Just inside the statute of limitations, James was served with a lawsuit
claiming fraud, misrepresentation, and breach of warranty

Here's another true story. We've given the subjects fake names, but the story is otherwise accurate. Let's call our dealer this month James. He had been doing quite well selling collector cars in the Northeast. Over 600 cars sold and, he says, "I had never even received a letter from an attorney." But his luck changed recently.

James acquired a real 1968 Camaro Z/28 some time ago. It was freshly painted the correct J-code Rally Green, with a vinyl top and black interior, power steering, power disc brakes, and in-dash tachometer. It had a matching-numbers engine, the rear end was the correct 3.73 ratio, and the transmission was correct, but not original to the car. The only negative was that it came in pieces. Jerry completed the restoration and sold it to a local customer. It changed hands a couple of times over the years, but was still in excellent condition when James reacquired it in early 2006 for $30,000.

He listed the Z/28 for sale on eBay. He described it as above, and added that it "looks, runs, and drives strong like you would expect."

"Even nicer than I had thought"

A West Coast buyer beat him down to $33,500 over the phone. The buyer wouldn't buy the car on eBay, but came to James's dealership with an expert to inspect the car. At the end of the lengthy inspection, the buyer called his banker and said, "Send the man the money. This car is even nicer than I had thought it would be."

They signed James's short-form written contract and the deal was done. It didn't occur to James to get the "as is" disclosures signed.

Buyer's remorse sets in

Buyer's remorse didn't take long to set in. A couple weeks later, the buyer called and said he "had a guy look at the car and it had issues." The buyer mentioned rust under the dash. James pointed out that they all had a little rust there, as the factory didn't paint under the dash. A few days later, the buyer called again. He said that he "had another guy look at the car, he found a lot of poor work, and that '68 Z/28s in similar condition could be purchased for $15,000."

The buyer wanted his money back. Jerry declined, suggested that the buyer just put it up for sale, and that he could even make some money on it.

Almost two years went by without another contact. Toward the end of that time, the buyer had cut the roof, trunk and outer wheel housings off the car and found hidden rust. He sent James a demand for $25,000 to correct the "deficiencies," accompanied by photographs of all the pieces and the hidden rust, plus a written appraisal that said the Camaro was worth only $7,000. Then-just before the statute of limitations expired-James was served with a lawsuit.

The lawsuit asserts liability for fraud, misrepresentation and breach of warranty. The source for all of the claims seems to be the eBay listing statement that the Camaro "looks, runs, and drives strong like you would expect."

Oddly enough, there is no mention of the fact that the buyer and his expert inspected the car before he bought it. It suggests that the car was purchased on eBay and seen for the first time when it arrived at the buyer's home.

Lying about unknowns

In normal "Legal Files" style, let's take a look at the claims and predict their outcome.
To start with the obvious, how is the buyer ever going to prove that James misrepresented the car or tried to defraud him when he had to cut the car apart to find the rust? That one defies common sense. Fraud requires actual knowledge on James's part. To commit fraud, he would have had to know the car had rust, and conceal it in some manner, which doesn't seem likely.

Misrepresentation is lesser conduct than fraud and can occur without actual knowledge. But before there can be a misrepresentation, there must first be a representation; in most states, silence is not a representation. The only statements identified are those made in the eBay listing, and none of them has anything to do with rust. "Looks, runs, and drives strong like you would expect" doesn't refer to rust. "All sheet metal work has been done to high standards," another statement in the listing, might connote that rust would have been repaired, but it misses the mark in two respects-the rust might have existed in areas that were not worked on, and the rust could have developed after the work was completed.

Also, a misrepresentation does not automatically create a warranty. A warranty is a specific term in a contract, and there are no facts alleged that the contract-oral or written-contained a warranty.

"Legal Files" would expect that motions will be filed to force the buyer to revise the complaint to be more specific about exactly what was represented and how it was inaccurate, and to eliminate the breach of contract claim.

The complaint alleges that the buyer had to repair numerous items that had been said to have been restored. This could establish a legitimate claim, as it alleges that something was specifically stated that turned out to be incorrect. But to establish misrepresentation, two added elements must be proven. The buyer must prove that he actually relied on the statements, and that it was reasonable for him to do so.

Defendant must know when he can win

If you are the defendant in a case like this, and even if you really believe you can win the lawsuit, you have to pay close attention to when in the legal process you can win. That is because the further into the legal process you go, the more it costs you to defend the case. And even if you win, you aren't going to recover your attorney fees. So unless you can win early, you could wind up losing by winning.

In this case, it will be important for James to try to knock out the rust claims at the earliest stage with legal motions. If the judge agrees that there is no valid legal claim stated, it can be tossed out right away.

James will undoubtedly point out that, since the buyer and his expert inspected the car before he bought it, he could no longer reasonably rely on James's statements. That is an excellent point, and it could be a winner, but it is considered a defense to the claim. The shortcoming of a defense is that the judge can't use it to throw out the case. Only the jury can do that, and that can't happen until the trial at the end of the expensive legal process.

Avoiding these problems

James is quick to kick himself for not getting the "as is" disclosures signed. That would have helped, but it still might not have been enough.

An agreement that a car is sold "as is" just means that no warranty is given. It does not eliminate claims that the seller misrepresented the car. To do that, the seller needs a contract that contains what is referred to as an "integration" clause. Such a provision would simply state that any representations and statements that may have been made about the car are not part of the deal unless they are specifically stated in the written contract. That would have prevented the buyer from making claims based on the eBay listing.

As "Legal Files" has said before, your best strategy is a good contract. That works both ways. This buyer is going to have a tough time winning, but both parties are going to spend a lot of money on lawyers. The more clearly the contract establishes what you are entitled to, the less likely it is you will end up in court.

This is an interesting case, and "Legal Files" will keep an eye on it as it unfolds, and if the ending turns out to be noteworthy, we'll be sure to update you.

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