January 18, 2010

EVEN WHEN USED CAR IS SOLD “AS IS,” DEALER HAS LIMITED DUTY TO INSPECT FOR DANGEROUS DEFECTS

When a used-car dealer sells a vehicle “as is,” thereby disclaiming contract warranties, do general principles of negligence law nevertheless call for imposing a duty of reasonable care on the dealer to inspect the vehicle for unreasonably dangerous defects?

“Most courts which have considered the issue have recognized a limited duty on the part of the dealer to inspect for patent safety defects existing at the time of sale,” the Nebraska Supreme Court recently noted in Wilke v. Woodhouse Ford, Inc., 278 Neb. 800 (2009).

As the Montana Supreme Court explained in 1980:

“When the ordinary person purchases a car ‘as is,’ he expects to have to perform certain repairs to keep the car in good condition. He does not expect to purchase a death trap. Public policy requires a used car dealer to inspect the cars he sells and to make sure they are in safe, working condition. This duty cannot be waived by the use of a magic talisman in the form of an ‘as is’ provision.” Kopischke v. First Continental Corp., 187 Mont. 471.

Applying general principles of negligence law in determining whether a used-car dealer owed a duty to inspect a vehicle before it was sold “as is,” the Nebraska Supreme Court in Wilke v. Woodhouse reasoned:

“There is a relatively great magnitude of risk of injury in the circumstance where an unknowing buyer drives off the dealer’s lot in a used vehicle which has a patent safety defect, such as defective brakes or steering.

“The dealer is better equipped than the purchaser to perceive such a defect before it causes harm. The nature of the risk is such that personal injury or death could result not only with respect to the purchaser of the defective vehicle, but to other members of the motoring public.

“The dealer has the earliest opportunity to discover and repair a patent safety defect in a used vehicle. An unknown safety defect existing at the time of sale poses foreseeable harm to the purchaser and the general public, and there exists a policy interest in requiring reasonable conduct on the part of the dealer to prevent such harm.

“We, therefore, hold that a commercial dealer of used vehicles intended for use on public streets and highways has a duty to conduct a reasonable inspection of the vehicle prior to sale in order to determine whether there are any patent defects existing at the time of sale which would make the vehicle unsafe for ordinary operation and, upon discovery of such a defect, to either repair it or warn a prospective purchaser of its existence.” Wilke v. Woodhouse Ford, Inc., 278 Neb. 800 (2009).

Here are highlights of the Nebraska Supreme Court’s opinion (with omissions not noted in the quoted text):

We have never before addressed whether a used-car dealer has a duty to its customers to inspect vehicles for safety defects before they are sold.

Most courts which have considered the issue have recognized a limited duty on the part of the dealer to inspect for patent safety defects existing at the time of sale.

For example, Minnesota courts have held that the seller of a used vehicle intended for use upon the public highways has a duty to the public using such highways to exercise reasonable care in supplying the purchaser with a vehicle which will not constitute a menace or source of danger, so that liability attaches to the seller for injuries which are the result of patent defects in the vehicle, or defects which could have been discovered in the exercise of reasonable care. Crothers by Crothers v. Cohen, 384 N.W.2d 562 (Minn.App.1986); Kothe v. Tysdale, 233 Minn. 163, 46 N.W.2d 233 (1951).

Ohio courts have held that even when a dealer sells a used vehicle “as is,” the dealer has a duty to exercise reasonable care in examining the vehicle to discover defects which would make the vehicle dangerous to users or those who might come in contact with them, and upon discovery, to correct those defects or at least give warning to the purchaser. Stamper v. Parr-Ruckman Home Town Motor Sales, 25 Ohio St.2d 1, 265 N.E.2d 785 (1971); Thrash v. U-Drive-It Co., 158 Ohio St. 465, 110 N.E.2d 419 (1953).

The Kentucky Court of Appeals has noted that used cars are more likely to be subject to mechanical defects than new vehicles and that the dealer is in a better position than the average consumer to “discover what defects might exist in any particular car to make it a menace to the public,” holding that “we are of the opinion it is not too harsh a rule to require these dealers to use reasonable care in inspecting used cars before resale to discover these defects, which the customer often cannot discover until too late.” Gaidry Motors v. Brannon, 268 S.W.2d 627, 629 (Ky.App.1954).

In Kopischke v. First Continental Corp., 187 Mont. 471 (1980), the Montana Supreme Court held that a used-car dealer had a duty to inspect a vehicle for safety defects prior to sale, notwithstanding the fact that the vehicle was sold “as is.” The court reasoned:

“When the ordinary person purchases a car ‘as is,’ he expects to have to perform certain repairs to keep the car in good condition. He does not expect to purchase a death trap. Public policy requires a used car dealer to inspect the cars he sells and to make sure they are in safe, working condition. This duty cannot be waived by the use of a magic talisman in the form of an ‘as is’ provision.

But courts which have recognized a duty on the part of used-car dealers to inspect for safety defects prior to sale have also emphasized that the duty is limited.

Courts have stated that used-car dealers are not insurers and therefore are not liable for latent defects in the vehicle.

Courts have limited the duty to inspect for patent defects affecting the minimum essentials for safe operation of the vehicle.

Dealers are not required to disassemble the vehicle to inspect for latent defects, and they are not responsible for the continuing safety of the vehicles they sell.

Applying our risk-utility test for the existence of a legal duty to use reasonable care, we conclude that there is a relatively great magnitude of risk of injury in the circumstance where an unknowing buyer drives off the dealer’s lot in a used vehicle which has a patent safety defect, such as defective brakes or steering.

The dealer is better equipped than the purchaser to perceive such a defect before it causes harm. The nature of the risk is such that personal injury or death could result not only with respect to the purchaser of the defective vehicle, but to other members of the motoring public.

The dealer has the earliest opportunity to discover and repair a patent safety defect in a used vehicle. An unknown safety defect existing at the time of sale poses foreseeable harm to the purchaser and the general public, and there exists a policy interest in requiring reasonable conduct on the part of the dealer to prevent such harm.

We, therefore, hold that a commercial dealer of used vehicles intended for use on public streets and highways has a duty to conduct a reasonable inspection of the vehicle prior to sale in order to determine whether there are any patent defects existing at the time of sale which would make the vehicle unsafe for ordinary operation and, upon discovery of such a defect, to either repair it or warn a prospective purchaser of its existence.

The dealer has no duty to disassemble the vehicle to discover latent defects or to anticipate the future development of safety defects which do not exist at the time of sale.

The tort duty we recognize today is not affected by a valid disclaimer or exclusion of U.C.C. warranties, because such contractual provisions do not absolve a seller from exercising reasonable care to prevent foreseeable harm.

Tort liability is not based upon representations or warranties. Rather, it is based upon a duty imposed by the law upon one who may foresee that his or her actions or failure to act may result in injury to others.

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