Legal Question in Product Liability in Michigan

If the purchase/sale occurred in Indiana, then that is the law that applies. In Michigan, generally a contract is final when the money exchanges hands. In Michigan, you would be considered to have purchased the bike "as is" from the second you drove off. However, if you can demonstrate the seller knew the bike was about to break down and hid a material fact from you, then you may be able to void the contract. Generally, buy "as is" is just that: you get what you walk away from. You were fully entitled to have it examined by a mechanic or ask any relevant questions before entering into a contract. Simply because he did not mention he rebuilt the trans himself does not mean he acted wrongfully or withheld a material fact from you.

If this went to Court, a Judge would likely want the parties to be in the position they were before the contract: you with your money and the seller with his bike. However, since the bike is perhaps worth less than it was when you drove off, the Judge would have to determine whose fault the decline in value was. Honestly, if I was the Judge, I'd tell the seller to keep the $400 and the bike - like you said. That was more than a fair offer, and let's everyone move on with the important things in life.

Put all communications/offers to the seller in writing for your protection.

Good luck.