Last month, “Legal Files” focused on ways that a buyer can protect himself in a collector car purchase transaction. This month, we are focusing on how the seller can protect his interests.
In today’s hot collector car market, the seller’s main problem is not getting the car sold, but keeping it sold — that is, not having to buy it back when the buyer complains that the car is not “as it was represented to be.”
Watch what you say and write
Be very careful about how the car is described and what is said about its nature, condition, authenticity, provenance and so on. Your statements about the qualities and condition of the car are given effect as warranties.
If the car fails to live up to your statements, the buyer can bring a claim to unwind the deal (rescission), or recover damages based upon the reduced value of the car or the cost to make the car conform to the description.
How you phrase yourself can make a huge difference. For example, “rust-free” is a much more dangerous statement than, “To the best of my knowledge, no significant rust issues.” Under the former, you are making an unconditional statement about the condition of the car, which is wrong if the buyer can find any rust anywhere after the purchase. Under the latter, you have not said that there is no rust, but only that you are not aware of any.
For that to be wrong, the buyer must show that you knew, or had good reason to know, about the rust. Also, a tiny rust speck wouldn’t cause problems, as it would have to rise to the level of a “significant” rust issue to support a legal claim. Of course, those terms are imprecise and subject to interpretation, which is what makes for a good lawsuit, but it’s a much better position for the seller than the promise of a “rust-free” car.
The seller is allowed some leeway in this regard. The law allows sellers to make broad generalized statements about the car, referred to as “puffing.” You can safely tell the buyer that your car is “the most pristine example in the country” without ever having actually seen another example. Everyone should know you have absolutely no way of ever knowing that and just write it off as sales talk.
The seller’s statements about the car can also be the basis for a legal claim of misrepresentation. Misrepresentation arises when the seller makes untrue statements about the car that the buyer relies upon and suffers harm as a result. However, the buyer must establish two things to have a good claim:
1. He actually relied upon the statement.
2. His reliance was reasonable.
Disputing actual reliance requires some degree of getting inside the head of the buyer, but it can be done. For example, the buyer may not have relied upon the seller’s statements about the condition of the car if the buyer obtained a pre-purchase inspection. However, that isn’t an absolute, as “accident-free” cannot be relied upon if only a mechanical inspection is obtained.
Whether reliance is reasonable is determined by the judge or jury — would a reasonable person have relied upon the statement? The answer can depend on the exact words used, tone of voice, body language, the breadth of the statements, the likelihood that the seller could actually know anything about what he is saying and so on.
Another thing to watch is that the seller does not necessarily have to know that what he is saying is false. Misrepresentations can be negligent as well as intentional. You can get yourself into trouble by saying or writing things that you don’t really know anything about.
Inspections are important
The careful seller will be wary of a buyer who wants to buy the car sight unseen or without a pre-purchase inspection. Even though inspections create the risk of losing the deal, it is often better to be sure everyone is fully informed, as the buyer will soon find out about all of the car’s problems and could try to unwind the deal later.
That can be expensive. For example, unhappy out-of-state purchasers often think they should be able to get all their money back — the purchase price, transport in both directions, sales taxes and registration fees paid. In many cases, the cost of defending even a bogus legal claim leaves the seller with little practical choice but to negotiate some sort of settlement.
It is possible to disclaim warranties about the car and have the buyer acknowledge that he is not relying upon any statements made by the seller. Such disclaimers should be in writing, in a well-designed contract.
However, disclaimers that directly contradict strongly worded and precise statements may find trouble actually getting enforced. And, as “Legal Files” has previously pointed out (March 2014, p. 32), an “as-is” provision is not a get-out-of-jail-free card — they may cancel warranties, but they don’t usually sidestep misrepresentation or negligence claims.
Use a good contract
It’s a very good idea to have a good written contract. From the seller’s standpoint, the key elements of a good contract are:
Identify the car properly — make, model and chassis number.
Identify specifically what comes with the car — including spares, wheels, books and records.
State clearly that the car is being sold “as-is,” but that the buyer has either obtained a pre-purchase inspection or had the opportunity to do so and decided against it.
Identify all representations, if any, that you are making about the car, that there are no further representations, and that the buyer is not relying upon any statements made by you but has formed his own opinions about the car and its value.
All this makes it seem like you will need to hire an attorney to do this for you. Yes, that is probably true. Just remember that it is money well spent.
Get the money first
Never give up the car without having the money safely in the bank. You may never see the money or the car again.
“Safely in the bank” means collected funds. The best way to be sure of that is to require that the funds be wired into your (or your escrow’s) account. Cashier’s checks are easily fabricated these days, and there are innumerable scams that are based upon fraudulent versions of them.
Many sellers believe they are covered by holding the title until all of the money has been safely received. That is just not true.
Under the Uniform Commercial Code, a sale is complete even though formal title has not transferred — the retention of title is viewed as the retention of a security interest. If the buyer fails to pay, you have to sue to foreclose your security interest and recover the car. If the car has been resold, you still have to chase after it.
It is usually best to use an escrow — much like a real estate deal. It doesn’t have to be overly complicated, and you can usually have your attorney act as the escrow agent. The funds are wired to the attorney’s trust account, and you give your signed-off certificate of title (or bill of sale) to the attorney. The attorney releases the title to the buyer, you release the car to the buyer, and the funds are released to you. That doesn’t complicate the transaction or cost very much, and both parties are protected.
Using a broker is a way to achieve a hassle-free sale at market price, but be clear about how much the broker is being paid. We’ve encountered situations in which a percentage commission has somehow morphed into a “net to seller” payment, with a hidden and higher-than-agreed commission. Ask to see the actual sales contract with the buyer.
Also, be aware that the broker’s statements about the car are legally attributable to you. Any broker misrepresentations can become your misrepresentations, with legal exposure to the buyer. You have legal recourse against the broker, but you can get into a debate about exactly what you authorized to be said, so be clear about the information provided.
Auctions can be a great way to sell your car, and they pose relatively few legal risks for the seller. But be aware of one unfortunate little detail. It doesn’t happen often, but cases do arise where the successful bidder fails to actually pay for the car. Read your consignment agreement carefully to see what will happen in such a situation.
It will likely be your obligation to sue the buyer, so try to ensure that your expenses reduce the amount payable to the auction company. If partial payments are made by the buyer, try to ensure that they are divided between you and the auction company in an equitable manner.
If the sale fails, see if you get a refund of your consignment fees, or credit against the next auction. Most major auction companies are good about working those things out when they arise, but it’s worthwhile to get it into the contract when you have a significant enough car to be able to customize the consignment agreement. ♦
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.