No need to get a second inspection, as the dealer had suggested; the first inspector was a pro and had already found 60-plus defects
No need to get a second inspection, as the dealer had suggested; the first inspector was a pro and had already found 60-plus defects
The unhappy buyer of a Mercedes 300SL Gullwing recently contacted "Legal Files" with an unfortunate story. A couple years ago, he was having a tough time finding an acceptable Gullwing. He consulted a knowledgeable local dealer, who told him about a Gullwing in another city and introduced him to the owner. The owner described the Gullwing as a high-condition driver that had been repainted by a noted auto restoration shop about two years previously. The asking price was $350,000, which was market correct at the time.
Our buyer traveled to the other city to inspect the car personally and hired a respected Mercedes expert. The expert generated a detailed list of over 60 deficiencies with the Gullwing. Our buyer asked the owner a number of questions, specifically if the Gullwing had ever been crashed, and the owner told him no. Our buyer stated that he would buy the car only if the owner rectified the long list of problems. When the owner balked at doing that without a higher price, our buyer politely walked away. So far, so good.
Second chance at a bad deal
Several months later, the dealer told our buyer that he now had the car. The buyer asked if the 60-plus defects had been corrected. The dealer said he didn't know about that, but that the car looked like a good driver to him. Having no luck finding another Gullwing, our owner decided to take second look.
It was apparent that the defects had not been corrected. The dealer argued they were cosmetic, and that no used car was perfect. Our buyer resisted, and the dealer agreed to talk to the owner about making repairs. Our buyer walked away again. So far, so good.
The red mist settles in
A few days later, our buyer saw the Gullwing advertised in a national car magazine. He took that to mean the car would be sold soon but didn't feel bad about it. A few days after that, our buyer saw that a Gullwing had just sold at an Arizona auction for $642,000.
Immediately, our buyer catapulted into a red mist panic. The Gullwing market was moving fast, this one was going to sell any minute now, and he was never again going to find one he could afford. There was only one possible thing to do-run, don't walk, down to the dealer, whip out the checkbook, and pay $350,000 cash money to buy the Gullwing in its "as is" condition. After all, the defects were mainly cosmetic and he could fix them over time. No need to get a second inspection, as the dealer had suggested, because the first inspector was a pro and had already found 60-plus defects. What else could be wrong? And what if someone else wired money while he was taking time getting the car inspected?
More defects pop up
As soon as the sweat dried, the first thing our buyer noticed was that the Gullwing had oddly undersized tires. That bugged him, so he replaced them with correct ones. Once he did that, the front end started rubbing. Alarmed, he had the car inspected again, and learned that the car had suffered serious crash damage that had not been properly repaired. The only fix was to take the front end down to bare metal to assess the damage, fix it, and repaint the car. Estimated cost, at least $50,000, depending upon what popped up.
At that point it became not such a good deal, as well as a potential Legal File. From whom could our buyer get financial help on the repairs?
Looks like the owner lied
The owner can be held liable if he misrepresented the condition of the Gullwing. Although he didn't really say very much about the condition of the car, he did specifically say it had not been crashed.
There are two easily predictable potential defenses from the owner. The usual response is that he was unaware of the previous crash damage, and didn't lie about it. But the undersized tires work against him here, as it seems quite clear that he put those on the car to prevent the rubbing, suggesting that he was aware of the problem.
Further, the restoration shop that painted the car is reputable and could not have done the work without becoming aware of the inadequate crash repair. Their testimony might establish that the owner was also aware of the problem. The other predictable response would be to deny that he ever said anything about the car not having been crashed. But here again, the undersized tires, and hopefully the favorable testimony from the restoration shop, would make it hard for him to get a judge or jury to believe him.
Of course, the owner can also be expected to defend the claim on the basis that the expert's inspection absolves him of any liability, but that isn't legally correct. You can't avoid the consequences of your lies by claiming that someone else should have found out that you were lying.
Still, the buyer is faced with expensive litigation, and without a written contract regarding the purchase of the car, no clear way to recover his legal fees if he wins. And the litigation will likely have to be filed in the state where the owner lives, since that is where the misrepresentations were made. Litigating out of state usually ends up costing more. The $50,000 damage claim should be big enough to support the anticipated litigation costs, so the situation is not economically hopeless.
The dealer didn't lie, either
The facts don't suggest a very good legal case against the dealer. The dealer didn't say very much about the car's condition, other than to question the seriousness of the defects the buyer mentioned, none of which indicated the real problems with the car. A dealer does not have any legal duty to inspect the cars he is selling and discover defects.
What about the inspection?
The owner also has a claim against the expert who inspected the Gullwing, but that isn't all that easy. There was absolutely no hint of any collusion, so the potential legal claim would have to be that the expert was negligent in not discovering the body damage.
Whether or not the expert was negligent in his inspection depends upon what could reasonably be expected of him. If his skills are mechanical only, he might not be expected to discover bad bodywork. If he is an experienced Gullwing restorer, he might be expected to do so. If he was specifically asked to inspect for body condition, he would be expected either to do so or to advise that he was not skilled enough.
To complicate matters, the expert could claim that the buyer was also negligent. After all, some time passed between the inspection and the purchase, which would have warranted a second inspection. A local shop could have inspected the car more thoroughly, and the dealer recommended another inspection, which the buyer declined. But it's hard for the expert to wiggle out on that basis, as the owner's failure to get a second inspection shouldn't excuse him from having done a poor job the first time.
Light at the end of the tunnel
Even if our buyer paid too much for this Gullwing and decides he can't economically do anything about it, he may come out fine anyway because of the market. Say he spends another $50,000 fixing the defects, and say another $50,000 on the inevitable "while we're at it" improvements. He will still be about $450,000 into one of the most desirable collector cars on the planet, which is probably now worth considerably more than his investment.
And if he wants to rationalize things even more, he can convince himself that he really was right. The Gullwing market did move quite rapidly, and if he hadn't bought this one, he might have had to pay far more for the next one or else miss his affordability window altogether.
On the other hand, with better research and a little more patience, he might have found the high-condition driver he was looking for at the same price. Or, the market could have stayed flat or dropped, and he would have lost even more. Relying on a rising market to make up for your mistakes is a risky game plan.
None of this serves as a defense on the part of either the owner or the expert, as they can't claim the market erased their liability. Even if the buyer did make a lot of money on the Gullwing, he would have made more if the condition of the car had been as described.
The moral of the story: Don't shortcut due diligence and bet on the market bailing you out of your mistakes. Go back and reread the September "Legal Files" about the ten traps buyers can fall into (online at www.sportscarmarket.com/tentraps), and avoid them all.