In the summer of 2008, Gillian bought a 2006 model year car from a luxury automobile dealer for $36,000. At the time of her purchase, the odometer and title documentation both indicated that the car had 21,445 miles on it. But after just a little more than a year, the engine failed, and Gillian had to take the car to a mechanic. The problem was the water pump, which needed to be replaced. Surprised that a water pump should fail in a car with so few miles on it, the mechanic more closely examined the odometer and determined that someone had cleverly tampered with it. According to the mechanic, the car probably had about sixty thousand miles on it when Gillian bought it. At the time Gillian bought the car, the retail value for the same vehicle with sixty thousand miles on it was approximately $30,000. Gillian decided that under these conditions she no longer wanted the car. She contacted the dealership, which strenuously denied having tampered with the odometer. In fact, the dealership’s records reflect that it purchased Gillian’s car at auction for $34,000, after a thorough inspection that revealed no mechanical deficiencies or alteration of the car’s odometer.
Issue Is Gillian’s contract voidable by her?
Rule of Law Innocent misrepresentation renders a contract voidable. Innocent misrepresentation is proven when the following elements are established. (1) a false representation, (2) of fact, (3) that is material, (4) made without knowledge of its falsity but with due care, and (5) the representation is justifiably relied upon.
Application Gillian can prove all five elements of innocent misrepresentation. First, the dealership’s false representation was that the mileage on the car was 21,445, when the car actually had about sixty thousand miles on it. Second, the mileage of the car at the time of sale is an actual event not an opinion or prediction. Third, as the mileage of a used car is probably the most critical determinant of its value, this misrepresentation was material to the parties’ agreed sale price, inducing the formation of the contract. Indeed, while Gillian might still have purchased this car with sixty thousand miles on it, she most certainly would have done so only at a lower price. Fourth, it is highly unlikely that the dealership was aware of the incorrect odometer reading. We know this because it paid $34,000 for the car, which should have sold for something less than $30,000 in the wholesale market if the true mileage had been known. Moreover, the dealership appears to have conducted appropriate due diligence to support both its own purchase price and the price at which it offered the car to Gillian. The odometer tampering was cleverly concealed, so much so that neither the dealerships’ inspection before purchase nor Gillian’s mechanic’s initial inspection revealed it. Fifth, Gillian’s reliance on the ostensible odometer reading is justified. The car was only two years old when she bought it, and 21,445 miles is within an average range of mileage for a used car of that age. Unless the car’s physical condition or something in the title paperwork should have alerted her to an inconsistency between the stated mileage and the car’s actual mileage, Gillian was entitled to rely on what appeared to be a correct odometer reading.
Conclusion because all the elements of innocent misrepresentation can be shown, Gillian’s contract is voidable by Gillian.