. (Goldberg & Goldman, Recent Legislation: The Rees-Levering Motor
Vehicle Sales and Finance Act, supra, 10 UCLA L.Rev. at pp. 126-127, 135.)
              Fourth, a small minority of dealers make a business of preying on
customers. As stated in the general conclusions of the Interim Committee Report: “A
small minority of automobile dealers are conducting their businesses in such a manner as
to endanger public trust in the doing of business by all dealers, and as to inflict serious
economic suffering upon their consumer victims.” (Interim Committee Report, supra, at
p. 38.) “The abuses uncovered by the committee include unethical business methods
[and] fraud . . . .” (Ibid.) Abuses also include transactions falling “just short of fraud.”
(Kohlman, The 1961 Rees-Levering Act: Caveat Venditor (1962) 3 Santa Clara L.Rev
76.) There are “some automobile dealers . . . who [seek] not to render an honest service
but, rather, deliberately to overreach, oppress and mulct any trusting customer. Because
a law must be universal in its application to any class, and because it must be drafted to
govern the acts of the worst offender in the class, it follows that all members of the class,
the great majority of whom are honest and respected automobile dealers, some of them
probably serving the third or fourth generation of appreciative customers, must suffer the
inconvenience of being scrupulously careful in the preparation of contracts, in the

                                              22
performance of all things required by the subject legislation, and in keeping a record of
the same.” (Stasher v. Harger-Haldeman (1962) 58 Cal.2d 23, 34.)
              Here, Dealer’s conduct confirms our worst stereotype of used car salesmen.
Unabashedly, Dealer repossessed the cars in question, resold the vehicles to new buyers,
retained Davis’ and Phillips’ entire down payments despite the women’s entreaties for the
money’s return, and challenged the women to sue it in court. The ALJ found that Dealer
“failed to establish a valid basis for its refusal to refund the down payments . . . .” Stated
another way, Dealer failed to establish a default by either Davis or Phillips under the
terms of the contract. They simply failed to qualify for the loan, not an event of default
under the contracts. The DMV investigator advised Torres that the investigator did not
want to hurt him but merely wanted Torres to return Davis’ and Phillips’ down payments.
Torres refused, standing fast in his position that the contract and the Act condoned his
behavior.
              Dealer relies full throatedly on Kunert. But Kunert does not authorize
Dealer’s misconduct. Rather, the harm complained of in Kunert was dealer participation,
which has been unsuccessfully challenged in courts across the country (Kelley, Jr., et al.,
APR Splits: Still Legal After All These Years, supra, 56 Consumer Fin. L.Q. Rep. at p.
297) and is not an evil targeted by the Act (Kunert, supra, 110 Cal.App.4th at p. 257). In
contrast, Dealer’s practice of wrongfully withholding down payments falls squarely
within the consumer protection the Act was intended to provide.
              Dealer also relies on the “integrated written contracts at issue.” But, as
discussed above, Dealer did not exercise its right under the essential contractual provision
involved here — i.e., the seller’s right to cancel. That provision is the only contractual
remedy available upon a failure to obtain financing, and the exercise of that remedy
plainly required Dealer to return Davis’ and Phillips’ down payments when financing
failed. Dealer’s inability to assign the contract is not a buyer’s “default” as defined in the
contract. In Torres’ interviews with the DMV investigator, he confirmed the sales were

                                              23
“unwound” because the customers could not get financing. As noted, the ALJ found
Dealer “failed to establish a valid basis for its refusal to refund the down payments made
by Davis and Phillips when [Dealer] unwound the vehicle sales transactions after
                                                 14
[Financier] declined to finance the vehicles.”        Thus, if Dealer considered itself bound
by each contract upon the document’s execution by the parties, Dealer’s only remedy
when it discovered its inability to assign the contract was to cancel the contract pursuant
to the seller’s right to cancel provision.
              DMV contends Torres is “sophisticated . . . and took advantage of
vulnerable customers by constructing sales transactions to purposely evade the consumer
protections the [Act] was intended to provide.” “California courts have often in the past
considered, recognized, and declared illegal, schemes whereby automobile dealers have
attempted to evade the provisions of controlling legislation.” (Hernandez, supra, 105
Cal.App.3d at p. 78.) The ALJ differentiated the transactions here from those in Kunert
at least in part on the basis that in Kunert, “none of the transactions was structured to
evade the consumer protections in the . . . Act.” Viewing the substance of the
transactions, we conclude they were not bona fide credit sales, but rather attempted seller
assisted loans subject to subdivision (d).
              We do not expect our holding to unleash the “massive litigation flow”
threatened by Dealer. We doubt there are many dealers who routinely sell to buyers
unlikely to qualify for conventional financing; repossess the vehicles when credit

14
              Dealer is adamant in its briefing on appeal that the relevant facts are
undisputed. In its opening brief in support of its petition for writ of mandate, Dealer
chose not to raise the issue of whether the buyers defaulted under the contract, stating:
“Special note: Petitioner has chosen not to submit points and authorities on the issue of
whether the buyers were in default and whether the repossession of the two vehicles was
proper, despite there having been some minimal evidence presented on this issue at the
hearing. The propriety of the repossessions is a civil issue between the buyer and seller
and was never alleged to have been a ground for administrative discipline. The only
issue is whether one of the three [Civil Code] sections applies to the facts, requiring an
automatic refund of down payments, regardless of why an assignment did not occur.”

                                             24
applications are denied; keep the customers’ down payments; and resell the vehicles to
the next group of vulnerable consumers in need of transportation. Furthermore, as the
legislative history of subdivision (d) reveals, automobile dealers themselves requested the
Legislature to authorize seller-assisted loans. This reveals that, if the automobile dealers
consider themselves aggrieved, they are not without recourse to change the law.
                 The Legislature has tasked DMV with policing automobile dealers and
ensuring their compliance with the Act. (Veh. Code, § 11705, subd. (a)(12).) We would
be remiss if we failed to alert the Legislature of the need for an express provision in the
Act prohibiting a dealer from wrongfully retaining a down payment (including a vehicle
trade-in) in the event the seller repossesses the car due to the buyer’s inability to qualify
for financing.


                                       DISPOSITION


                 The judgment is affirmed. Respondent shall recover costs on appeal.




                                                   IKOLA, J.

WE CONCUR:



MOORE, ACTING P. J.



GOETHALS, J.




                                              25
