How to get out of a car deal

Cancelling a car sales contract, called recission, must be done quickly. Notify the seller by letter as soon as possible. If the seller refuses to return a deposit or trade-in make an application to VCAT.

This section describes some strategies for cancelling or withdrawing from a car sale contract. Remember, fortune favours the brave. Getting out of contracts can be a game of bluff.

Basic strategy

There are two main aims in getting out of a car sale contract:

  1. cancelling or withdrawing from the contract; and
  2. retrieving your deposit and any trade-in.

Cancelling or withdrawing from the contract

Legal cancellation of a contract is called rescission. In addition to rescission, you have the right to withdraw from the sale contract in certain circumstances (s 88B MCT Act). The procedure is set out in “Motor Car Traders Act ss 45, 88B”.

You must rescind or withdraw from the contract quickly. It has been decided in several contract rescission cases that where one party to a contract has an option to rescind, that party must do so within a reasonable time and cannot do so after doing anything to affirm the contract. To affirm the contract means to do something that shows you recognise that you are bound by the contract.

The rescission or withdrawal must be communicated to the seller. Essentially, this amounts to posting or personally delivering a letter to the seller rescinding or withdrawing from the contract as quickly as possible (see Sample letters) and returning the car to the seller if you have taken delivery of it.

Speed is essential, as it is strong evidence of an intention to rescind or withdraw. It also minimises the loss or damage that the seller may claim to have suffered. If the seller is a motor car trader, it is also a good idea to send a copy of the letter to Consumer Affairs Victoria (seeInformation and sample letters”, for contact details) and inform the trader of this. It can help to pressure the trader into rescinding or acknowledging withdrawal from the contract.

Retrieving the deposit or trade-in

If the contract is rescinded or withdrawn from, both you and the seller must be placed in the same position that you were in before the contract was entered into. The exception to this is when the cooling-off period under section 43 of the MCT Act is relied upon, in which case the trader retains:

  • in the case of a used car contract: $100 or 1% of the purchase price, whichever is greater; or
  • in the case of a new car contract: $400 or 2% of the purchase price, whichever is the greater.

The seller gets back the car sold to you. You get back the money paid, together with any trade-in (or, where the trader has already sold the trade-in, the equivalent monetary value of the trade-in). (For used cars, see s 41 MCT Act; reg 22 sch 3 MCT Regulations.)

If the trader disputes that the contract has been legally rescinded or withdrawn from and refuses to return the money and any trade-in, you will need to force the trader’s hand by applying to VCAT (or the Magistrates’ Court) for orders that the contract has been rescinded or withdrawn from and the deposit or trade-in, or both, be returned. A trader who disputes your getting out of the contract may sue you for damages in the Magistrates’ Court. If this seems likely, then it would be a good idea to make a “pre-emptive strike” and bring your own application in VCAT as outlined above (this is much cheaper than having to defend a Magistrates’ Court claim).

If the trader gets in first you can still apply to have the case transferred from the court to VCAT. If VCAT or the court does not agree that the contract has been rescinded or withdrawn from, then you have wrongfully broken the contract (seeWhat if the contract has not been cancelled or withdrawn from properly?”).