Hi, I was hoping you could offer some advice for a dilemma I've come across; Here are my two main questions (and I'll describe the scenario it relates to below):
1) Can the 'check engine' light be triggered directly by high engine temperature? (ie is there a temperature sensor that would turn on the CEL due to engine overheating?)

2) If the engine is overheating due to lack of coolant, will the Engine Coolant Sensor pick that up, or will it not operate because there is, in fact, no coolant to measure the temperature of?

And here's my situation:
I was checking out an '89 240 DL when the owner mentioned that the temperature gauge seems to be broken- and sure enough, for the first ~10 min of idling the thing doesn't even budge. However, a minute or two before I put it into gear to start the test drive, temp gauge begins climbing; and by the time I'm a quarter mile out it's reached around 3/4 the way up. I turn the car around to head back and the temperature starts to fall a bit, but never below half way. Once we get back I check the coolant expansion tank (probably should've done that first) and lo and behold it's bone-dry. Engine Oil looks good (clear, no signs of sludge) so I head out to buy some coolant, fill up the expansion tank (takes about a gallon), and give it another test drive. This time the gauge responds quickly after ignition, and gently climbs to about a quarter of the way up where it stays for the remaining mile or two of the test drive.
So here's the dilemma- I really like this car (low mileage, single owner, engine seems to run great, practically rust free- really clean...) but I'm worried that the owner has been driving around with no coolant thinking that his temperature gauge is broken.

He says he's only driven it a few times since it was last serviced (6/2013) and the check engine light never came on since then- if that's true, would it imply that the engine temperature never got into the 'red'? (cause otherwise that would've triggered the CEL?) And if there is a temperature sensor that triggers the Check Engine Light, does it rely on coolant temperature and therefore wouldn't work in the situation of over-heating due to lack of coolant(hence my two 'main questions').

I love this car - manual , runs smoothly, looks almost mint condition... but the owner is charging accordingly (six grand), which would be a lot to pay for a warped engine block.

What are your thoughts on the matter? I'd appreciate the advice,
Joshua