Don't Say We Didn't Warn You
A Connecticut dealer learned the hard way that the UCC’s implied warranties standard applies to as-is transactions.
August 2018, Auto Dealer Today - Feature
The U.S. District Court for the District of Connecticut awarded $8,007 in actual damages and $25,000 in punitive damages to a car buyer who claimed breach of warranty on an “as-is” sale. Photo by Chris Randall via Flickrs
We really hate to say “We told you so,” but we told you so. We’ve run several articles in Spot Delivery pointing out a problem that we see over and over in dealers’ buyers orders. Here’s the problem:
Under the Uniform Commercial Code, as enacted in most states, a car sale gives rise to two so-called “implied warranties” — implied because they need not be expressed, either orally or in writing. These two implied warranties are the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. In most states, the UCC permits a seller to “disclaim” these implied warranties and sell a vehicle with no warranties at all — an “as-is” sale.
The UCC imposes a requirement for such a disclaimer, though. It must be in writing and “conspicuous.” We see buyers order after buyers order in which the warranty disclaimer appears in ordinary text surrounded by other ordinary text, or in which the disclaimer is in bold type or in capital letters but is surrounded by other provisions also in bold or caps. Such presentations, we have warned, will fuel plaintiffs’ claims that they are not “conspicuous.” A recent Connecticut case illustrates the point.
Ismet Krasniqi bought a used Audi A6 from A Better Way Wholesale Autos Inc. Almost two years later, Krasniqi learned that the car had structural damage from prior collisions, rendering it unsafe to drive and potentially life-threatening in the event of a crash.
Krasniqi sued Better Way for breach of the implied warranty of merchantability, violation of the Connecticut Unfair Trade Practices Act, and breach of express warranty, seeking $8,007 in actual damages, $25,000 in punitive damages, and post-judgment interest. Better Way failed to answer the complaint, and Krasniqi moved for a default judgment. The U.S. District Court for the District of Connecticut granted the motion in part and denied it in part.
Krasniqi claimed that Better Way breached the implied warranty of merchantability under the Connecticut version of the UCC by selling him a car that was unsafe to drive.
The court noted that Better Way attempted to disclaim the implied warranty of merchantability with language to that effect in the sales contract. However, the court found that the disclaimer was not conspicuous because it was in the “same font size, color, and typeface as the other text on the page, [was] not set apart from other text or in all capital letters, and include[d] no specific header.”
Because the court found that the disclaimer was unenforceable, it went on to address whether Krasniqi established that Better Way breached the implied warranty of merchantability and determined that he did. Specifically, the court found that Krasniqi sufficiently alleged that Better Way is a merchant that sold a car that was not merchantable and caused Krasniqi damages, and that Krasniqi gave Better Way notice of his injury in the form of a demand letter.
Next, Krasniqi claimed that Better Way violated the CUTPA by failing to perform a safety inspection, as required by Connecticut law, or by selling a car notwithstanding the defects and failing to disclose those defects, as required by Connecticut law. The court found that Krasniqi adequately established a claim for relief under the CUTPA.
Finally, Krasniqi claimed that Better Way breached the express warranty that the vehicle had undergone a safety inspection and that it was safe for operation. The court found that Krasniqi did not establish the breach of express warranty claim because he failed to provide to the court the form on which Better Way allegedly made an express warranty.
The court awarded Krasniqi the requested $8,007 in actual damages, representing $7,357 for the diminished value of the vehicle as of the date of sale and $650 for the cost of a vehicle inspection. The court also awarded the requested $25,000 in punitive damages for recklessly violating the CUTPA and exposing Krasniqi or anyone else driving or riding in the car to a “significant risk of serious bodily harm.” Finally, the court awarded Krasniqi post-judgment interest at the rate of 4.75% per annum, the current bank prime interest rate.
It’s hard to tell how much effect the loss of the disclaimer of implied warranties had on the court’s decision, but you have to believe the dealership would have been in much better shape if it could have argued that the buyer had been warned — and warned conspicuously — that the sale was “as-is.”
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 email@example.com. ©CounselorLibrary.com 2018, all rights reserved. Single print publication rights only, to Auto Dealer Today (7/18). HC No. 4823-3533-5532