Buying a Used Car

What Is A Sale Or Purchase?

A sale or a purchase is a contract. Four elements are essential for a sale or purchase to be legally enforceable:

  1. There must be mutual assent resulting from an offer and an acceptance, that is, a meeting of the minds between buyer and seller.
  2. Both buyer and seller must be legally competent to enter into a contract, e.g. 18 or older and of sound mind.
  3. There must be consideration, or something of value, given by both parties.
  4. The subject of the sale must be legal, e.g., the seller has a valid title to the car.

Negotiating Terms of Sale

  1. Inspection: If the buyer is not an expert mechanic, thought should be given to having a mechanic evaluate the condition of the car being purchased. An inspection is especially important in an “as is” purchase because the buyer will be stuck with the car, even if there are problems which are not visible or otherwise apparent. It is possible that a qualified mechanic may discover some or all of such latent problems. The seller in an “as is” situation should urge the buyer to have the car inspected. Because there is a duty to disclose known defects, an inspection can help protect the seller from a claim by the buyer that there was knowledge of such defects.
  2. Making The Offer: There should be a clear understanding of whether the car is being sold “as is” or with implied warranties and, perhaps, express warranties. If a sale is intended to be “as is” the contract should state expressly that the sale is on an “as is” basis and should include a disclaimer of all warranties, express or implied. If the sale is not an “as is” sale, certain implied warranties and all express warranties given by the seller apply. An offer should state clearly the price to be paid, a description of the car (including (model, year, condition, etc.) and how payment, delivery, and acceptance are to be made. The seller should be careful not to make any statement in the offer which is not intended to become part of the sales agreement.
  3. Accepting The Offer: An offer is not accepted until all of its material terms are accepted in the manner required by the offer (e.g. “in writing”, “within 24 hours by telephone”). A buyer for example, who states that the offer is accepted “except that new tires must be provided,” has not accepted the offer. Rather, a counteroffer has been made by the buyer which can only become a contract if the seller accepts it. A buyer who is lucky enough to be the first to accept an offer which others are considering must realize that an acceptance with conditions may leave the door open for another to accept the offer.
  4. Warranties: The seller is allowed to “puff up” the car being sold through complimentary exaggeration and buildup of its good qualities. Therefore, the buyer should make reasonable inquiries as to the specific good and bad points about the car. By requiring the seller to deal with the specifics of a car, the buyer gains a measure of protection through pushing the seller into making warranties. Specific claims, either oral or written, are enforceable by the buyer as express warranties. Statements made in a newspaper ad such as “excellent mechanical condition” can bind the seller to an express warranty. In addition, the law implies certain other warranties. The buyer has a right to assume that the car being purchased is of merchantable quality, is reasonably fit for the purpose for which it is being sold, and that the title passed by the seller is legally transferable and gives the buyer the exclusive right to possession of the car, free from liens and other claims.  However, if the seller urges the buyer to have the car inspected and the buyer refuses, there will be no implied warranty with regard to defects which a reasonable inspection would have revealed.

Disclosures Required by Law
Under North Carolina law, when the seller of a motor vehicle up to five model years old knows or reasonably should know that the vehicle has been involved in a collision or other damaging occurrence as a result of which the cost of repair has exceeded 25% of the vehicle’s fair market value, the seller must disclose this fact to the buyer in writing. The seller must also disclose in writing whether a vehicle, which is up to five model years old, is or was a flood, reconstructed, or salvaged vehicle. The seller’s failure to provide the buyer with the required disclosures is a misdemeanor, punishable in criminal court. In addition, a seller who intends to defraud the buyer by failing to provide these disclosures can be sued by the buyer in civil court for treble damages and attorney’s fees.

Written Contract
It is always a good idea to state the terms of the sales agreement in writing by means of a written contract, especially if the seller has made any statements about the condition of the car (e.g. “This car has a rebuilt engine,” or “The brakes were just relined.”). In addition, North Carolina law generally requires that contracts for the sale of goods which cost $500.00 or more must be in writing to be enforceable. Though a comprehensive contract is recommended, a sales slip or other such minimal writing probably is sufficient to satisfy this law as long as the writing indicates that a contract has been made between the parties and is signed by the party against whom enforcement is sought. Following are situations that create exceptions to this rule: 1) Payment for the car has been made and accepted: 2) The party against whom enforcement of the contract is being sought admits that the sale was made; 3) The Court finds that one party has relied on the oral contract and holds that to deny enforcement of the contract would cause “unconscionable injury or loss”. A sales agreement should be a simple statement of the terms of the sale and should be signed by both the buyer and the seller. The terms covered should include the following:
1. Name of buyer and seller.
2. Date of agreement.
3. Price to be paid for car, including an agreement about who pays the sales tax.
4. When, how, and in what form payment is to be made.
5. If an installment sale, whether a promissory note will be used.
6. Whether the sale is “as is.”
7. All warranties made.
8. Year, make, model, and odometer reading of car.

Paying For The Car
Payment can be made in a lump sum or in installments. A lump sum payment is preferable to installments. The seller who is lucky enough to receive payment in one sum should require that payment be made in cash, by certified check, or by money order. If the seller accepts a personal check from the buyer, there is a risk that the check will be returned for insufficient funds in the buyer’s checking account or that the buyer will stop payment on the check. If a personal check must be accepted, cash the check at the bank on which the check is drawn (i.e., the buyer’s bank) and, if possible, withhold delivery of the title to the buyer until the cash is in hand. If the sale is made on the installment basis the seller should require a substantial cash down payment. In addition, all payments should be made in cash or by certified check or money order.

There are additional precautions which should be taken in an installment sale. First, a written contract should be used. In an installment sale, a writing is especially important because the relationship between the buyer and the seller is one of a continuing nature, and there is more to go wrong with the sale. Second, it is a good idea for the seller to use a promissory note to evidence the buyer’s indebtedness in case the buyer defaults and must be taken to court. To be enforceable a promissory note must be signed by the buyer, contain an unconditional promise by the buyer to pay a specific sum in money, be payable on demand or at a definite time, and be payable “to order” or to bearer.” If interest is charged, the seller should check with an attorney to be sure that the rate charged is legal. Third, the seller should record a lien on the car being sold. This is an interest the seller retains in the car as security in the event of a default in payment by the buyer. If a seller has both a promissory note and a lien, in the event of default, action can be taken against the seller for the payment of the money owed (promissory note) and/or for possession of the car (lien). In order to place a lien on a car the seller must follow the appropriate instructions on the title to the car (see an attorney or talk to the North Carolina Department of Motor Vehicles to get help with the lien procedure).

Transfer of Ownership

A. Seller’s Duties

  1. The car’s license plates must be removed.
  2. The car’s registration card and plates must be forwarded to the Division of Motor Vehicles (DMV) unless they are transferred to and used with another car in which case, within twenty (20) days application to DMV must be made for assignment to the other car;
  3. An assignment and warranty of title must be signed in the presence of a Notary. The name and address of the buyer must be included.. Title will not pass or vest until such assignment is executed and the car is delivered to the transferee.
  4. Unless the Seller keeps a security interest in the car, title must be delivered to the buyer at the time of delivery of the car. If a security interest is taken, within twenty (20) days the seller must forward to DMV the title, the buyer’s application for a new title, and appropriate fees. It is a misdemeanor to deliver or accept a certificate of title which is assigned in blank.

B. Buyer’s Duties

  1. Within twenty (20) days of purchase the title, endorsed and assigned by the seller, must be presented to the DMV; and application must bead for a new title. The buyer who fails to make application for new title within twenty (20) days will have to pay a monetary penalty.
  2. Once title has passed, the buyer must show proof of “financial responsibility” for the car. Though there are other ways possible to satisfy this requirement, the usual and most practical way is to purchase liability insurance from an automobile insurance carrier who is authorized to do business in North Carolina. In practice, the buyer must be insured before application for registration and plates is made. Violation of this requirement of North Carolina law is a misdemeanor and is punishable by a fine, imprisonment, or both.
  3. Unless the seller is a retailer in the business of selling cars, the buyer must certify the sales price of the car and pay sales tax when application is made for a new certificate of title.

When The Deal Goes Sour: Remedies
When a sale goes awry the buyer and seller have remedies which are derived from: 1) The enforcement of express or implied warranties made by the seller to the buyer; 2) The failure of one party to perform as required by the sales agreement; and 3) Other protections provided by common and statutory law.

Seller’s Remedies

  1. Damages – If title has passed on a credit sale (i.e. the seller has surrendered title to the buyer in consideration of the buyer’s promise to pay), the seller may seek damages for the buyer’s breach and has the right to be put in the same position as if the buyer had performed the contract according to its terms.
  2. Cancellation – The seller may cancel the contract if the buyer fails to perform and may sue the buyer for damages.

Buyer’s Remedies

  1. General Contract Enforcement – Certain remedies arise when a sales agreement has been breached. If the seller lies about a material aspect of the car or otherwise defaults on the sales agreement, it may be possible for the buyer to have the contract rescinded and the money which already has been paid returned, possibly plus damages. Another less drastic remedy based on breach of contract is money damages paid in an amount which would insure that the buyer emerges from the deal “whole” (i.e. in the position that he was supposed to have been at the deal’s completion). If the seller does not deliver the car to the buyer, the buyer may sue for damages equal to the amount of the loss which results from the failure to deliver. Typical damages in such a situation would be the difference between what the buyer had to pay to get a similar car from another source and the contract price, plus any other damages sustained, such as additional taxes, fees, and travel costs.
  2. Implied Warranties – The law affords certain minimal protections to the buyer of a car. First, the buyer may assume that the seller owns the car being sold. However, the buyer is expected to examine the seller’s title to be sure that there are no other listed lienholders and that the seller is listed as owner. Second, the seller has the right, assuming the exercise of reasonable care in the operation and maintenance of the car, to be free from loss or harm suffered as a result of the purchase of a defective car; and courts may award damages from the seller or the manufacturer, whichever seems most equitable. In order to enforce an implied warranty the buyer must prove more than subjective dissatisfaction. It must be shown that the car does not do what it is supposed to do, to the satisfaction of an average, reasonable person.
  3. Express Warranties – The buyer has a right to the protection and enforcement of any express warranties made by the seller. An express warranty must be more than mere “puffing,” but assuming that a promise has been made on which the buyer reasonably has relied in purchasing the car, the buyer may seek remedies for any breach.
  4. Conversion – In addition to the protections afforded by warranty and other contract actions, the law allows the buyer an action in “conversion” for the wrongful withholding of the car (i.e. failure to deliver as agreed).
  5. False and Misleading Advertising – If an advertisement which entices the buyer to purchase the car is false and misleading, the buyer may have a criminal action against the seller which can lead to a fine, imprisonment, or both.

Mitigation of Damages
The law requires, in all cases where either the buyer or the seller has been financially damaged, that the damaged party make a reasonable attempt to mitigate the damages suffered. Translated to a car purchase, this means that the injured seller or buyer must attempt to alleviate a problem resulting from a breach as quickly as possible so that damages do not mount up. For example, the buyer should return or fix a faulty car rather than drive it.

Final Thought
Though at first glance the purchase or sale of a used car appears to be a simple transaction, a significant number of buyers and sellers get burned in such deals. One cannot always be sure the person on the other side of the deal will uphold the promises made, and even if both parties enter into the deal with good intentions, circumstances sometimes cause things to go awry. Therefore, it is a good idea to enter into every transaction with caution and to protect yourself in the ways suggested in this article. If the deal falls apart in any way, pursue your rights as quickly and as fully as the law allows.

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Verified June 2011