Legal Definitions - floor-plan rule

The floor-plan rule is a legal principle designed to protect consumers who buy vehicles from licensed dealerships.

Simply put, if a vehicle owner places their car, truck, or motorcycle in a retail dealer's showroom for sale, and the dealer then sells that vehicle to an innocent buyer in the normal course of business, the original owner cannot later claim the vehicle back from that buyer. The law prioritizes protecting the buyer who acted in good faith, assuming the dealer had the authority to sell the vehicle.

Here are a few examples to illustrate this rule:

• Example 1: Consignment Sale Gone Wrong

  Sarah owns a rare sports car and wants to sell it. She takes it to "High-End Auto," a reputable dealership, and signs a consignment agreement, allowing them to display the car in their showroom and sell it on her behalf. A few weeks later, High-End Auto sells the car to David, an innocent buyer who pays the full asking price. However, before Sarah receives her payment, High-End Auto declares bankruptcy and closes its doors.

  How it applies: Under the floor-plan rule, Sarah cannot reclaim the car from David. By placing her vehicle in the dealership's showroom for sale, she created the impression that High-End Auto had the authority to sell it. David, as an innocent purchaser who bought the car in the ordinary course of business, is protected. Sarah's only recourse would be to pursue a claim against the bankrupt dealership for the money owed.

• Example 2: Dealer Selling a Vehicle with an Undisclosed Lien

  Michael trades in his SUV at "City Motors" for a newer model. He still has an outstanding loan on the SUV from "Secure Bank," which City Motors promises to pay off as part of the trade. City Motors immediately sells Michael's old SUV to Emily, an unsuspecting customer, before paying off the loan. When City Motors fails to make the payment, Secure Bank attempts to repossess the SUV from Emily because their lien was never satisfied.

  How it applies: The floor-plan rule would protect Emily. Michael entrusted his vehicle to City Motors for the purpose of resale (implied by the trade-in). Emily purchased the SUV from the dealership in good faith, unaware of the outstanding lien or City Motors' failure to pay it off. Secure Bank's claim would be against City Motors for the unpaid loan, not against Emily, who now holds valid title to the vehicle.

• Example 3: Owner Lending Car to Dealer for Display

  Mr. Chen owns a unique vintage motorcycle. His friend, who owns "Retro Rides Dealership," asks if he can display Mr. Chen's motorcycle in the showroom for a few weeks to attract attention, promising not to sell it. Mr. Chen agrees, believing it's purely for display purposes. A new salesperson at Retro Rides, unaware of the specific arrangement, mistakenly sells Mr. Chen's motorcycle to Ms. Rodriguez, an enthusiastic collector, who pays the full price.

  How it applies: Even though Mr. Chen did not intend for his motorcycle to be sold, by placing it in the dealership's showroom, he created the appearance that Retro Rides had the authority to sell it. Ms. Rodriguez, as an innocent purchaser who bought the motorcycle in the ordinary course of business from a dealer, is protected by the floor-plan rule. Mr. Chen cannot reclaim the motorcycle from Ms. Rodriguez and must pursue his claim against Retro Rides Dealership for the value of his vehicle.