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Automobile Fraud: 8.3.3.1 General; What Is a Statement

For purposes of common law fraud and deceit actions, misrepresentations can be in the form of affirmative misstatements (oral or written), acts that conceal facts, or, in certain circumstances, nondisclosure of facts. It is common for one transaction to involve all three varieties of misrepresentations.

Automobile Fraud: 8.3.3.2 Fact Versus Opinion; Promissory Fraud

To prove fraud, the plaintiff must show that the seller misrepresented a statement of fact. It is often stated that a statement of opinion is not actionable.36 However, when a salesperson’s statement to a consumer could be interpreted as either fact or opinion, courts have tended to classify declarations about a car’s condition or quality as fact, in light of the relative knowledge and roles of the parties.

Automobile Fraud: 8.3.4 Fraud by Active Concealment

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.

Automobile Fraud: 8.3.5.1 General

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.

Automobile Fraud: 8.3.5.3 Seller’s Superior Knowledge

It is a developing trend to hold that a seller’s superior knowledge about the nature of the goods sold can be the basis to find fraud from mere silence.86 For example, a seller who knows that a vehicle has a salvage history may be found liable for fraud for failing to disclose it.87

Automobile Fraud: 8.3.5.4 Statutory Duty to Disclose

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.

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.