CASE BRIEF
Clark v. McDaniel (1996) 546 N.W. 2d 590
Facts
Clarks bought a used car from Pierces. During the sale, Pieces indicated to Clarks that the
car was a 1989 model. Clarks later discovered that the front half of the car was a welded rear half
of a 1986 model. Pierces had bought the car from McDaniel. Clarks demanded return of the
purchase money but Pierces were not willing or able to do so. Clarks continued to use the car but
later traded it for a true 1989 model.
Procedural History
Clarks sued McDaniel and Pierces for fraudulent misrepresentation. The trial court ruled
that McDaniel was liable. The court however dismissed the claim against Pierces. McDaniel
appealed the decision of the trial court on the ground the court erred for finding that McDaniel
had falsely misrepresented the condition of the car, that a misrepresentation can be relied upon
by a third party to prove liability against the original seller and that Clarks had proved damages.
Clarks cross appealed on the amount of damages that the trial court awarded and on the dismissal
of the claim against Pierces.
Issues
1. Did McDaniel falsely misrepresent the condition of the car by failing to disclose that the
car was clipped?
2. Can a false misrepresentation be relied upon by a third party to prove liability against the
original seller?
3. Did Clarks discharge their burden to prove damages?
4. Did the trial court err in its computation of damages? 5. Did the trial court err in dismissing the claim against Pierces?
Holding
1. The court ruled that failure to disclose that the car was clipped amounted to a fraudulent
misrepresentation.
2. The court held that a third party can rely on false misrepresentation of the original seller to
prove liability against the original seller.
3. The court held that Clarks had adequately discharged the burden to prove damages against
McDaniel.
4. The court ruled that the trial court while using the correct legal principle erred in
computation of damages payable to Clarks.
5. The court agreed with the trial court on the dismissal of the claim against Pierces.
Reasoning
1. The court noted that McDaniel failed to disclose to the Pierces that the car had been
clipped. The agreement did not fully disclose the extent of the repairs made to the car. The
misstatement made Pierces to believe that the car had low mileage. The court reasoned that
McDaniel had a duty to disclose the fact that the car was clipped because the fact was material.
Misrepresentation need not be a positive statement but may also occur where material facts are
not disclosed. Subsequently, suppressing the truth about the condition of the car by Mcdaniel
amounted to a misrepresentation. The court quoted the cases of Kunkle Water & Elec., Inc. v.
City of Prescott, 347 N.W.2d 648, 653 (Iowa 1984 and Sinnard, 414 N.W.2d). 2. McDaniel argued that he could not be liable to Clarks for misrepresentation because
there was no direct contact between them. The misstatement was made to Pierces and not to
Clarks. Clarks counter argued that direct contact was not required, and the court agreed. The
court noted that a person may be liable to persons including third parties who justifiably rely on
misrepresentations made by the person. The person must expect or have reasonable expectation
that the misrepresentation will be communicated to third parties therefore influencing their
decisions. The court relied on Restatement section 533, Restatement section 552. Beeck v.
Kapalis 1981, Larsen v. United Fed. Sav. & Loan Ass'n 1981 and Ryan v. Kanne 1969. In
applying the law, the court reasoned that McDaniel had reasonable expectation that the
misrepresentation about the condition of the car would be communicated to and relied upon by
third parties in case of resale by Pierces. Subsequently, McDaniel was liable.
3. McDaniel argued that Clarks had not discharged their duty to prove damages. The
court decided that the duty had been discharged adequately. McDaniel on own testimony had
stated that a clipped car is worthy at least $2000 compared to one that is not clipped.
4. Clarks argued that the damages awarded by the trial court were not adequate. The court
referred to Restatement § 549 as quoted in Cornell, 408 N.W.2d to determine the position of law
on the issue. To determine the amount of damages for fraudulent misrepresentation, the law
requires the court to look at the difference between the value received and the value given in a
transaction. While applying the principle, the court found that the trial court had erroneously
used the wrong trade in value of $2900 instead of $2100. The court therefore increased the
amount of damages recoverable by $800 5. Clarks in the cross appeal for dismissal of the claim against Pierce requested the court
to order a rescission of the agreement between Clarks and Pierces on the ground that it defeated
the objects of the parties. The court noted that rescission is only available where damages are not
adequate and not as of right (Potter v. Oster, 1988). Clarks had a remedy at law in the form of
damages and therefore the remedy of rescission was not available in the circumstances.
Subsequently, the trial court correctly dismissed the action against Pierces.
Procedural consequences
The appeal court modified the judgment of the trial court by increasing the amount
recoverable from McDaniel by $800.

 

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