Friday, July 29, 2016

Lessons from a Used Car Lot

A used car case is relevant to Texas real estate. Trust me. Read on.

Christin Bishop needed a gently used car. In February 2012 she found a 2010 Kia Forte offered by Creditplex Auto Sales d/b/a Greenville Mitsubishi. This particular Kia had been purchased at auction a few months prior for $9,210, with the disclosure made to Creditplex that the car had suffered frame damage.

Christin and her mother Cynthia bought the car for $15,800. They financed the purchase with a 72-month loan at 17.95% interest (interest in excess of 18% in Texas may be usurious BTW). The Bishops also purchased a service contract for $1,500, but they failed to have the car inspected or obtain a Carfax report about the car before they bought it.

Presumably the car had a full-on “AS IS” sticker on the window. For some reason that remains elusive to me, this part of the text in the appellate opinion was deleted. No worries; let’s assume that the appropriate “AS IS” warning was printed for all to see.

Christin kept the car for about a year, then decided to trade it since she needed something larger to accommodate her children. She took the Kia to a local dealership to sell it, but the franchise refused to buy it because it had frame damage.

Oh yeah I forgot to tell you that Creditplex, relying on the “AS IS” language, did not disclose to Christin that the Kia had been wrecked before she bought it.

So Christin sued Creditplex, its general manager and owner for failure to disclose pivotal information she needed in order to make an informed decision. The trial court granted a verdict for Creditplex to the effect that “AS IS” meant “AS IS,” and the court entered judgment for Creditplex and the other defendants.

Christin appealed and continued her same argument: vendors should not be allowed to hide information from consumers to their detriment, simply by placing an “AS IS” sign on the products that are being sold. A compelling argument, truly, except that in Texas such “AS IS” disclaimers are difficult to overcome. Almost impossible, really.

Using various real estate cases, the defendants reminded the Court of Appeals that since at least 1995 Texas Courts have uniformly held that an “AS IS” disclaimer is effective, even though the consumer-buyer may be disadvantaged. Indeed, the Supreme Court of Texas has previously written that “by agreeing to purchase something ‘as is,’ a buyer agrees to make his own appraisal of the [deal] and accept the risk that he may be wrong.”

However, this Court of Appeals focused on the following circumstances: (1) Creditplex was experienced in used car sales but Christin was not; (2) Christin did not negotiate the price; (3) Christin was unsophisticated when compared to Creditplex; (4) the provisions of this “AS IS” clause were not crystal clear; (5) Creditplex chose not to disclose an obvious defect that materially diminished the value of the car; and (6) the “AS IS” provision was not negotiated, but rather was a ‘boiler-plate’ insertion.

The Court of Appeals sensed that the conduct of Creditplex may have been fraudulent, which can be a narrow exception to the Texas “AS IS” rule. Using the fraud theory, Christin wins and the judgment of the trial court is reversed. See Bishop v. Creditplex Auto Sales; Cause No. 05-15-00395-CV; Tex. App. 5th Dist.; July 29, 2016:

Lessons learned:

 1.      Yes this case is about a used car. No I don’t typically write about used cars or any other personal property. But – an exception had to be made.

 2.      This Texas Appellate Court used real estate appellate cases to determine that not all “AS IS” clauses work. A seller or landlord cannot simply paste an “AS IS” disclaimer in a contract or lease and assume that it will not be successfully challenged.

3.      If there is a major deception which the buyer / tenant could not have reasonably anticipated or avoided, and if there is a disparity in negotiating positions (as there always is in consumer transactions), then Texas Courts will find a way to deliver justice to the consumer. As they should, IMHO, not that anyone asked.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

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