Can car salesman lie about the cars?

The other day, I went to look at a used car at a dealership and, at the time, asked him if there were any engine problems (oil leaks, transmission, etc.) and he immediately told me there was nothing wrong with it. After our test drive, I noticed a light smell of burning oil and proceeded to inspect the engine for myself. I found a large patch of thick oil residue on the engine and saw an oil spot where the car was originally parked. I told the guy and proceeded right off the lot. Today, I had a friend call the exact same salesman and ask him about the car and again the salesman said there was nothing wrong with the engine (bull.) Can they really just lie to people about this stuff? What if some poor person walked in and trusted the guy and bought a lemon?