Wagner v. Rao
177 Ariz. Adv. Rep. 51, 180 Ariz. 486, 885 P.2d 174 (1994)
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Rule of Law:
An "as is" provision and an integration clause in a sales contract do not preclude a claim for fraudulent misrepresentation when a party alleges they were induced to enter the contract by the other party's fraud.
Facts:
- In March 1992, Willie G. Wagner displayed a 1967 Mercedes 300SE convertible for sale at a car auction.
- Wagner represented to John Rao, both orally and with a sign in the car's window, that the vehicle was a 'ground up restoration,' a term meaning it was restored to near 'show room' condition.
- After the auction, Wagner telephoned Rao and they agreed Rao would purchase the car for $16,000 plus a trailer or an additional $17,500.
- The car was delivered to Rao at 8:00 p.m., preventing a thorough inspection due to the late hour.
- Rao signed a 'Used Vehicle Order' which prominently featured a 'SOLD AS IS' clause and an integration clause stating all prior understandings not in the contract were waived.
- A few days after signing, Rao inspected the car and discovered extensive rust on the undercarriage and other latent defects not consistent with a 'ground up restoration.'
- Rao informed Wagner of the misrepresentation and demanded a refund, but Wagner refused.
Procedural Posture:
- Willie G. Wagner sued John and Cathy Rao in a state trial court for breach of contract.
- The Raos filed a counterclaim, alleging fraudulent misrepresentation and concealment.
- Wagner filed a motion for summary judgment on both his claim and the Raos' counterclaim.
- The trial court granted summary judgment in favor of Wagner, dismissing the Raos' fraud claim.
- The Raos, as appellants, appealed the trial court's grant of summary judgment to the intermediate court of appeals, with Wagner as the appellee.
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Issue:
Does an "as is" provision combined with an integration clause in a used vehicle sales contract bar a buyer from bringing a tort claim for fraudulent misrepresentation based on the seller's prior statements about the vehicle's condition?
Opinions:
Majority - Espinosa, Presiding Judge
No. An 'as is' provision and an integration clause do not bar a claim of fraudulent misrepresentation. The court reasoned that fraud in the inducement of a contract renders the instrument invalid from its inception. Public policy favoring honesty and fair dealing in business relationships outweighs the policy of finality in contracts when a material misrepresentation is involved. Citing precedent such as Sarwark, Lufty, and Hill, the court held that a party cannot use contractual clauses to shield itself from the consequences of its own fraud in procuring the agreement. Therefore, Rao is entitled to present evidence that Wagner’s representations were fraudulent and that he relied on them, regardless of the 'as is' and integration clauses in the written contract.
Analysis:
This decision reinforces the legal principle that fraud vitiates every part of a contract, including disclaimer clauses. It establishes that a party cannot contractually immunize itself from its own fraudulent conduct used to induce an agreement. This case is significant because it protects buyers from sellers who make false affirmative representations and then attempt to hide behind boilerplate 'as is' and integration clauses. The ruling ensures that tort remedies for fraudulent inducement remain a viable option for aggrieved parties, preventing such clauses from becoming a license to commit fraud in commercial transactions.
