To Carfax or not to Carfax – fraud and justifiable reliance

A case recently came down from the Georgia Court of Appeals that should be of interest to anyone who has or plans to purchase a used car, or for that matter, anyone who enters into a contract.

So there you are, at the point of sale.  You’ve negotiated hard, asked the salesperson the tough questions, and you’ve got the answers you want to hear.  It looks like you will strike a deal.  You sit down to do the paperwork and, as the salesman tries to make small talk, you see disclaimers in the contract.

Part of your brain thinks, “this is just boilerplate legal stuff, right?” and the other part thinks, “I’m probably supposed to actually know what this means.”  All the while you’re feeling like you’d be a lot more comfortable sitting in your own office with some time to review this contract, but instead, you’ve got this salesman staring at you.  So you decide that you already hashed out all the details with the salesman and his representations have got to count for something, so you skim through the contract and sign on the dotted line.

In a similar case, Raysoni v. Payless Auto Deal, LLC, A13A0714, the plaintiff, Raysoni, purchased a 2008 Honda Odyssey from Payless Auto Deal.  Raysoni pointedly asked the salesmen if the vehicle “had anything wrong with it, such as a prior wreck or damage.”  The salesmen said “no”, assured Raysoni that the vehicle was clean and undamaged, and showed Plaintiff a Carfax report showing no accident or damage to the vehicle.

This was a lie, and the salesmen knew it was a lie, because the vehicle was purchased at auction as a frame-damaged vehicle.  Because of the damage, the vehicle required $10,000-12,000 worth of repairs, which reduced the value of Raysoni’s purchase from the $17,000 that he paid, to a mere $7,000.

Yes, despite the saleman’s blatant misrepresentations in this case, the Georgia Court of Appeals held that Raysoni could not sustain a claim for common law fraud or a claim under Georgia’s Deceptive Trade Practices Act because even though the used car salesman knowingly misrepresented a material fact, Plaintiff failed to exercise due diligence in determining the falsity of the statement.

An essential element of a claim for fraud or a claim under the Georgia Deceptive Trade Practices Act is that the plaintiff’s reliance on the defendant’s misrepresentation was justifiable, meaning that the consumer must show he or she exercised due diligence to ascertain the falsity of the representation.

As it turned out in Raysoni, even though the salesman lied during the negotiation, the contract that the Plaintiff signed after the negotiation clearly stated that: (i) the sale was “As-Is”, (ii) there was no warranty, (iii) that purchaser would pay all costs of repairs, (iv) that any representations made by salesman were not binding on the dealer, (v) that the vehicle was announced having unibody damage at auction, and (vi) that Payless strongly recommended customers have vehicles inspected before purchase.

The Court found that given the bold-faced, capitalized disclaimers in the contract, Plaintiff had blindly relied on the salesman’s representations, and therefore, his reliance was unjustifiable.  Without justifiable reliance, Raysoni’s injury was considered not to be caused by the dealer’s misrepresentations, but by his own lack of diligence.  As with many torts, causation is an essential element.  Without it, Raysoni’s claims were defeated.  The court also found that the Raysoni’s reliance on the clean Carfax report was also not justifiable in light of the conspicuous disclaimers in the contract.

As someone who has purchased a pre-owned vehicle and has used Carfax, what I find interesting about this case is the court’s discussion of “lag time.” Apparently, it is not an uncommon practice for an auctioneer or dealer to fail to report an accident for a period of time, with the effect that the car can be represented as “clean” even though it is known to be damaged.  Although this seems clearly unethical and fraudulent in itself, the court found that clear and unambiguous disclaimers in a contract nonetheless put the purchaser on notice of the damage and overcome any prior representations to the contrary, thereby defeating a claim for fraud.

The important takeaway from this case is that a clear and unambiguous contract controls, and it is therefore critical that you understand each provision in the contract.  When you are negotiating any contract and the other party says that the terms are “A,” but the contract says “B,” you should stop and require an explanation for the discrepancy.  If the terms are in fact “A” as the other party claims, then the contract should be changed to reflect that. If the other party is not willing to make the change or insists that no discrepancy exists, alarm bells should be ringing in your head.  Ultimately, the clear and unambiguous terms of a contract control, and as the above-referenced case illustrates, can even overcome even what appears to be an obvious case of fraud.

Before signing on the dotted line, make sure you understand what you are signing and that it comports with the verbal negotiations that have lead up to the signing.  If you need assistance, do not hesitate to call a contract attorney at Briskin, Cross & Sanford to help you ensure the deal you seek is the deal you receive.

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