An article by R. Frank Melton and Jerri H. Coletti in the March/April 2012 edition of the Florida Justice Association Journal discusses the issues with used vehicles and the "As Is" clause. The article states that many used vehicles are sold with the label "as is." Used vehicles are not covered by Florida Statutes §681.102 et. seq., known as the Magnuson Moss Warranty Act or Florida's "Lemon Law." Thus, whether or not any warranties exist on a used vehicle depends on whether an express or implied warranty is created by the agreements or interactions between the buyer and seller. Dealers typically sell vehicles "as is" with the intention and expectation of disclaiming all warranties; however, buyers and sellers often have different pre-conceived notions about what the term "as is" really means. This article discusses the legal benefits and consequences of selling vehicles and other products, "as is."
What An "As Is" Clause Does Not Do
An "as is" clause in a contract of sale is not an exculpatory clause. Sellers who have sold a product "as is" typically assert that disclaimer as a defense against all warranty (or contract) liability. In litigation, some sellers also assert "as is" disclaimers as a defense against tort liability as well. Given that warranties are contracts, without more, an "as is" clause should not be interpreted as affecting tort liability in any way. These defenses are based on an incorrect assumption that an "as is" clause can be treated as a type of exculpatory clause.
An exculpatory clause, as opposed to an "as is" clause in a sales agreement, if properly written and executed, expressly relieves one of the contracting parties of tort liability. However, the law in most states, including Florida, strongly disfavors exculpatory clauses. This is primarily because their effect is to relieve one party of the obligation to use due care and to shift the risk of injury to the contracting party who is often the most ill-equipped to prevent the loss or bear the risk of loss. Such clauses are strictly construed against the party seeking to be relieved of liability and therefore, a bare bones "as is" clause should never be construed as affecting tort liability. The law regarding exculpatory clauses requires that an exculpatory clause must be so clear and understandable that "an ordinary and knowledgeable person will know what he is contracting away". Further, an exculpatory clause in a sales contract that is intended to relieve one of liability for its own negligence must expressly state that it releases a seller from liability for its own negligence. Clearly, an "as is" clause is not an exculpatory clause.
What An "As Is" Clause Does Do
A typical "as is" clause in a vehicle sales agreement may say nothing more than the words "as is", or on the other hand, it may include extensive additional language disclaiming liability for specific warranties or for any oral statements made during sales negotiations. It is also typical to require the buyer to acknowledge that they are "knowingly" purchasing the vehicle "as is."
Despite common arguments to the contrary, the law in Florida is clear that both express and implied warranties can be applied to sales of used products. Further, in order to disclaim such warranties, a valid disclaimer must be made. In addition to being so clear and understandable that "an ordinary and knowledgeable person will know what he is contracting away", a valid disclaimer must meet specific statutory requirements to effectively eliminate specific warranties. For example, the Uniform Commercial Code provides that, in order to exclude an implied warranty of merchantability, writing must be conspicuous and must mention merchantability. To exclude an implied warranty of fitness, the exclusion must be in writing and conspicuous. If a valid disclaimer has been made, it will generally be enforceable and effective in relieving the seller of liability for repairing or replacing the product, as well as for incidental and consequential damages.
"As Is" Clauses Do Not Relieve a Seller of Common Law Duties to Warn or Inspect
Despite the general enforceability of valid "as is" sales agreements, these agreements are limited in their reach. For example, even if an "as is" agreement is effective to relieve a seller of any duty to repair or replace a defective vehicle, if that seller would otherwise be liable under applicable case law for failing to properly inspect a vehicle, or to warn of dangerous conditions in the vehicle, an "as is" clause cannot relieve them of that responsibility.
Florida case law supports the argument that sellers of used products have no duty to discover or warn of latent defects. This authority is often used to support the argument that a seller of used vehicles has no duty whatsoever to inspect those vehicles prior to sale. There is no clear Florida authority to support such a blanket "no duty to inspect used vehicles" argument. Florida's Fifth District Court of Appeals had occasion to address the duty to inspect used vehicles in Masker v. Smith and declined to rule one way or the other. The court in that case stated that, "[w]hatever may be the duty of a used car dealer to inspect a vehicle prior to sale for defects which could or might be discovered by reasonable and customary inspection, a point not before us and therefore one which we do not decide, we are not aware of any duty on such dealer to discover latent defects which by their very nature could not be discovered by a reasonable and customary inspection." Based on this language, it is at least arguable that sellers of used vehicles have a duty to perform "usual and customary" inspections.
Further, even if used vehicle dealers did not have a legal duty to perform inspections of used vehicles prior to sale, as a practical matter, most dealers actually do perform an inspection of some sort before taking a vehicle into their inventory. More often than not, the dealer will even charge a fee for cleanings and inspection. Indeed, it would be impractical for dealers to purchase used vehicles without first performing some type of inspection, because they must have some basis on which to value the vehicle prior to purchasing it. Even obtaining a "Blue Book" type value requires some inspection of the condition of the vehicle. Therefore, in most cases, a dealer will have performed an inspection of some sort, and if such an inspection reveals defects, those defects then become known defects that the used vehicle seller should have a duty to disclose. Likewise, if the seller becomes aware of defects through means other than a "usual and customary" inspection, such as through interactions with the prior owner of the vehicle, that seller has a duty to warn potential buyers of such known defects.
The duty to warn of defects is different depending on whether the defects are patent defects or latent defects. The Florida Third District Court of Appeals has held that a duty to warn of latent defects may arise in situations where the seller had no reason to expect the buyer would discover or realize the danger involved. In Alverez v. E&A Product Company, the defendant brought its commercial truck to plaintiffs service center to have the tire repaired. The tire was repaired, but exploded while the mechanic was mounting it on the rim, causing injuries. The injured mechanic sued the owner of the vehicle. In discussing the duty to warn of patent and latent defects, the court in Alverez indicated that the owner of the vehicle would have a duty to warn the plaintiff of latent defects in the tire, if the owner had no reason to expect that the plaintiff would discover the condition of the tire and realize the danger involved. With respect to patent defects, the Court in Alverez stated that it was not necessary for the defendant to warn the Plaintiff of patent defects, defined by the court as a condition that a "mere casual looking over will disclose" unless tw-1 the defendant had special experience or expertise, knew the condition of the tire was dangerous and had no reason to believe the Plaintiff had special experience or expertise that would have enabled her to perceive the danger. Thus, there is not a hard and fast rule that sellers of used vehicles have no duty to warn buyers of either latent or patent defects.
In some cases, a vehicle or even an individual part on a vehicle may haveboth latent and patent defects that must be evaluated separately. For example, a tire may have latent defects such as over aged rubber, that could only be detected by someone who had the specialized knowledge to interpret the Department of Transportation numbers on the in order to identify dates of manufacture. The very same tire may have patent defects such as an improper repair, a bubble in the sidewall or accelerated wear in the tread evidencing an existing separation. In any given case, regardless of whether a vehicle or its components contain latent or patent defects, a jury might reasonably conclude that a used vehicle dealer possessed specialized knowledge and experience the plaintiff did not have, or that the dealer knew the plaintiff had no reason to know of dangers known to the dealer. In that case, the dealer may be responsible for warning the buyer of both patent and latent defects, and this duty should not be affected by any disclaimers that may have been made. Further, a reasonable jury might conclude, based on the facts of the case, that a seller had examined the vehicle or had in some other manner gained actual knowledge of latent or patent defects and therefore created a duty to warn the buyer of the defects, regardless of whether disclaimers had been made. A jury could find that the seller had no reason to believe the buyer had special experience or expertise that would enable them to perceive the dangers caused by the patent or latent defect in the vehicle. A jury could conclude that the seller warned the buyer of the defect, but that the warning was insufficient to protect the buyer.
Affirmative defenses relating to disclaimers are often raised in the summary judgment context. However, whether or not the parties to a contract had the same understanding as to what was meant by "as is" is generally a question of fact for the jury. In interpreting an "as is" clause in a real estate contract, the Second District Court of Appeals held that this disclaimer was relevant to the issue of duty of care to the buyers." The effect of an "as is" clause in the context of an action for negligence "is a question of fact subject to the jury's determination of what was reasonable under the circumstances."
While a valid "as is" clause may be effective to disclaim liability for repair or replacement of a vehicle, it should have no impact on tort liability. Further, "as is", or similar contract language should not be interpreted as affecting any existing obligation of used vehicle sellers, to inspect or warn of latent, patent or otherwise known defects.
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In any given case, regardless of whether a vehicle or its components contain latent or patent defects, a jury might reasonably conclude that a used vehicle dealer possessed specialized knowledge and experience the plaintiff did not have, or that the dealer knew the plaintiff had no reason to know of dangers known to the dealer. In that case, the dealer may be responsible for warning the buyer of both patent and latent defects, and this duty should not be affected by any disclaimers that may have been made. Further, a reasonable jury might conclude, based on the facts of the case, that a seller had examined the vehicle or had in some other manner gained actual knowledge of latent or patent defects and therefore created a duty to warn the buyer of the defects, regardless of whether disclaimers had been made. A jury could find that the seller had no reason to believe the buyer had special experience or expertise that would enable them to perceive the dangers caused by the patent or latent defect in the vehicle. A jury could conclude that the seller warned the buyer of the defect, but that the warning was insufficient to protect the buyer.