Dealers can reduce their exposure by focusing on when they authorize a vehicle’s operation and by documenting reasonable efforts to ensure the vehicle is operated by a licensed, competent driver. no requirement to check with the Department of Motor Vehicles. When the dealer remains the vehicle’s owner and authorizes its operation — as is typical in test drives, loaners or courtesy vehicles — sections 14606 and 14604(a) are directly implicated. Dealers must make a reasonable effort or inquiry to ensure the driver is currently licensed and qualified for the vehicle’s class before permitting operation, and should document that verification. These scenarios are the highest negligent entrustment risk because the dealer is affirmatively entrusting the operation. Can I Sell a Vehicle to an Unlicensed Driver? California law does not prohibit a dealer from selling a vehicle to an unlicensed driver. However, doing so without already having solid policies in place could still lead to liability if the unlicensed buyer were to cause harm to someone. The most common claim against a dealer that sells a vehicle to an unlicensed driver who later causes harm to someone is for negligent entrustment. Negligent entrustment arises when one who owns or controls a vehicle entrusts or provides it to a person whom the owner knows or should know is incompetent, unfit or otherwise unable to operate the vehicle safely, which results in harm. The California Court of Appeals in the Dodge Center1 case confirmed that no statute makes it unlawful to sell a vehicle to an unlicensed driver, but section 14604 still imposes a duty on a retailer to inquire into the purchaser’s license status. Dodge Center thus draws a sharp line between selling a vehicle and authorizing its operation. However, the case still leaves open the possibility of liability where a dealer actually authorizes or permits an unlicensed or incompetent driver to operate, or has actual knowledge of the driver’s incompetence under common-law principles. Actual knowledge or circumstances that would put a reasonable person on notice of incompetence are key, and evidence such as obvious intoxication at delivery may create actual or constructive knowledge and potential liability for the dealer. Common-law exposure can arise if the sale is coupled with entrustment of immediate operation under circumstances signaling incompetence. Dealers can reduce risk by decoupling ownership transfer from immediate operation by the unlicensed buyer. Therefore, it is strongly recommended that dealers deliver the vehicle only to a licensed co-buyer or authorized driver; permit commercial transport or removal from the dealer’s premises only under the control of a verified, licensed operator; and document each step. Can I Lease a Vehicle to an Unlicensed Customer? In a lease, the lessor (dealer) remains the vehicle’s owner. As a result, under section 14606, a dealer should not lease a vehicle to an unlicensed driver because the lessor (dealer) is the owner until the lease is assigned to a financial institution. During this period, the owner-permission duties and negligent entrustment risks remain present. Therefore, dealers should only lease vehicles and deliver them after verifying that the lessee (and any other permitted operators) holds a valid license appropriate to the vehicle’s class, and this verification should be thoroughly documented. Financing/Lender Considerations Most financial institutions require dealers to enter into a written dealer agreement that imposes certain duties and obligations on dealers when they assign contracts. Many, if not most, dealer agreements condition funding approval and the assignment of the contract on the dealer’s representation and warranty that the buyer listed on the contract has a valid driver’s license. As a result, the Dodge Center case will not protect a dealer from the financial institutions’ repurchase demand, tender for defense 1. Dodge Center v. Superior Court (1988) 199 Cal.App.3d 332. 24 California New Car Dealer Quarterly
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