Sorchaga v. Ride Auto, LLC
909 N.W.2d 550 (2018)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A seller's fraudulent statements about the condition and fitness of goods prevent the enforcement of 'as is' disclaimers under UCC § 2-316(3)(a), and a buyer may recover for both fraud and breach of warranty without constituting a double recovery.
Facts:
- Ride Auto, LLC purchased a pickup truck from a salvage yard knowing it needed engine repairs, then performed cosmetic and minor mechanical repairs to make it appealing for sale.
- Esmeralda Sorchaga test-drove the truck and noticed the check-engine light was on and smoke coming from the tailpipe.
- Ride Auto's salesman told Sorchaga the check-engine light indicated a faulty oxygen sensor that was easily fixable and would not affect the truck's longevity, and that the smoke was normal for a diesel engine.
- Ride Auto's owner told Sorchaga she would receive a free, third-party ASC Vehicle Protection Plan that would cover needed repairs, despite Ride Auto knowing the truck had serious engine damage and that the warranty did not cover salvage vehicles.
- Relying on these statements, Sorchaga agreed to buy the truck for $12,950.68, signing a purchase agreement and buyer's guide that disclaimed all warranties with "AS IS, NO WARRANTY" language and noted the salvage title and illuminated check-engine light.
- Immediately after purchase, Sorchaga experienced severe problems, including the truck not exceeding 40 mph and emitting excessive smoke, leading to a police stop.
- Ride Auto refused to repair the truck, and Sorchaga discovered the promised ASC warranty did not apply to salvage vehicles.
- Eight days after purchase, an independent inspection revealed the truck should not be driven and required an approximate $20,000 engine replacement.
Procedural Posture:
- Esmeralda Sorchaga brought an action against Ride Auto, LLC and its surety bond holder, Western Surety Company, in district court (trial court) alleging breach of the implied warranty of merchantability, violation of the federal Magnuson-Moss Warranty Act, and fraud.
- Ride Auto and Western moved for summary judgment, arguing the warranty disclaimer barred recovery, but the district court denied the motion.
- The case proceeded to trial before the district court, which ordered judgment for Sorchaga on all counts, finding that Ride Auto's employees made fraudulent misrepresentations and awarding Sorchaga damages, attorney fees, and litigation expenses.
- Ride Auto and Western appealed the district court's judgment to the Minnesota Court of Appeals (intermediate appellate court).
- The Minnesota Court of Appeals affirmed the district court's decision, concluding that a merchant's fraudulent misrepresentation precludes the merchant from disclaiming the implied warranty of merchantability and that the district court did not err in awarding relief on both fraud and contract theories.
- Ride Auto and Western petitioned the Minnesota Supreme Court (highest court) for review on both issues: the effectiveness of 'as is' disclaimers in the face of fraud and the permissibility of awarding relief under both fraud and breach of warranty theories.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a seller's fraudulent statements regarding the condition and fitness of a vehicle prevent the seller from enforcing 'as is' disclaimers in purchase documents under Minnesota Statute § 336.2-316(3)(a), and can a buyer recover damages for both fraud and breach of warranty without constituting a double recovery?
Opinions:
Majority - Chief Justice Gildea
Yes, a seller's fraudulent statements about the condition and fitness of a vehicle prevent the seller from enforcing 'as is' disclaimers under Minnesota Statute § 336.2-316(3)(a), and a buyer can recover damages for both fraud and breach of warranty without constituting a double recovery. The court reasoned that under Minn. Stat. § 336.2-316(3)(a), implied warranties are excluded by 'as is' expressions 'unless the circumstances indicate otherwise.' The court found that fraudulent statements about a truck's condition and fitness, which lead to the purchase of a vehicle unfit for its intended purpose, are precisely the type of 'circumstance' that renders 'as is' disclaimers ineffective. To enforce such disclaimers in the face of fraud would negate the essence of the bargain and permit the seller to profit from their fraud. This interpretation is consistent with Minn. Stat. § 336.1-103(b), which confirms that common-law principles like fraud supplement the Uniform Commercial Code (UCC) unless explicitly displaced. The court clarified that not all misstatements constitute fraud, thus preserving the ability for parties to contractually limit warranties in non-fraudulent contexts. Regarding recovery, the court held that under UCC sections Minn. Stat. § 336.2-720 and § 336.2-721, rescission of a contract for fraud does not preclude other remedies, including damages for breach of warranty. As long as the plaintiff does not receive a 'double recovery,' separate claims for common-law fraud and breach of contract are permissible. Sorchaga's award of the truck's purchase price, inspection costs, and attorney fees for the warranty breach did not amount to double recovery.
Analysis:
This case significantly limits the effectiveness of 'as is' disclaimers under the Uniform Commercial Code when a seller has engaged in fraudulent misrepresentation about the goods' condition or fitness. It reinforces the principle that fundamental common law protections against fraud are not displaced by statutory provisions for warranty disclaimers unless explicitly stated. The decision clarifies that under the UCC, remedies for fraud and breach of warranty can be pursued concurrently, provided there is no double recovery, emphasizing the UCC's goal of placing the aggrieved party in as good a position as if the other party had fully performed. This case provides important precedent for consumer protection in vehicle sales and other transactions where 'as is' clauses are common.
