An SCMer wrote asking about potential liability if he sells his vintage Formula One car and the buyer is later injured as a result of a defect in the car. He knew he could clearly state that the car was being sold “as is” but wondered if that would be sufficient.
He was particularly concerned because vintage parts are not readily available and often have to be built from scratch, creating greater risk of design and manufacturing defects.
One’s first reaction is: Why worry? It’s a race car, racing is a dangerous activity, and everyone knows you take the risks and you’re on your own. That’s the normal mantra, but that is not necessarily the law. If you don’t believe it, consider the case of Mark Donohue.
Donohue, one of the most talented racers ever, died tragically in 1975 as the result of a tire failure during practice for the Austrian Grand Prix. Following his death, his family sued Goodyear and Penske Corp., alleging negligence on both their parts.
The inherent risks of racing, Donohue’s assumption of those risks, Donohue’s engineering skill and Donohue’s personal participation in the car’s setup were not persuasive to the jury. It awarded the family $9.6 million, which in 1984 was the largest verdict ever awarded in Rhode Island. In 1986, shortly before the appeal was argued, the parties reached a settlement for an undisclosed amount.
So, obviously, our reader has good reason to ask about potential liability when selling a race car.
“As is” clauses
Court cases in numerous states all say the same thing: An “as is” clause means that the seller makes no warranties regarding the car and has no obligation to repair defects after they are later discovered. However, an “as is” clause is not protection against claims for negligence.
To understand, we have to distinguish between contracts and negligence. A contract is an agreement, and the seller’s contractual liability is based entirely upon the promises made in the contract.
Contracts are generally governed by the Uniform Commercial Code, as adopted in the applicable state. Under the UCC, “as is” means no warranties are given, the buyer gets the car in its then-current condition — whatever it might be and subject to all faults.
Such a provision in a contract is generally considered to be a warning to the buyer that there may be things wrong with the car, that he ought to inspect it for himself, and that the buyer takes the entire risk as to the quality of the car. But even that isn’t absolute, as the pertinent UCC provision begins with, “Unless the circumstances indicate otherwise...” Just sticking those two magic words — “as is” — into the contract somewhere might not be enough, especially when other portions of the contract suggest otherwise.
Meanwhile, the courts rather uniformly say that negligence is an altogether different kettle of fish. That is because negligence claims are not based upon what the parties might agree to in a contract. Rather, they are based upon the seller’s negligent conduct — the negligent creation of the condition, or the failure to disclose it to the buyer. Simply stating that the car is sold “as is” does not relieve the seller of liability for negligence.
In a Montana case, a dealer failed to inspect a 1971 Datsun and discover that suspension components had been previously bent and straightened, which caused the car to vibrate, shake and veer from a straight path. The dealer did, however, notice that one of the tires had a large tread separation. No problem — the dealer simply remounted the tire inside-out to hide the defect.
The tire separation caused an imbalance, which worsened and re-bent the suspension components, leading to a rollover crash. The “as is” provision did not prevent the dealer from being held liable.
Although dealers are certainly held to higher standards — they can be required to actually inspect their cars before selling them — individuals can be held liable as well.
In a Washington case, a pickup owner was working on his vehicle when he damaged the automatic transmission’s neutral safety switch. He didn’t have a replacement part, so he just wired it to bypass the switch, allowing the truck to be started while in gear.
The truck later broke down for another reason. Frustrated, the owner pulled the driveshaft, towed it to a dealer, and traded it in on another car without mentioning his neutral-safety-switch bypass. After repair of the running problem, a salesman accidentally started the truck while in gear and ran over a customer. The “as is” provision in the trade-in agreement did not protect the seller from liability for his negligence in not disclosing the dangerous condition of the bypassed neutral safety switch.
In a Florida case, an individual built a three-wheeled motorcycle. After three private sales, a sale to a dealer and a final sale to another individual, the trike broke down as the result of a defective weld, injuring the latest owner. The “as is” provision in the first sale agreement to the first buyer was inadequate to protect the original builder and owner from liability for the bad weld.
Are race cars different?
None of these cases dealt with pure race cars. However, a pure race car probably presents only a difference in degree.
While all of the same legal principles would apply, the nature of a race car probably puts more of the standard of care and responsibility on the buyer than in the case of a street car. But, on the other hand, the fact that the car is going to be stressed at high speed on a racetrack — where very bad things can happen very suddenly — makes it even more important that the seller warn the buyer about things that could injure the buyer.
How all that plays out can often depend on how bad a situation the court is faced with. Cases aren’t supposed to be decided this way, but many times the judge or jury makes a gut-level decision about whether someone should be held liable, and then the facts and legal theories are bent to produce the desired result.
If the buyer is seriously injured or killed, you don’t want to be the seller who didn’t want to bring up negative things about the car and risk killing the deal — or who skimped on materials or workmanship when building or repairing the car.
Protecting the seller
There probably is no contract provision that will save a seller who knows of a dangerous condition and says nothing about it, but legal cases do recognize that it is theoretically possible to insulate the seller from liability for negligence. That will take a much more carefully designed contract than just stating “as is.” The key is to make the provision clear enough that an ordinary person will know exactly what he is contracting away.
Every situation is different, but some key points to consider here are:
• Set the stage by describing how driving race cars is inherentlydangerous.
• Impose a requirement on the buyer to have the car inspected before using it; buyer inspections have been critical in some of the cases.
• Use a very broad definition of the potential claims that the seller will be free of if something bad happens. For example, exclude liability for any and all harms, however caused, including the seller’s negligence.
• Specifically disclose every known condition that could be or become dangerous.
Keep in mind here that such provisions are highly disfavored by the courts. They will be interpreted very strictly against the seller, and courts will try as hard as they can to impose liability. This is not the time to write your own contract, or to have your broker “borrow” language from someone else’s contract. Make the investment and have a knowledgeable attorney write the contract for you.
Sellers should also be aware that some states have adopted used-vehicle warranty laws that can impose liability on sellers. Massachusetts, for example, imposes liability for all failures to disclose known defects that impair the safety or substantially impair the use of the vehicle.
This warranty requirement applies to both dealers and individuals, with stricter requirements imposed on dealers. In addition, any individual who sells four or more vehicles in a one-year period is treated as a dealer. The law does not apply to vehicles “built primarily for off-road use,” which would seem to exempt race cars. However, it isn’t immediately clear how production cars that have been converted into race cars would be classified. Worst of all, the buyer cannot waive the protections afforded by this law. ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.