Who is Liable with Defective Unit

Vetting the buyer just as important as vetting seller.

Just to play devil’s advocate here.

I’ve heard of situations where buyers take the paypal protection route claiming that an item is not as described when they either

1) Don’t like the way it sounds

2) Broke something after it’s arrival

So does PP do any due diligence to investigate these claims in order to give the seller the benefit of the doubt? Or is it just an automatic refund to the buyer just based on information he provides? 

It’s not always just the buyer who needs to beware.

I'm in no way claiming that the OPs situation is anything like this. I'm just curious what the process is.

If unit was described as fully functional or no issues responsibility falls on seller, doesn't matter that it may have been fully functional when shipped. The responsibility for faulty equipment always falls of seller unless they can prove shipper negligence. Always pays off to read descriptions very carefully, failure to disclose any issues in ad means seller fully responsible since the buyer is paying for a fully working functional unit. In your case paypal dispute process will end in your favor as long as it wasn't friends and family transaction. People should be careful when using Paypal F&F, absolutely no protection for purchaser.

The damage could definitely have happened in transit, but good luck getting the transport provider to pony up. There needs to be physical evidence of damage to the product and/or the package. If not, they usually tell you to pound sand.

I think a reasonable solution would be for the seller to pay for half of the repair costs.

If the seller misrepresents the actual stated condition, the seller is liable.  However, enforcing this liability can be problematic.  The report of a faulty PCB might help your case.  Depending on the individual seller, this can be easy to difficult to rectify.  
 

This is the risk of buying used.  To reduce the risk, I look for positive reviews hoping that it will be consistent in my purchase.  Also, like @foggyus91 said, dealers have the incentive to not screw over the customer to avoid business damaging negative reviews.  

Hope it all works out. Why when even buying used I look for a dealer. They are more sensitive no negative feedback, they have more at risk than an individual seller.

I would say the seller is liable. Even if it worked fine when packed and shipped out, it apparently did not arrive in working condition. That means something likely went wrong during the trip, which no doubt subjected the device to more physical stress than it normally gets while sitting on an audio rack.

If I was the seller, I would make it right one way or another. Any reasonable seller should do the same. That may look different depending on what route you take (repair, replace, etc) but it should be on the seller to take care of the buyer.

If you can't work it out with them, I would start a paypal dispute sooner than later. You only have so much time for that process. 

I had what sounds like a similar problem with a preamp I bought used. My technician found that the pcb for the remote had come loose during shipping and just needed to be put back in place. Cost $100 and seller covered it.

US Audiomart, apparently has no standard that is enforced...sales are "as is"; however, the ad indicated full functionality.  Pay Pal is the likely enforcer, I guess.  I've bought & sold a number of items on the internet, and this is the first problem I've had with a seller...I've had product issues before, but sellers are generally more than willing to get the issue resolved equitably.    

What site did you purchase it on? Different sites have different rules. I would imagine that you could also contact PayPal and tell them that the DAC was not as described and they will reverse the payment.