MN Supreme Court: ‘Fraud’ invalidates ‘as is’ car sales
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The Minnesota Supreme Court struck a blow against shady auto salesmen Wednesday when it upheld a Court of Appeals ruling that if a salesman lies to you when selling a vehicle "as is", the bill of sale noting "as is, no warranties" doesn't let the salesman off the hook.
The Court's description of the case reads like a cheap novel you can't put down. It -- and the dealer's Yelp reviews -- will also make you never want to buy a used vehicle again.
This action arises from respondent Esmeralda Sorchaga’s purchase of a pickup truck from appellant Ride Auto, LLC. Ride Auto purchased the truck from a salvage yard for $6,770, knowing that the truck needed engine repairs. Ride Auto made cosmetic and mechanical repairs sufficient to ensure that the truck would look appealing and drive short distances and then offered it for sale.
Sorchaga was interested in purchasing the truck and took it for a test drive. The length of the test drive was very short because the truck was low on fuel. But during the test drive, Sorchaga noticed that the check-engine light was on.
Ride Auto’s salesman told Sorchaga that the light was on because the truck had a faulty oxygen sensor. He said that the problem could be easily fixed, and that it would not affect the truck’s longevity.
The salesman also told Sorchaga that she could drive the truck with the check-engine light on, and if she purchased the truck, she could return to Ride Auto after a couple days to have the truck fixed.
Sorchaga also expressed concern about the smoke coming from the tailpipe of the truck. The salesman told her that the truck emitted smoke as it warmed up because the truck had a diesel engine.
Sorchaga asked whether Ride Auto could hook the truck up to a scanner to determine why the check-engine light was on. An owner of Ride Auto stated that Ride Auto could not do that because its mechanic was uncertified. The salesman then told Sorchaga again that a faulty oxygen sensor was the reason the check-engine light was on.
As part of the sales process, Ride Auto told Sorchaga that she would get a third party warranty, the ASC Vehicle Protection Plan (ASC agreement). Specifically, Ride Auto’s owner told Sorchaga that she would be given the ASC agreement at no cost, and it would allow her to have the truck inspected anywhere. The salesman added that the ASC
agreement would also cover needed repairs to the truck at no cost to Sorchaga.
In reliance on these statements from Ride Auto, Sorchaga agreed to buy the truck for $12,950.68 and signed a purchase agreement. The agreement stated that the truck had a salvage title and that the check-engine light was on. The agreement disclaimed all warranties and stated that Sorchaga purchased the truck “AS IS, NO WARRANTY.”
Sorchaga also signed a buyer’s guide, which stated that the truck was sold “AS IS – NO WARRANTY.” She also signed a handwritten addendum on the purchase agreement noting the vehicle’s check engine light was illuminated and the vehicle had a salvage title.
Immediately after Sorchaga purchased the truck, she experienced problems with it. For example, the truck would not travel faster than 40 miles an hour, and Sorchaga was stopped by police while she was driving the truck because it emitted “excessive smoke.”
When Sorchaga returned to Ride Auto for assistance, Ride Auto refused to repair the truck, even though Sorchaga came back within just a few days of her purchase. And when she called ASC, Sorchaga was told that the warranty in the ASC agreement she had been provided did not apply because the truck was a salvage vehicle.
Eight days after purchase, Sorchaga had the truck towed to a dealer and inspected, at a cost of $1,415. The dealer concluded the truck should not be driven, and recommended a full engine replacement at a cost of approximately $20,000.
After Sorchaga received the results from the dealer’s inspection of the truck, she brought this action against Ride Auto and its surety bond holder, Western Surety Company. Sorchaga alleged breach of the implied warranty of merchantability, violation of the federalMagnuson-Moss Warranty Act, and fraud.
Ride Auto and Western moved for summary judgment, arguing that Sorchaga was not entitled to any relief based on the disclaimer of language in the purchase agreement, her opportunity to inspect the vehicle, and the repeated statements in the purchase agreement and the ASC agreement that Sorchaga understood she was buying the truck “as is.”
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The district court ruled against the auto salesman and dealership. So did the Court of Appeals. So, too, has the Supreme Court.
So far, the buyer has been awarded $14,366.03 in damages based on the price she paid for the truck and the cost of the dealer’s inspection, and $21,949.35 in legal fees.
Under the state's law, "as is" means just that unless there are "other circumstances" although the Legislature didn't say what those circumstances might be.
Fraud counts as "other circumstances," the Supreme Court said in its opinion.
"Sorchaga relied on Ride Auto’s fraudulent statements and purchased a truck that was not fit for 'any purpose for which a truck is purchased.' To permit Ride Auto to nevertheless enforce the 'as is' disclaimers in this situation would permit Ride Auto 'to profit from [its] fraud and to be effectively granted a license to mislead or conceal facts,'” Chief Justice Lorie Gildea wrote, rejecting the auto dealer's assertion that there would be no way to enforce "as is" agreements if fraud is considered a "circumstance" that voids a "no warranty" sales agreement.
"It is clear that, but for Ride Auto’s fraudulent statements, Sorchaga would not have purchased the truck," Gildea wrote on behalf of the court.
Gildea also upheld the damage award to the buyer.