Let’s face it. Disclosing prior damage to a vehicle in a dealer’s inventory is a nightmare. Under Kentucky law, and in its simplest terms, the seller of a motor vehicle, be it an individual or dealer, is required to disclose all damage to the vehicle of which the seller has direct knowledge that result in repairs in excess of $2000.00. This duty applies to all repairs except for wheels, tires and glass that occur while it is in the seller’s possession and prior to delivery to the buyer. The disclosure has to be in writing, signed by the buyer. KRS 186A.540. As most readers know, the legislature upped the amount of damage to $2000 in the 2017 legislative session.
So how does this statute square with an As-Is clause in a contract. In Evans v. JNT, Inc. 2015 WL 4967254 the Kentucky Court of Appeals dealt with a case that involved the damage disclosure statute and the As-Is clause in a contract. Almost every lawsuit that I have seen filed against a dealership made the following claims: 1) breach of contract;2) intentional misrepresentation; 3) negligent misrepresentation; 4) breach of express and implied warranties’ and of course, violation of the Kentucky Consumer Protection Act and failure to disclose prior damage. These claims are cookie cutter for consumer attorneys and quite frankly, are a handful to defend.
The Evans decision chalked one up for the good guys. At least partially. In short, Evans found that an As-Is clause protects the seller from claims involving express or implied warranties, breach of contract and negligent representation. It didn’t protect the seller from intentional misrepresentation or KCPA claims, however. Additionally, the court held that KRS 186A.540 creates an affirmative duty on the seller to disclose all damage of which it has direct knowledge including cumulative damage and warranty repairs regardless of whether or not the repairs were billed to the seller.
The use of of AS-IS clauses in a sales contract is an absolute must for a dealership to use. As you can see, it insulates the dealership from many claims but it will not help avoid fraud claims. It puts more of a burden on the buyer to prove fraud, but it doesn’t prevent them.
So what does all this mean? Practically speaking, disclose damage, use AS-IS clauses and never use the words “perfect condition” when describing a vehicle. “As far as I know” are the buzz words to use.