George felt his time was coming. He was through with his studies and was just getting established in his career. Unburdened by a wife or kids, he had been able to save up some money and he was ready to have some fun with it. His interest in collector cars beckoned, and he was quite a fan of the Mercedes-Benz “Pagoda” cars.
A lengthy Internet search led him to the website of a dealer a long airplane ride away. The dealer prided himself on a reputation built upon many years of successful business. He claimed expertise in classic cars in general — and classic Mercedes-Benz cars in particular. His current inventory included an exceptionally good-looking 1970 Mercedes-Benz 280SL that George thought was reasonably priced.
After lengthy discussion on the phone, George decided to move forward with the purchase. He cashed in some frequent-flier miles and made the plane trip to see the car for himself. The car looked as good as described, and it drove wonderfully. But knowing that he really wasn’t a skilled car guy, he asked about having a pre-purchase inspection performed. The dealer surprised him by saying no.
As already stated, George wasn’t an experienced car guy. He didn’t know that this was the equivalent of the Oracle of Delphi telling him to make tracks as quickly as he could. Instead, he relied upon his own inexperienced impressions and wrote a check for $75,000.
The car of his dreams was finally his.
George knew that there were a few little things wrong with the SL. Since it was his trophy, he wanted it perfect. So he transported it directly to a specialty SL restoration shop with the intent of doing things right. After transport, some repairs, title and sales taxes, he was in the car for a total of $85,000.
The monster awakens
The restoration shop called to say they had bad news. They got suspicious when they noted that the VIN tag showed the car to be a 1969 model, but the tag was affixed to the place where a 1970 VIN tag would be found (opposite door jamb). Inspection of the engine and emissions system suggested the car was a 1970 model. It was obvious that Mercedes-Benz didn’t place the VIN tag on the car. However, the certificate of title indicated a 1970 model with the same VIN as was stamped on the questionable 1969 VIN tag.
Decoding the VIN and researching in the Mercedes-Benz records revealed that the exterior paint, interior colors, and the engine number were all wrong. When they looked on the frame to check the VIN, they discovered that the last six digits had been drilled out, making identification impossible.
The last fact strongly suggested a stolen car. As required by law, the shop called the police. The police checked the National Insurance Crime Bureau database (August 2014, “Legal Files,” p. 46) and determined that the car had been reported stolen some time ago, with an insurance company having paid the claim. As a result, they impounded the SL and informed the insurer that they had recovered it.
As you can imagine, the news sent George into a tailspin — he was now a Legal File.
Who owns this monster?
My friend Jeannie loves to give affectionate names to all of her and her husband’s cars. I have no doubt she would name this car Frank. As in Frank N. Stein. So who owns this monster?
As “Legal Files” has explained many times, U.S. law provides that a thief cannot pass good title to stolen property. The rightful owner retains ownership, even though an innocent party (George) pays good money to buy the car. Also, when a car is stolen and the insurance company pays the claim, the insurance company typically acquires title from the owner. Consequently, if the stolen car is ever recovered, it usually belongs to the insurance company.
In this case, the insurer was unable to verify anything about the claim. It had simply happened too long ago for them to have saved their files. The NICB database was clearly more accurate than the insurance company’s own records, but the NICB database was not reliable evidence that would establish ownership. Consequently, the insurance company informed George that they were walking away from the SL, and he could keep it.
Get out of jail free
This news caused the dealer to claim that the “all’s well that ends well” principle meant he had no further obligation to George. After all, George now had good title to the SL, and the dealer was unaware of any of these problems before he sold the car to George in good faith. He didn’t want to take the car back, and wished George well.
The dealer also pointed to the as-is provision in the sale agreement. But as “Legal Files” has earlier pointed out (March 2014, “Legal Files,” p. 32), an as-is provision applies only to the condition of the car, not to its title or identity.
Clear title vs. marketable title
The dealer’s position, of course, ignores the point that George didn’t really get what the dealer sold him. George bought a 1970 Mercedes-Benz 280SL with a specific VIN. The VIN plate says he got a 1969 model with that VIN. However, the VIN plate is clearly not authentic, and there is no way to determine what the VIN of the actual car might be.
The dealer’s position is premised upon the notion that he did actually transfer good title to the car to George. To evaluate that, we have to distinguish between clear title and marketable, or “merchantable,” title.
Clear (or unencumbered) title means that the purchaser is receiving title to the vehicle free of all liens and encumbrances — and free of adverse ownership claims. That was not the case when George purchased the car, but it became so when the insurance company walked away from it. Now, whatever this Frankenstein car might be, it does seem to belong to George free of adverse claims.
Marketable title, on the other hand, means that the title is sufficient for George to be able to sell the car to another buyer. It seems pretty easy to understand that when George goes to sell this car someday, the purchaser is going to have some issues with the title discrepancies. That may make resale of this car difficult, if not impossible.
The situation is compounded by the word received from the police that they are going to solve the VIN problems by assigning a new VIN to the car, along with a new VIN tag. This is commonly called “Blue Tagging” the car. Blue Tagging got its name from the fact that some state(s) would do this using a blue-colored replacement VIN tag, so everyone would know that it was a reassigned VIN.
That blue tag will detract further from the marketability of George’s title by injecting even more uncertainty into the identity of the car and the validity of George’s ownership. In essence, it will scream, “stolen car!”
What to do?
Clearly, George has a pretty solid legal claim against the dealer. Pursuing it, however, is essentially a business decision. To pursue the claim, George will have to do several things:
1. Store the car, without driving it, until the matter is resolved.
2. Insure and protect the car until the matter is resolved.
3. Hire an attorney in the dealer’s home state to pursue the claim, and pay the potentially sizeable legal expenses.
4. Return the SL to the dealer’s state for inspection during the lawsuit — and thereafter store it there.
5. Travel to the dealer’s state for his deposition.
6. When the case comes to trial, travel to the dealer’s state again.
Once George wins the lawsuit, as seems likely, he should get a judgment for his investment in the car, court costs and interest, and possibly his attorney’s fees, depending on state law. However, he must collect his damages from the dealer.
Taking a risk or taking lumps
If the dealer does not have the assets — or files bankruptcy — George may never collect his money. The dealer is required to carry a bond which would be a source of recovery, but most state bonding requirements are quite low — often as low as $20,000.
Against this scenario lies the option of just taking his lumps. If he doesn’t sue, George can drive the car tomorrow and every day after that. It’s a beautiful car and it drives well — its problems are all below the surface.
When he later sells the car, he will probably lose some value on it. But will that be more or less than the costs of pursuing his legal claim? And, the farther into the future the sale occurs, the less it costs him in today’s dollars.
Add a zero or two to the cost of the car and the decision becomes easy. But at this level, it’s tough to know if pursuing your legal claims, no matter how solid, makes economic sense. ♦
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.