Fraud? Maybe Not

The magazine's legal expert takes a look at a recent case involving what his lawyer buddies call "common law fraud," and explains why promises made by salespeople can be a tricky affair.

February 2013, Auto Dealer Today - Feature

by Tom Hudson

A claim of what lawyers call “common law fraud” can be a tricky one for a car buyer plaintiff. That’s because one of the things that the car buyer must prove is that he or she relied on a false statement made by a dealer. That “reliance” thing can get a little slippery, as a recent Georgia case demonstrates.

Jonathan and Mary Katheryne Isbell bought a used Ford Explorer from Credit Nation Lending Service LLC. Before buying the car, Jonathan explained to the salesperson that he wanted a car that had not been in an accident, had no body damage, and did not require any repairs.

The salesperson assured Jonathan that the Explorer met those standards. Jonathan test-drove the Explorer and inspected it. During the negotiations, Jonathan asked for a CARFAX report so he could verify that the Explorer had not been involved in an accident. However, before receiving the CARFAX report, the Isbells bought the Explorer “as is.” Later, the Isbells received the CARFAX report, which showed that the Explorer had been in an accident that had damaged the frame. Jonathan returned to the dealership and complained. The dealership eventually verbally agreed to take the Explorer back and give the Isbells a loaner vehicle while it looked for a suitable replacement.

But after failing to find a replacement vehicle, the dealership demanded that the Isbells return the loaner vehicle and pick up the Explorer. When the Isbells refused, the dealership repossessed the loaner vehicle.

The Isbells sued the dealership, asserting claims of fraud and breach of oral contract. Credit Nation moved for summary judgment. The trial court granted Credit Nation’s motion. Unhappy, the Isbells appealed the trial court’s ruling.

The Court of Appeals of Georgia affirmed the trial court’s grant of summary judgment as to the fraud claim. The appellate court found that even if Credit Nation knew about the frame damage to the Explorer, the Isbells did not justifiably rely on the salesperson’s false statements regarding the car’s condition.

The appellate court noted that the Isbells decided to buy the Explorer before receiving the CARFAX report, which would have revealed that the Explorer had been in an accident. However, the appellate court reversed the trial court’s grant of summary judgment on the breach of oral contract claim.

The appellate court explained that the Isbells had evidence that the dealership took the Explorer back and tried to find an acceptable replacement vehicle. As a result, there was a question of fact as to whether the dealership breached its oral promise to find the Isbells a replacement vehicle.

The court’s reasoning regarding the fraud claim and the reliance issue isn’t terribly clear. Perhaps the court interpreted the buyers’ demand for the CARFAX report as an indication that the buyers were not relying on the salesperson’s state- ments. That isn’t entirely clear. What is clear is that this dealer dodged a fraud claim because the court couldn’t find any evidence of reliance by the buyers on the statements made by the salesperson.

Fraud plaintiffs not only have to show reliance on the dealer’s statements, they also have to show that they had the “right to rely.” But that is a lesson for another day and another court.

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