Automobile Fraud: 8.3.3.3 Examples of Actionable Statements
The following affirmative representations have resulted in liability for common law fraud:
The following affirmative representations have resulted in liability for common law fraud:
While a fraud action can be based on an affirmative statement of oral or written words, it can also be based on a seller’s active concealment of information about a car, when that concealment yields a misleading impression of the car’s condition.
Silence itself can convey a false impression of a car’s condition, even when the seller has not sought to hide by physical means any problem with the car. An unaware buyer may listen only to what is said, not to what is not said, and subsequently drive off unknowingly in a salvage car, a recycled lemon, or an unsafe vehicle.
A half-truth is a statement that, while technically true, gives the misleading impression that it is the whole truth about the matter.
Sometimes a statute imposes a duty to disclose upon a seller, the breach of which can give rise to a fraud action. For example, many new or used car damage disclosure statutes,97 state lemon laundering statutes,98 salvage vehicle laws,99 and title transfer regulations100 create disclosure requirements.
A large number of common law fraud claims have been brought in automobile cases involving misrepresentation of the car’s history. This section lists these cases by type of misrepresentation:
In order for a car seller to be liable for common law fraud or deceit, the seller must have intended to convey a false impression. That is, whether the misrepresentation is made through active misstatement, concealment, or nondisclosure, the dealer must have believed or been reckless to the possibility that the representation made was false.127
An important question is whose knowledge must meet the scienter element? If, for example, a used car manager bought the car at auction and learned from the seller that the car had been badly damaged in a wreck, but never relayed that information to the salesperson who eventually sold the car by representing it as undamaged, is the dealership liable?
To be actionable, reliance must be justified.
A common defense to a claim of justifiable reliance is that the misrepresentations relied upon were mere “puffery,” that they were sales talk not meant to be relied upon. This defense relates to both the element of justifiable reliance and that of statement of fact (versus opinion).250
In the majority of jurisdictions a plaintiff seeking to recover for common law fraud must prove the fraud by “clear and convincing” evidence.259 This standard is a notch higher than the usual civil action standard of preponderance of the evidence, but not as high as the standard of beyond a reasonable doubt used in criminal cases.
The parol evidence rule bars evidence of prior understandings and negotiations when parties have entered into a contract intended to be a complete integration of their agreement.273 Sales talk is at the heart of many automobile fraud cases, either in what is said or what is not said. Automobile fraud defendants have argued that the parol evidence rule disallows such evidence.
Typically the contract for the sale of a car provides that any prior agreements relating to the car are not valid except as stated in the contract, or that the buyer acknowledges that there have been no representations made about the car except as stated in the contract. Defendants assert that these clauses prevent a car buyer from later claiming fraud on the basis of misrepresentations about the car.
Nearly every court that has addressed the issue has found that an “as is” clause does not preclude a fraud action based on a problem with a car.288 Only rarely do courts depart from this well-accepted rule.289 As disclaimers are exclusions of express and implied contract warranty provisions, they do not address tort or other non-warranty theories of liability.290 Tort concepts are imbued with public policy considerations that make th
If a seller directly discloses the existence of a specific defect with the car, the buyer cannot later sue for fraud on the basis of that defect.294 Though this seems logical, more troubling are cases in which a specific defect is not disclosed, but instead the sales contract or other sales document contains a blanket disclosure that the car may have defects. A disclosure of this type is much less likely to raise the buyer’s awareness.
When dealers and consumers disagree on terminology, the dealer may raise “custom of the trade” as a defense. For example, buyers of “new” cars may define that word differently from dealers, and if the buyer later discovers that the car had more use than the buyer had been led to believe, the dealer may defend itself by arguing that “new” is a trade word that does not necessarily mean “unused.”
A consumer who defrauded the dealer may be barred by the in pari delicto doctrine from maintaining a fraud claim against the dealer. For example, in one case, at the urging of a third party who was acting as a broker, the buyers falsely documented a fictitious job in order to qualify for dealer-arranged financing. The court held that the consumers were in pari delicto with the dealer and could not recover on a claim that the dealer fraudulently misrepresented the vehicle’s mileage.311
Consumers may have difficulty proving that a dealer knew for a fact that its representation was false. The question becomes whether some lesser level of knowledge is sufficient. The scienter element of common law fraud requires the false representation to have been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless as to its truth.139
Generally, few issues are raised as to scienter when the dealer has actual knowledge of the fraud, such as when someone at the dealership has rolled back the odometer,143 or when a dealer’s employee purchases a used car and is told the car had been wrecked.144 At the other end of the spectrum, if there is no evidence anyone at the dealership knew the car was not as represented, and there is insufficient evidence that someone should have known, the buyer’s fraud action will fail for
Recklessness will usually suffice for scienter. Recklessness is in the eye of the court; there is no single rule for determining whether a salesperson was so careless to the truth or falsity of the impression conveyed that the seller should be liable for fraud. When a plaintiff can show that the seller had ready access to materials that would have shown the condition or quality of the car, a finding of recklessness is much more likely.
The common law notion of duty to inspect may assist a court in finding recklessness.
Mere negligence is generally insufficient to meet the scienter requirement of a common law fraud or deceit action.181 Some states recognize the tort of negligent misrepresentation but limit it to cases involving a professional in the business of supplying information for the guidance of others in their business transactions with third parties.182 However, some jurisdictions recognize a broader action for negligent misrepresentation, either by case law