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Automobile Fraud: 8.4.1 General

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

Automobile Fraud: 8.4.2 Whose Knowledge?

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?

Automobile Fraud: 8.6.4 Puffery

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

Automobile Fraud: 8.7.2 Parol Evidence Rule

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.

Automobile Fraud: 8.8.1 Effect of Merger Clause or Disclaimer of Oral Representations

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.

Automobile Fraud: 8.8.2 Effect of “As Is” Clause

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

Automobile Fraud: 8.8.3 Disclosure of the Existence or Possibility of Defects or Repairs

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.

Automobile Fraud: 8.8.4 Custom of Trade

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.”

Automobile Fraud: 8.8.6 Fraud by the Consumer

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

Automobile Fraud: 8.4.3.1 General

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

Automobile Fraud: 8.4.3.2 Actual Knowledge

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

Automobile Fraud: 8.4.3.3 Recklessness

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.

Automobile Fraud: 8.4.3.5 Negligent Misrepresentation

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

Automobile Fraud: 8.4.3.6 Innocent Misrepresentation

A little fewer than half the states recognize responsibility in tort without fault for false statements made to induce a transaction.197 Even if damages are unavailable for innocent misrepresentation, the buyer may be entitled to cancel the contract.198

Automobile Fraud: 8.5.1 General

Intent to induce is usually not difficult to demonstrate in automobile fraud cases. “The intent which constitutes an essential element of fraud is an intent that the representation be acted upon by the other party.”201 In a car transaction, the sale of a car is the whole purpose for the two parties’ relationship, and so the motive for the misrepresentation is usually obvious. Evidence of prior similar acts of deception can be a useful tool to prove intent.202

Automobile Fraud: 8.5.2 Remote Sellers and Others Not in Privity with Buyer

The more complicated intent issue arises when the misrepresentation is not made to the plaintiff, but to someone farther up the chain of title. For example, in odometer rollback cases it is commonly a prior owner, not the immediate seller, who turned back the odometer. Did the tamperer intend to induce the plaintiff, someone the tamperer has never spoken with, to rely on the misrepresentation inherent in the rollback? Courts generally say yes:

Automobile Fraud: 8.6.1 General

The element of justifiable reliance requires plaintiffs to show that they relied on the misrepresentation in purchasing the car for the consideration paid.218 Thus, the false impression conveyed by the seller’s actions (or inactions) must have influenced the buyer’s decision to enter into the transaction. Furthermore, the reliance must have been reasonable under the circumstances.219

Automobile Fraud: 8.6.2 Proving Reliance

Reliance “may be inferred from all the facts and circumstances in the case.”225 Classically the reliance portion of the element is fulfilled by credible testimony that the buyer would not have bought the car if they had known of its true condition.226 For example, a plaintiff duped into buying a car represented as new demonstrated reliance by testifying he would not have bought a used car.227

Automobile Fraud: 8.9.1 General

To recover actual damages for fraud, the plaintiff must prove the amount of damage suffered and that the defendant’s misrepresentation caused those damages.314 Whether the plaintiff sustained damages will usually be an issue for the jury or other trier of fact,315 although a court can reduce the amount of damages awarded as excessive.316 If no damages are proven, there can be no actual damages awarded.3