Snatching Defeat From the Jaws of Victory

A Minnesota dealer learned the limitations of the ‘as is’ designation after an ill-advised salvage sale led to charges of fraud and breach of implied warranty.

May 2018, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author

The Minnesota Supreme Court rejected an auto dealer’s appeal of a case involving the sale of an “as is” unit that was found to be fraudulent and in breach of implied warranty. Photo by Jonathunder via Wikimedia Commons
The Minnesota Supreme Court rejected an auto dealer’s appeal of a case involving the sale of an “as is” unit that was found to be fraudulent and in breach of implied warranty. Photo by Jonathunder via Wikimedia Commons

The implied warranties that apply to all sales of goods, unless they are effectively disclaimed, are the implied warranty of merchantability (the goods must reasonably conform to an ordinary buyer’s expectations, i.e., they are what they say they are) and the implied warranty of fitness for use (if a seller knows or has reason to know of a particular purpose for which some item is being purchased, the seller is guaranteeing that the item is fit for that particular purpose).

Some states permit car dealers to sell cars to consumers on an “as is” basis, with no written warranty and with an exclusion of these implied warranties. In those states, a disclaimer works if it meets some “magic words” requirements and is conspicuous. When a dealer’s disclaimer is done correctly, the implied warranties don’t apply.

So, easy-peasy, right? All you need to do is get your lawyer to give you the magic words and tell your printer to make sure that they appear in your contract in a way that is “conspicuous,” and you’re home free. Your buyer cannot assert these implied warranties against you.

Right? Maybe not. A recent case illustrates how a dealer can snatch defeat from the jaws of victory.

That’s Not Smoke

Esmeralda Sorchaga bought a truck from Ride Auto LLC. At the time of sale, the truck had a salvage title, and the check-engine light was on. During the test drive, the truck smoked. (Buyers, note: Detectives refer to this as a “clue.”)

Ride Auto’s salesperson explained that the truck smoked because it was a diesel and that the check-engine light was due to a faulty oxygen sensor that would be easy to fix. Ride Auto sold the truck “as is” and provided Sorchaga with a third-party vehicle protection plan at no cost.

Within days of purchase, the truck lacked power and continued to smoke. Ride Auto refused to diagnose or repair the truck. Sorchaga had the truck inspected and was advised that the engine needed replacing.

Sorchaga sued Ride Auto, alleging claims of fraud and breach of the implied warranty of merchantability and seeking attorneys’ fees under the Magnuson-Moss Warranty Act. The trial court granted judgment for Sorchaga, awarding her $14,366 in damages based on the price she paid for the truck and the cost of the inspection, plus attorneys’ fees and costs.

Ride Auto appealed the trial court’s decision, but the appellate court affirmed. Still unhappy, Ride Auto appealed again, this time to the Supreme Court of Minnesota, but the high court also agreed with the trial court.

A Baseless Claim

In this appeal, Ride Auto argued that the “as is” disclaimer barred Sorchaga’s claim. The state high court disagreed, finding that, under Minnesota law, a warranty disclaimer is effective “unless the circumstances indicate otherwise.” The high court concluded “that Ride Auto’s fraudulent statements about the fitness of the truck for the purpose for which a truck is purchased are a circumstance that make the ‘as is’ disclaimers of implied warranties in the purchase documents ineffective.”

The high court also rejected Ride Auto’s contention that the trial court erred in awarding relief under both fraud and breach of warranty theories. The high court noted that Ride Auto did not present any case law supporting its claim that a finding of fraud eliminates a claim for breach of warranty and found that recovery on both claims is allowed as long as there is no double recovery.

The high court concluded that there was no double recovery in this case; Sorchaga recovered damages equal to the truck’s purchase price and the amount she paid for an inspection, plus fees and costs.

The lesson here for dealers? The best documents on the planet won’t save you if they aren’t completed correctly or if, as here, your dealership representative resorts to fraud to make a sale.

Thomas B. Hudson is a partner in the firm of Hudson Cook LLP, publisher of Spot Delivery, and the author of several widely read compliance manuals. Contact him at © 2018, all rights reserved. Single print publication rights only, to Auto Dealer Today (6/18). HC No. 4828-9583-5238.1

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