A reader recently asked:

I signed all the paperwork, but haven’t taken the car yet. Do I still have to buy it, or can I back out of the deal?

The short answer: It depends, but you can probably back out.

The longer answer: There’s a concept in contract law known as “consideration.” The basic idea is that two parties can only have a valid contract if something is exchanged. If you agree to buy a car, sign paperwork, etc. – but then never take possession of the car – you may be able to argue the contract was never actually executed.

While the law is different in every state, many states require consumers to take delivery of a vehicle before the contracts are considered valid. Be sure to speak with an attorney, your state’s dealer liscensing board, or your state’s consumer affairs board to be sure.

A lot of people assume that a signed buyer’s agreement and installment agreement is always enforceable. That merely the ‘promise to pay’ is consideration enough. While this may be true in law school, in the real world, it’s been my experience that possession is vital to making a deal “stick.”

In Colorado – where I worked – the state dealer licensing board instructed dealers that contracts were only valid if the consumer took the car off the lot. This instruction was based on actual court cases, where dealers tried to force customers to pay even when the customers didn’t take possession (and lost). I know this is also the case in many other states, just in my discussions with people working at dealerships around the USA over the years.

If You’ve Signed Paperwork and Want To Back Out…

  1. Did you take the car? Because if you did, than you need to read the fine print and look for language about your “right to rescind.” In most states, consumers can not rescind. If you take the car, you’re probably stuck unless the dealership can’t complete the deal at the agreed upon terms (eg, they can’t arrange financing for some reason).
  2. If you haven’t taken the car, contact the dealer board or consumer affairs board. In some states, there is a dealer licensing board. In other states, there is a consumer affairs board or bureau. Contact whatever organization(s) your state has and ask them for guidance. They are public servants, and odds are good they will be able to give you a definitive answer.
  3. If you talk to a lawyer, talk to someone with relevant experience. I can’t emphasize the following point enough – many lawyers wrongly assume they understand the intricacies of auto dealership contract law. The fact is, dealerships have been sued many, many times across the USA, and there are various legal precedents that can overrule the basic contract law that lawyers learn in school. If you ask a lawyer for advice (and this is always a good idea), it’s important to talk to someone that has relevant experience.

Once you’ve spoken to the state consumer affairs board and/or dealer licensing board and/or an attorney with relevant experience, you’ll know if you’re really stuck or not.

Finally, please note: I’m no lawyer. Any of the actions you take when you sign a contract and then change your mind can make you liable for damages. While it’s rare for a dealership to sue a customer for failing to take delivery of a car, it’s within the realm of possibility. Obviously, try not to sign a contract unless you’re 100% certain about the terms.

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