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.
There are two main aims in getting out of a car sale contract:
- cancelling or withdrawing from the contract; and
- retrieving your deposit and any trade-in.
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 below; see: "Motor Car Traders Act ss.45 & 88B", under "How to get out of a contract".
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: Appendices A, B, C and D, at the end of this chapter) 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 (see: "Further assistance" for contact details) and inform the trader of this. It can help to pressure the trader into rescinding or acknowledging withdrawal from the contract.
If the contract is rescinded or withdrawn from, both you and the seller must be placed in the same position that you were in before the contract was entered into.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 (see: "What if the contract has not been cancelled or withdrawn from properly?", below).
There are a number of grounds on which the contract can be legally cancelled or withdrawn from. One or more may be applicable to your situation.
Section 43 of the MCT Act provides for a cooling-off period for the purchase of a used car from a motor car trader. On 1 December 2008, unless proclaimed earlier, section 43 will also apply to new car sales.
This cooling-off period also applies to an "off-trade-premises sales agreement" for a new or used car. Off-trade-premises sales agreement means an agreement that is made in the presence of the purchaser and the trader (or a person acting on either party's behalf) at a private residence or the purchaser's workplace, unless the agreement was made at either of these premises at the purchaser's request. Note that "private residence" does not include a private residence that is also the trader's business premises.
A purchaser can cancel the contract within three clear days after signing it, unless:
- the purchaser is a motor car trader or body corporate;
- the purchaser immediately before accepting delivery has signed the prescribed form acknowledging that the right to terminate the agreement within the cooling-off period no longer applies;
- the car is a commercial vehicle; or
- the car was purchased at public auction.
Note: The trader cannot sell any trade-in vehicle during this three-day period (penalty 50 pu: s.43(3) MCT Act ). If you suffer loss as a result of the trader's selling the trade-in during the cooling-off period you can make a claim to the Motor Car Traders' Guarantee Fund (see above) for compensation for this loss (s.76).
You must, within the three days, give or serve on the motor car trader, or an agent, notice in writing, stating that you terminate the sale contract (see: Appendix A, at the end of this chapter).
Three clear days means three whole days, not including the day the contract was signed, and not including weekends or days that are wholly or partly observed as public holidays throughout Victoria. For example, if you signed the contract on Thursday, there would be all day Friday, Monday and until the close of business on Tuesday in which to serve notice on the trader.
Posting the notice is risky due to the limited amount of time. It is best to personally hand the notice to the trader or an employee at the car yard. If possible, take along a friend to act as a witness.
As there is a penalty involved in cancelling under section 43 (the trader retains a small proportion of the purchase price), you should consider whether any other grounds for rescission exist. If they do, you should state in the rescission letter that the cooling-off period has been relied upon as well as specifying other grounds. This will show the trader that you are aware of the right to cancel, and negotiation in this situation is likely to lead to cancellation without penalty.
If the attempt to rescind on other grounds is unsuccessful, you can then rely on the cooling-off period (see: note 6 in Appendix B, at the end of this chapter).
The MCT Act allows a purchaser, immediately before accepting delivery, to sign a prescribed form acknowledging that the right to terminate the agreement no longer applies (reg.10 MCT Regulations). The trader must give you a copy of the form, and retain the form for at least seven years (penalty 50 pu: ss.83A & 83C; reg.26).
This form is unlikely to be valid if you did not sign it immediately before accepting delivery. For example, if you signed the form and the contract at the same time, the form would probably be invalid unless you then drove the car away from the yard.
Accepting delivery does not necessarily involve actual delivery of the goods: for example, the collection of keys may be sufficient.
If you believe that the form is invalid, or that you were tricked or misled into signing it, you may terminate the agreement within the three days, and sue the trader for return of the deposit or trade-in (or both) in court or VCAT. The court or VCAT will then have to make a decision regarding the validity of the form, and whether you had the right to rescind.
After the sale contract has been terminated under section 43, the trader must:
- where it is a sale of a used car, pay you all money received under the contract, less $100 or 1% of the purchase price, whichever is greater (this is the penalty referred to above);
- where it is a sale of a new car, pay you all money received under the contract, less $400 or 2% of the purchase price, whichever is greater; and
- return any trade-in to you.
If the trader arranged finance, or referred you to a lender:
- any finance contract which was entered into for purchase of the car; and
- any security interest the lender has in the car that relates to such finance,
If you have already taken delivery of the car, you must return the car to the trader. If, due to a defect beyond your control, the car is unroadworthy or cannot be driven, you must let the trader collect or arrange for collection of the car. You will be liable for any damage (other than fair wear and tear) which occurred to the car while it was in your possession.
Section 45 of the MCT Act allows a purchaser to apply for an order for rescission of the sale contract where:
- a false representation has been made in relation to an odometer reading of the motor car;
- the contract does not contain the prescribed particulars, terms and conditions; or
- a used car is substantially different from the description in the prescribed notice required by section 52(1).
Section 88B allows a purchaser to withdraw from the sale contract where the car is still in the possession of the purchaser or the motor car trader and:
- the contract does not comply with section 37, which prohibits car traders from dealing with young people;
- the contract does not comply with section 41 (used car) or section 42 (new car): these sections provide that the sale contract must contain the prescribed particulars and that a copy of the contract be supplied to the purchaser at the time of sale; or
- the motor car trader has committed an offence under section 38 in relation to the car: this section prohibits odometer tampering and falsely representing the accuracy of an odometer reading of the car.
You can apply under section 45 of the MCT Act to the Magistrates' Court or VCAT for an order to rescind the contract if the cash price of the vehicle does not exceed $40,000. If the cash price of the vehicle is greater than $40,000, you must apply to the Magistrates' Court.
The application to the court or VCAT must be made within three months of the date the contract was signed. However, once you have notified the trader of the non-compliance within this period, the three-month period no longer applies. You have only one month from the date of notification in which to make the application. The Act makes no provision for the court or VCAT to extend these time periods.
The rescission letter notifying the trader of the non-compliance should set out how the trader has breached the Act (see: Appendix C, at the end of the chapter). You may also want to point out to the trader that by failing to comply with section 41 (used car) or section 42 (new car), an offence has been committed against the MCT Act.
To withdraw from the agreement, you must give the trader, or an employee or agent, a written notice (see: Appendix D, at the end of the chapter) stating that you are exercising the right conferred on you by section 88B of the MCT Act and briefly giving the reason for the withdrawal (s.88B(3)). This can only be done within three months of the date the contract was signed (s.88B(2)).
Upon withdrawal from the contract, the parties must do everything possible to restore themselves to the position they were in before they entered the contract (s.88B(4)). In particular, the trader must refund any money you paid (penalty 50 pu: s.88B(5)).
Note: Section 88B does not give you the right to apply to a court or VCAT to seek a declaration that a contract has been validly withdrawn from. The trader may contest the validity of the withdrawal and sue you for damages. If the trader refuses to accept your withdrawal from the contract, you should consider taking action first (therefore avoiding the cost and trouble of having to defend any court action by the trader) by bringing the dispute before VCAT under the Fair Trading Act 1999 (Vic) ("FTA").
A significant difference between applying to court or to VCAT for an order for rescission under section 45, and withdrawing from the sale contract under section 88B, is that the latter does not of itself affect any finance contract you may have signed to finance the purchase.
In a section 45 rescission application, the court or VCAT has the power to make further or consequential orders in relation to any collateral credit agreement. This is a finance contract arranged by the trader for the sale of the car (s.3). Therefore, if a court or VCAT upholds the rescission of a car sale contract, it may also make an order for the termination of any collateral credit agreement (s.47(2)).
However, withdrawal from the sale contract under section 88B, which has the benefit of being a low-cost option as it does not require application to a court or VCAT, also has its drawbacks. You may still have an obligation to repay money lent under the finance contract (unless you can rely on section 21 of the National Credit Code ("NCC") (which is Schedule 1 to the new National Consumer Credit Protection Act 2009 (Cth)) to terminate the finance contract because credit has not been provided yet).
Any default by you under the finance contract may leave you exposed to legal proceedings by the lender. If this occurs, you may be able to argue in your defence that as the sale contract was withdrawn from under section 88B, your obligations under the sale contract have been consequentially "discharged" under section 135 of the NCC. Section 135 allows the purchaser to rescind a finance contract if the sale contract has been rescinded or discharged, where the trader referred the purchaser to the lender (and had an arrangement with this lender to regularly refer potential purchasers). There may, however, be an issue as to whether a withdrawal from the sale agreement amounts to "discharge" for the purposes of section 135.
Finance contracts are considered further below; see: "Using the National Credit Code".
Section 38 prohibits odometer tampering (penalty 240 pu or two years jail (or both) for a person, or 1,000 pu for a body corporate) and falsely representing the accuracy of a car's odometer reading when selling the car (penalty 100 pu for a person or 500 pu for a body corporate).
If the trader has committed an offence under section 38, you can withdraw from the contract (s.88B). You can rescind the contract on the basis that a false representation has been made in relation to an odometer reading of the car (s.45). If you suffer loss as a result of a motor car trader's failure to comply with section 38, you can make a claim to the Motor Car Traders' Guarantee Fund (see above) for compensation for the loss (s.76). This claim cannot be made, however, until any section 45 rescission application has been heard and determined (s.45(5)). (See: "Rescission" and "Withdrawal" under "Motor Car Traders Act ss.45 & 88B", above, for information about rescinding the contract under section 45 and withdrawing from it under section 88B.)
You can rescind a sale contract if it does not contain the prescribed particulars (s.45). You can also withdraw from the contract if it does not comply with section 41 (used cars) or section 42 (new cars) (s.88B). (See: "Rescission" and "Withdrawal" under "Motor Car Traders Act ss.45 & 88B", above, for information about rescinding the contract under section 45 or withdrawing from it under section 88B.)
A contract for the purchase of a new car (where the seller is not a lender and the purchaser is not a motor car trader or special trader) must contain the following particulars (s.42 MCT Act; reg.22 & Sch.4 MCT Regulations):
- the name of the motor car trader or of the employee of the trader who negotiated the deal;
- a description of the car;
- the engine number of the car (if known);
- the price and other charges to be paid;
- the time and manner in which these payments are to be made;
- the value allowed for trade-in (if applicable); and
- the licence number of the trader.
The trader must also give you a copy of the contract at the time of the sale. A motor car trader is guilty of an offence and can be fined a penalty of 20 pu for failure to comply with section 42 (s.42(2)). (Note, too, that under sections 83A and 83C a penalty of 50 pu applies if the trader does not give you a copy of the sale contract and retain the contract for at least seven years.)
A contract for the purchase of a used car (where the seller is not a lender and the purchaser is not a motor car trader or special trader) must contain the following particulars (s.41 MCT Act; reg.22 & Sch.3 MCT Regulations):
- the name of the motor car trader or of the employee of the trader who negotiated the deal;
- a description of the car;
- if registered, the registration number of the car;
- if not registered, the car's engine number, chassis number, VIN, or last assigned registration number or, if none of these is reasonably ascertainable, any other number identifying the car;
- the price and other charges to be paid;
- the time and manner in which these payments are to be made;
- the value allowed for trade-in (if applicable);
- the distance travelled by the car as recorded on the odometer and whether the trader believes this is true; and
- the licence number of the trader.
It must also contain specified terms and conditions. These are also set out in Schedule 3 of the MCT Regulations. If a standard form contract is used these are likely to be included, but you should carefully check the contract, as the trader often fails to properly complete the contract and one or more of the prescribed particulars may be wrong or missing.
The trader must also give you a copy of the contract at the time of the sale. A motor car trader is guilty of an offence and can be fined a penalty of 20 pu for failure to comply with section 41 (s.41(2)). (Note, too, that under sections 83A and 83C a penalty of 50 pu applies if the trader does not give you a copy of the sale contract and retain the contract for at least seven years.)
A used car (not a commercial, veteran, vintage or classic and historic car) that is offered for sale by a motor car trader must have a notice in the prescribed form (see: reg.11 MCT Regulations) attached to it containing:
- the name and business address of the owner of the car (usually the trader);
- if the owner is:
- a trader – the name and business address of the trader; or
- not a trader – a statement that the owner's name and address is available on request. A trader must provide that information, if known, to a prospective purchaser upon request (s.53);
- the distance shown on the odometer when the trader acquired the car;
- the cash price of the car (unless it is to be sold at auction);
- the year of first registration of the car;
- the model designation (if any) of the car;
- the registration number (if any) of the car;
- the engine number or the serial number on the registration label of the car;
- the built date (if it appears) and the compliance date of the car; and
- the signature of the trader and the trader's licence number.
Upon sale, the trader must get the purchaser to sign a copy of the notice and must retain the copy (penalty 10 pu: s.52(6)). The notice must not contain a false or misleading statement or representation (penalty 10 pu: s.52 MCT Act.)
Section 45 of the MCT Act lets you rescind the contract if the car is substantially different from the car described in the notice.
The difficulty here is in getting a copy of the notice if you do not have one. While you may be sure that there was a discrepancy, the trader may have "lost" this notice (however, note that the trader is subject to a penalty of 50 pu for failing to either retain the notice for at least seven years or give a copy of the notice to you as soon as possible after the sale: ss.83A & 83C, regs.29 & 30).
You may have to consider whether it is worthwhile taking action in a court or VCAT, and obtaining a copy of the notice through legal processes to discover the document. (See: "Rescission" under "Motor Car Traders Act ss.45 & 88B", above for information about rescinding the contract under section 45).
Section 37 provides that a motor car trader must not knowingly buy or take in exchange from, sell or give to or receive possession of a used car from a person apparently under the age of 18.
You may withdraw from a sale contract if the contract does not comply with section 37 (s.88B MCT Act).
A contract is subject to a condition precedent when the seller and the purchaser agree that the contract does not come into being until a certain event has occurred. This condition must therefore be fulfilled before any contractual obligation comes into operation.
These conditions may be found written into the sale contract, usually on its front page. The conditions usually include the words "subject to". However, it is not fatal to your cause if the condition is verbal and is not written on the actual contract. You should still put the argument to the trader that the contract is subject to a condition precedent; however, as it will be one party's word against the other, you will face the difficult task of proving that the trader made the statement agreeing to the condition.
The most common condition precedent is that the "agreement is subject to and conditional upon the purchaser obtaining finance on or before the delivery date", or wording to a similar effect.
If the contract is subject to finance and you cannot get finance after making reasonable efforts to do so, the deal can be called off (for used cars, see: s.41 MCT Act; reg.22 MCT Regulations). You must have at least made an application for finance and been refused. A refusal (preferably written) may often be obtained by your simply being honest with the lender and negotiating with the lender over the telephone.
However, care must be taken with the wording of the condition precedent. Stating that the contract is "subject to finance" does not mean that it is subject to finance on the terms, and at the interest rate, the purchaser chooses. The car yard may arrange finance at a high interest rate. If you have specified "bank finance" or something similar, you can't be forced to take the car yard's finance, which is often very expensive.
Under the NCC, if:
- you make it known to a trader that you need finance;
- the finance is not being provided by the trader; and
- you make reasonable attempts to obtain finance on reasonable terms, but can't do so,
then you are entitled to terminate the sale contract (s.134).
Note: the NCC only applies if the finance contract would have been a "provision of credit" that is regulated by the NCC. Finance contracts are dealt with in more detail below; see: "Using the National Credit Code").
Other common conditions precedent are clauses in the contract stating that the contract is subject to:
- a satisfactory check by a mechanic of your choice, or a test drive;
- an RACV or VACC check; or
- parental or spouse's approval.
If you deposit money or valuables with a trader prior to a test drive or mechanical test and subsequently return the car and do not enter into a contract to buy it, the trader must return the money or valuables immediately (penalty 10 pu: reg.21(1) MCT Regulations).
Regulation 21(2) has identical conditions for a conditional contract to buy a car where you subsequently decide not to continue with the contract.
Even though a contract may not say that a seller must guarantee the quality of the car being sold, guarantees of quality are nevertheless included in the contract. These guarantees are sometimes called "implied conditions and warranties of quality". Breaches of these guarantees can help you in any battle with a car trader.
These guarantees should not be confused with the statutory warranty for used cars required by section 54 of MCT Act .(The section 54 statutory warranty gives you the right, in certain circumstances, to require the trader to repair a used car, but it does not give you any right to rescind the contract.)
Implied conditions and warranties of quality can be found in Chapter 3 of the Australian Consumer Law ("ACL") which is Schedule 2 of the Competition and Consumer Act 2010.
Chapter 3 applies to:
- goods that are ordinarily acquired for personal, domestic or household use; or
- other goods that cost $40,000 or less; or
- the purchase of any vehicle or trailer to be used principally for the transport of goods on public roads (s.3).
Section 54 of the ACL implies into a contract a condition that the goods are of acceptable quality. Goods are of acceptable quality if they are:
- fit for the purpose for which they are commonly bought;
- acceptable in appearance and finish;
- free from defects;
- safe; and
as a reasonable purchaser fully acquainted with the condition of the goods would regard as acceptable having regard to the nature of the goods, their price and terms of sale.
Section 55 of the ACL creates a guarantee that the goods are reasonably fit for a particular purpose which is:
- made known by the purchaser to the seller, the seller's agent or the manufacturer; and
- for which the seller represents they are fit.
The clear intention and effect of these two sections is to require goods to be of sufficient quality.
There is no exact definition of "sufficient quality" in relation to a car. If you are relying on lack of quality, you should get an RACV, VACC or independent mechanic's check to establish this, as soon as possible. This will not conclusively prove that the car is of insufficient quality, but it may be used as evidence.
A breach of a guarantee allows the purchaser to take action where the seller sells the car as part of a business activity. The remedy for the breach depends upon whether the failure to comply with the guarantee is a “major failure”. A major failure can allow the purchaser to reject the car in some cases (s.259ACL). However the purchaser will lose the right to reject the car if they do not act within a reasonable time or do something to the car so that it cannot be returned in substantially the same state as when it was sold.
For further information on these issues, see: Chapter 12*2 Consumer Guarantees.
If a seller makes a statement to you about some existing or past fact concerning the car, and the statement both induces you to enter the contract and is untrue, the statement is called a misrepresentation. If a misrepresentation has been made, you can rescind the contract within a reasonable time after accepting the goods, or claim damages.
A common misrepresentation is where a purchaser is persuaded to sign an agreement and lodge a deposit on the basis that the contract is not a binding agreement but only a way of holding the car. Other misrepresentations may relate to the quality of the car, such as this is "an original" or "a single-owner car".
Where there is a misrepresentation, regardless of whether or not it was fraudulent, you can rescind the sale by giving notice to the seller before accepting the goods or within a reasonable time after acceptance (s.32OA FTA). Section 32P of the FTA provides that where the purchaser rescinds a sale under section 32OA, the purchaser must return the goods to the seller. The seller must return the money paid by the purchaser. The purchaser is liable for any damage caused to the car by wilful or negligent action.
Acceptance of the goods does not necessarily end your right to rescind, but speed is of the essence. If you do not rescind the contract within a reasonable time of discovering the misrepresentation, you may be taken to have chosen to continue the contract (s.32PA FTA).
A seller is liable for the representations and warranties of their agents and representatives (s.32Q).
Section 84A of the MCT Act prohibits a person from giving information or making a statement that is false or misleading in relation to any document required by the Act, by either including false or misleading matter or omitting material matter (penalty 50 pu).
If you are claiming that the seller has made a misrepresentation, it may also be possible to claim that the seller has breached the ACL.
The ACL defines and prohibits:
- misleading or deceptive conduct (ss.18 & 19);
- false representations (s. 29);
- unconscionable conduct (ss.20-22);
- unfair terms (ss.23-28); and
- misleading conduct in relation to the nature, manufacturing process, characteristics, suitability for their purpose or quantity of goods (s.32).
A claim about a breach of the ACL can be made to VCAT under the FTA. Sections 103 to 106 deal with conciliation of, and instituting or defending proceedings in relation to, disputes about the supply of goods, by Consumer Affairs Victoria. Sections 107 to 113 deal with the determination of fair trading disputes by VCAT in relation to a supply of goods. Sections 108 and 109 set out VCAT's powers, which include making orders to pay money to the purchaser, or to cancel or vary a contract.
Section 158 sets out the orders a court may make in proceedings for contravention of the Act to compensate for loss or damage suffered. These include orders to pay money to the purchaser or to declare void or vary a contract or collateral agreement (such as a finance contract). Section 159 allows purchasers to bring proceedings in a court or VCAT for loss or damage caused by a breach of the Act. Section 160 gives a court the additional power to award compensation for humiliation or distress suffered as a result of conduct constituting an offence against the Act.
For further information on these issues, see: Chapter 12*3 Consumer Protection Legislation.
If Party A by their conduct:
- leads Party B to believe that the rights arising under the contract will not be strictly insisted upon; and
- intends that Party B should act on that belief,
and Party B acts on the belief, then Party A will not afterwards be allowed to insist on the strict legal rights under the contract, when it would be unfair to do so. Party A has "waived" their rights and is "estopped" from asserting them.
A waiver of strict rights may lead to a motor car trader losing their rights to insist that you are bound by the contract.
In a car sale dispute with a motor car trader, there are often oral waivers of rights under the original contract. A common example is that the purchaser is allowed to exchange the car in dispute for another car. Other representations at or soon after the signing of the agreement (for example, that the contract is not binding, or that you can get your money back if dissatisfied) may constitute a waiver. In these cases, you could argue that the trader has waived the right to enforce the agreement and that the agreement is therefore at an end.
Proving an oral waiver can be difficult. Even if the waiver is proved, the trader may be able to enforce the contract subject to the waiver (i.e. the waiver may only have the effect of amending the contract, not cancelling it).
A contract is not made until the purchaser receives notice of the acceptance by the seller of the offer to purchase. The purchaser can withdraw this offer at any time before notice is given. You should act quickly; for instance, by withdrawing the offer by fax (see: "Offer and acceptance", in Chapter 12*1 The Law of Contract).
If the time for delivery of a new car is an essential term of the sale contract (i.e. a condition of the contract rather than a contractual warranty) and the motor car trader fails to deliver the car as specified in the contract, then you may be able to rescind the contract.
Your right to rescind will be easier to assert if the contract specifically states that time is of the essence (see: ss.15 & 16 of the Goods Act 1958 (Vic) ("Goods Act")), or that the contract may be terminated for failure to comply with the conditions as to delivery.
Where delivery of a used car by a motor car trader is delayed by more than 14 days after the delivery date stated in the contract, you may terminate the contract by notifying the trader in writing.
The contract cannot be terminated if you caused the delay (s.41 MCT Act; reg.22(1) & Sch.3 MCT Regulations).
Usually, purchasers enter into a number of contracts. A common transaction will involve a car sale contract between a purchaser and a car trader, a separate finance contract between the purchaser and a lender and a mortgage over the car purchased, to protect the lender's interest.
The National Credit Code ("NCC") will probably apply to a car finance contract and to any related insurance contracts, mortgages and guarantees taken out at the same time. For information on whether a finance contract is regulated by the NCC, see: Chapter 13 Credit and Finance.
If you arrange your own finance, the NCC will apply only to the finance contract between you and the lender and will not affect the sale contract, except under section 134 (see: "Subject to finance", above) and section 21 of the NCC.
- any credit has been obtained under the contract; or
- a card or other means of obtaining credit provided to the debtor by the credit provider has been used to acquire goods or services for which credit is to be advanced under the contract.
Fees or charges incurred before the termination may be payable, however.
If a trader arranged the finance or introduced you to the lender, you may have remedies under the NCC in respect of the sale contract and the finance contract.
The linked credit provisions of the NCC (ss.125–141) enable a purchaser, in certain circumstances, to obtain damages from both the car trader and a linked credit provider of the trader for loss or damage caused by misrepresentation, breach of contract or failure of consideration in relation to the sale contract. This means that you may be able to take action against both the trader and the lender and use the liability of the trader as a defence to proceedings brought by the lender.
A linked credit provider of a trader is defined in section 127 of the NCC. A lender is a linked credit provider if:
- the trader has a trade contract, arrangement or understanding with the lender to finance the supply of goods or services to the trader;
- the trader, by arrangement, regularly refers people to the lender to obtain finance;
- the trader, by arrangement, has the lender's contracts, loan applications or offer forms available to purchasers; or
- by arrangement, loan documents are signed at the trader's premises.
However, the credit provider may not be liable in certain circumstances (see: s.129(2)).
If the trader arranged the finance or referred you to the lender (as part of an arrangement between the trader and the lender), and you rescind or discharge your obligations under the sale contract, you can also rescind the finance contract. Any mortgage or guarantee related to the finance contract will be terminated too (s.135).
You should seek advice from a solicitor with knowledge of the NCC before making applications of this kind. It may be difficult to establish that a lender is a linked credit provider, although if this is a possibility you should always assert it.
Linked credit provisions are also contained in the TPA (ss.73, 73A & 73B). These provisions are similar to the linked credit provisions of the NCC.
If a sale contract is cancelled during the cooling off period under section 43 of the MCT Act , any finance contract related to the car contract will not automatically be terminated (ss.43(6) & 43A). However, upon cancellation the seller will be obliged to return to a lender any money received pursuant to a credit contract (s.43(4); see: "Cooling-off period" under "How to get out of the contract", above). You should contact the lender directly to ensure that the refund has been paid to the credit account and ask whether any further payments are needed to terminate the credit contract (you may be liable to pay any fees or charges which have already been incurred under the credit contract).
Other useful provisions are sections 39 and 40 of the Consumer Credit (Victoria) Act 1995 (Vic). These provide that a finance contract and any mortgage in relation to that contract are unenforceable if the annual percentage rate of the contract exceeds 48%. In this case, you may be able to keep the car but not have to make payments on the finance contract. If the annual percentage rate exceeds 30%, the mortgage will be void.
You may also be able to recover civil penalties if the finance contract breaches the NCC, for example, for not being in writing (s.14) or for improperly disclosing required information (s.17). You could also apply to VCAT to have the finance contract re-opened if it is unjust (s.76).
For further information on finance contracts and consumer credit legislation, see: Chapter 13 Credit and Finance.
If the contract has not been legally rescinded or withdrawn from, you may have wrongfully broken the contract. The effect of breaking the contract will depend on whether or not you have already taken delivery of the car.
If you refuse to take delivery and you are subsequently found to have breached the contract, you will be liable to pay damages to the seller. "Damages" basically means the loss that the seller has suffered because the sale has not been completed.
The seller must always attempt to minimise their loss. This requires the seller to use their best endeavours to sell the car to someone else.
You, however, are liable to compensate the seller for "the estimated loss directly and naturally resulting in the ordinary course of events" from the breach (s.56(2) Goods Act).
The seller must prove this "loss" and does this by proving the non-recoverable loss of profit which resulted from the fact that the purchaser wrongfully broke the contract (Kargotich v Mustica (1973) WAR 167 and W & J Investments Ltd v Bunting (1984) NSWLR 331. See these cases for the method of assessing damages).
When dealing with difficult sellers, it is important to assert that you will only be liable for nominal damages under section 56(2) of the Goods Act, as it may encourage the seller not to dispute your getting out of the contract.
As mentioned, if you have already taken delivery of a car and you want to rescind or withdraw from the contract, you need to return the car and seek either a refund of money already paid to the seller or termination of a credit contract that financed the purchase.
If you are in this situation, you may be tempted to cease payments in respect of a related credit contract; however, you should maintain credit contract payments until either the seller accepts the termination of the sale contract or an order is obtained from a court or VCAT. If you stop making payments and you are found not to have properly rescinded or withdrawn from the contract, you will be in default of the credit contract.
HOW TO GET OUT OF A CAR DEAL :: Last updated: Thu Jul 1st 2010