Car Dealer’s Misrepresentation Proves Costly

When a person misrepresents something being sold to the extent that what is being promised to the buyer is significantly different from what is delivered, the normal legal remedy is ‘rescission’, which is the term lawyers use for the cancellation of the contract such that each party to it is restored to the position they were in beforehand.



Rescission may be augmented by a claim for damages if a loss has been suffered by the party to whom the misrepresentation was made.



Where significant time has elapsed between the creation of the contract and discovery of the misrepresentation, the position becomes more complicated, as the item in question may have suffered a loss of value. Where a ‘reasonable time’ has elapsed, such that it would be inequitable in all the circumstances to grant rescission, the court may refuse to allow this.



A recent case involving the purchase of a luxury car illustrates the issues.



The car, a Cadillac, was bought ‘brand new’ from a car dealer in September 2007. The car had a number of faults and the purchaser attempted to return it and reclaim the purchase price a year later on the ground that the car was not of merchantable quality. The dealer declined to accept the car back and thus a dispute arose.



During the course of the dispute, it became evident that although the car had not had a previous registered owner, it was not in fact brand new and had suffered an accident before purchase which required substantial repairs. The purchaser then claimed that the dealer had misrepresented the condition of the car to him. This occurred in May 2011.



By this time the car had been in use by the buyer for more than three years and the County Court refused to consider rescinding the contract on the ground that neither party could be restored to their original position. The Court awarded the purchaser £250 for the defects which needed repair and £3,000 for the difference between the price he would have paid for the car had the misrepresentation not been made and the price he had actually paid for it.



The High Court overturned that decision, ruling that the car should be returned to the dealer and the purchase price refunded.



The dealer appealed to the Court of Appeal, which ruled that the mere fact that the car had depreciated in value was not a bar to rescission of the contract, as this could be taken into account when assessing the compensation due. Nor did the mere elapse of time prevent rescission, as the purchaser had only become aware of the misrepresentation as a result of commencing legal proceedings.