Liability For Fraud In The Sale Of A Vehicle

By harley erbe

Most people are familiar with the damage disclosure that must accompany the sale of a vehicle in Iowa.  The damage disclosure statement's required by Iowa Code 321.69.  But how much trouble can a person get in for not properly disclosing issues during the sale of a vehicle?  The answer is, a lot, particularly since passage of Iowa's private consumer fraud law, Iowa Code Chapter 714H.

The most common claim for undisclosed issues with a vehicle is fraud.  Fraud requires clear-and-convincing evidence of (1) materiality, (2) falsity, (3) representation, (4) the seller's knowledge of the issue, (5) intent to deceive, (6) justifiable reliance, and (7) resulting injury and damage.  The first three elements of a fraud claim are often treated as a single element and are referred to as fraudulent misrepresentation.  A representation need not be an affirmative misstatement; the concealment of or failure to disclose a material fact can constitute fraud.  But for concealment to be actionable, the representation must relate to a material matter known to the party that it is the party's legal duty to communicate to the other contracting party, whether the duty arises from a relation of trust, from confidence, from inequality of condition and knowledge, or other attendant circumstances.  There is no specific test for determining when a duty to reveal arises in fraud cases.  But it's generally thought that a misrepresentation may occur when one with superior knowledge, dealing with inexperienced persons who rely on him or her, purposely suppresses the truth respecting a material fact involved in the transaction.

"Justifiable reliance" can mean a couple of things in the vehicle fraud context.  In one sense, it means that a potential vehicle buyer can't overlook obvious issues with the car and then later sue for fraud claiming that the issues were misrepresented or not disclosed.  But justifiable reliance can also refer to the fact that vehicles often change owners several times.  For example, say that the third owner of a vehicle finds an issue that the second owner didn't know about but the first owner did, perhaps an accident and repairs when the original owner had the vehicle.  There may not be a good claim against the second owner (who can't disclose or conceal something that's not know to that owner), but can the third owner make a claim against the original owner, even though there's no direct connection between the first and third owners?  Absolutely.

Iowa Code 321.69(8) specifically allows for liability against anyone in the ownership chain, even if there's no direct connection between various owners: "A person, authorized vehicle recycler licensed under chapter 321H, or motor vehicle dealer licensed under chapter 322 shall not be liable to a subsequent owner, driver, or passenger of a vehicle because a prior owner or lessee gave a false or inaccurate damage disclosure statement or failed to disclose that the vehicle had previously been damaged and repaired or had been titled on a salvage, rebuilt, or flood certificate of title unless the person, recycler, or dealer knew or reasonably should have known that the prior owner or lessee gave a false or inaccurate damage disclosure statement or failed to disclose that the vehicle had been damaged and repaired or had been titled on a salvage, rebuilt, or flood certificate of title."  That's the general fraud law in Iowa anyways -- A person who commits fraud may, upon proper proof, be subject to liability to third persons, not just the original recipient of the fraudulent statement.

As I noted, vehicle fraud claims have become more potent since the enactment of Iowa's private consumer fraud law.  A violation of Iowa Code 321.69 is one of the deceptive practices that violate Iowa Code Chapter 714H.  That exposes anyone who commits vehicle fraud to a private consumer fraud claim, which could include treble damages, attorney fees, and expenses.

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