Text Msg = Express Written Warranty?

Most of us who have been in the Car business for awhile are aware that an Express Warranty on a vehicle can become very expensive. (An express warranty can take several different forms, whether spoken or written, and is basically a guarantee that the product will meet a certain level of quality and reliability. A verbal express warranty may be as simple as a car dealer telling a customer, "I guarantee that this engine will last another 100,000 miles." If the car fails to live up to this claim, the buyer may take it up with the seller*1) Most of us have done our due diligence to educate our employees as well as put policies and forms in place in regards to Express and Implied Warranties to protect our Dealership from unwanted liability. With the ever changing landscape on how we conduct business, more and more customer communication is taking place via email and text message than ever before and this isn't changing any time soon. Below is a recent article I came across that discusses a case in which text messaging played a major role I wanted to share. It maybe time to review current policies, forms and employee education.

Dealership's Text Messages About Car's Condition May Constitute Express Written Warranty that Cannot be Disclaimed

December 2018

By Shelley B. Fowler*

Car sellers frequently disclaim all warranties when selling a used car. It's easy to do, with only a couple of words. But what dealerships sometimes forget is that their employees can use language that constitutes an express warranty and won't be disclaimed. Let's see how this concept played out with text messages between a dealership employee and a high-end car buyer.

Silverstar Automotive, Inc., d/b/a Mercedes-Benz of Northwest Arkansas, was looking to sell a used 2007 Ferrari F430. Prior to selling the car, Silverstar hired Boardwalk Ferrari to conduct a pre-purchase inspection of the car. Boardwalk provided the dealership with a list of recommended repairs, and Silverstar approved some of the repairs but declined others, including an exhaust header repair.

After a potential buyer decided not to purchase the car and notified Silverstar that individuals on a Ferrari forum described the exhaust header as a potential safety problem, Silverstar began negotiating with Hamid Adeli, who expressed an interest in buying the car. During phone calls and text messages, Silverstar employees described the Ferrari as being in "turnkey, excellent condition" and told Adeli about the inspection and that all necessary repairs had been made except for an issue with the car's Tire Pressure Monitoring System. There was no mention of the exhaust header issue.

Adeli decided to buy the car, and he and his wife signed a Buyer's Guide acknowledging that the car was being purchased "as is," an invoice stating that "the dealership hereby expressly disclaims all warranties, either express or implied," an odometer disclosure statement, and a notice that Arkansas has no cancellation period for used car purchases. Shortly after buying the car, Adeli smelled gasoline emitting from the car. He had the car towed to a mechanic who made numerous repairs, including one to a leaky exhaust manifold. Adeli sued Silverstar for breach of express warranty, fraud, and violation of the Arkansas Deceptive Trade Practices Act. Silverstar moved for summary judgment, and the U.S. District Court for the Western District of Arkansas denied the motion.

Although the court found that Silverstar disclaimed all warranties, it noted that a genuine issue of material fact existed as to whether the text messages were intended to be part of the parties' final written agreement. If the text messages were intended to be incorporated, then the final written agreement included a written express warranty that could not be disclaimed, and a genuine issue of material fact existed as to the scope of the warranty and whether the cracked manifold was included.

Addressing Adeli's fraud claim, the court found that genuine disputes existed as to whether Silverstar's statements concerning the extent of repairs made to the car and its condition were material misrepresentations and whether Silverstar's failure to disclose the issue Boardwalk found with the exhaust header was a material omission. Further, the court noted that a genuine dispute existed as to whether Adeli's reliance on Silverstar's statements and representations was justified, given that he knew he was buying a car "as is," he has a history of buying Ferraris and other high-performance cars, and he knew the car was underpriced. The court also found that Silverstar was not entitled to summary judgment on the ADTPA claim considering the genuine disputes as to whether the statements or omissions were deceptive or misleading and whether they were material.

It remains to be seen whether the dealership or the buyer will be successful on the various claims that the buyer alleged. However, dealerships should take note of the court's concerns over whether the text messages about the car's condition might be deemed part of the final written agreement and, therefore, not subject to the disclaimer. In this day of less face-to-face contact and more contact by text message or email, the words that your employees write to buyers will be scrutinized if they turn out to be false. Maybe it's time to consider developing, with your lawyer, policies about written communications with potential buyers.

Adeli v. Silverstar Automotive, Inc., 2018 U.S. Dist. LEXIS 156139 (W.D. Ark. September 13, 2018).

*Shelley B. Fowler is a managing editor at CounselorLibrary.com, LLC. She can be reached at 410.865.5406 or by email at [email protected].

*This post is for informational purposes only. It is not intended as, and should not be considered, legal advice. Dealerships should consult with their own legal counsel before implementing any compliance programs. This information is the opinion of the contributor not that of any entity they are employed or involved with.*

*1 - FindLaw