Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

Exercise 17

Roberts v. Lanigan Auto Sales
Court of Appeals of Kentucky, __ S.W.3d __, 2013 WL 44020 (2013).
IN THE LANGUAGE OF THE COURT
VANMETER, Judge:
* * * * * * [Evan] Roberts purchased a used vehicle from Lanigan [Auto Sales] in September 2009. Roberts and Lanigan executed a purchase contract, which contained a clause stating the vehicle is "sold as is * * * without any guarantee express or implied." Following the purchase, Roberts independently obtained a report which indicated that the vehicle had previ- ously been involved in an accident and suffered damage to the undercarriage of the vehicle. Roberts filed the underlying action [in a Kentucky state court] alleging that Lanigan * * * committed fraud by omitting, suppressing, and concealing the vehicle's prior damage and accident history in order to induce Roberts into purchasing the vehicle. Lanigan maintained it never represented that the vehicle had not been damaged or involved in a wreck and filed a * * * motion to dismiss the action for failure to state a claim upon which relief can be granted. * * * The trial court * * * dismissed Roberts' action on the basis that the purchase contract, which contained the express term "sold as is," barred his action for fraud. This appeal followed.
On appeal, Roberts argues the trial court erred by dismissing his action because the "sold as is" clause in the purchase contract did not bar his action for fraud. We disagree.
* * * * [Kentucky Revised Statute] 355.2-316 [Kentucky's version of UCC 2-316] seeks to provide a structure for construing both oral representations and written disclaimers within an agreement for the sale of goods. To carry out that purpose, the statute provides that, "unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like 'as is,' 'with all faults' or other language which in common understanding calls the buyer's attention to the exclusion of warranties." * * * An "as is" clause in a sales contract is understood to mean that the buyer takes the entire risk as to the quality of the goods involved.
* * * A valid "as is" agreement prevents a buyer from holding a seller liable if the thing sold turns out to be worth less than the price paid, because it is impossible for the buyer's injury on account of this disparity to have been caused by the seller and the sole cause of the buyer's injury is the buyer himself or herself. Thus, by agreeing to purchase something "as is," a buyer agrees to make his or her own appraisal of the bargain and to accept the risk that he or she may be wrong, and the seller gives no assurances, express or implied, concerning the value or condition of the thing sold. [Emphasis added.]
In an action for fraud, a party must prove by clear and convincing evidence that (1) the seller made a material misrepresentation to the buyer, (2) which was false, (3) known by the seller to be false, (4) made with the intent to be relied upon, (5) was reasonably relied upon and (6) caused injury. Here, Roberts executed a written sales contract which stated the car was "sold as is" and acknowledging, "I hereby make this purchase knowingly without any guarantee expressed or implied by this dealer or his agent." * * * The effect of the "sold as is" clause is to shift the assumption of risk regarding the value or condition of the vehicle to Roberts despite any express or implied warranties that were made by Lanigan. Since the only claimed injury concerns the value or condition of the car sold, and because the sole cause of such an injury is the buyer himself, Roberts is unable to prove that the seller's representation caused the injury. Furthermore, by agreeing to buy the vehicle "as is," Roberts agreed to make his own assessment of the condition of the vehicle in spite of Lanigan's representations. Thus, he cannot later claim that he reasonably relied on those representations when agreeing to purchase the vehicle.
This is not to say that an "as is" clause bars any claim of fraud; when circumstances indicate otherwise, express or implied warranties may not be disclaimed by a written contract. Different circumstances could support an action for fraud despite an "as is" clause when the injury results in consequential damages, [that is,] injury to a person or property as a result of a breach of warranty, rather than an injury as a result of decreased value of the goods. Our holding here merely follows the rationale that an "as is" clause transfers the risk to the buyer that the condition or value of the goods is not what the seller represents. In accordance with that rationale, the trial court did not err by dismissing Roberts' action.
The order of the [trial court] is affirmed.
Legal Reasoning Questions
1. What language in a sales contract excludes all implied warranties?
2. How does an "as is" clause in a sales contract affect the bargain between the buyer and the seller? 3. Does an "as is" clause in a sales contract bar all claims of fraud? Explain.
4. In this case, what did the court rule on the effect of the "as is" clause? Why?