Frequently Asked Legal Questions | Can the Dealer Rescind?

A:  Yes, if the sales contract contains a "Seller's Right to Cancel" provision, which virtually all sales contracts in California have.

        Normally, all cars are delivered to you with the understanding that the sale was being financed, then the contract gives the dealer the right to cancel the contract and demand the car back if the dealership cannot obtain financing for you at the terms you agreed to.  This applies even when the dealership tells you that financing was approved during the sales process before you drove away in the new car.  The contract provision typically says the dealer must notify you in writing, or otherwise provide actual notice, within ten (10) days.  The provision states you must promptly return the car in the same condition as sold, reasonable wear and tear excepted, and the dealer must return all consideration you gave, including your downpayment and/or any trade-in.

        On the bright side, you just got to use their car for free.  Often, the dealer will try to convince you to sign a new contract with different terms suggested by a finance company, increasing the down payment, interest rate, etc.  You are under no obligation whatsoever to sign a new contract.

        If you really want to keep the car, this is a great time to re-negotiate a better deal (assuming the dealership wants you to keep it).  If you bought the car  "new", the dealer would have to re-sell it as a "used" vehicle.  If you bought the car "used," you may have discovered something about the car by now that is not what they represented.  Use this info to renegotiate a better deal, including a lower car price, more for your trade-in. or eliminate/renegotiate charges for items the finance manager convinced you to add on to the contract of questionable value, like all "add-ons," including any service contract, any insurance product, any debt cancellation agreement or guaranteed asset protection waiver agreement (GAP), any theft deterrent device, any vehicle contract cancellation option agreement, or any needless and overpriced thing sprayed on the fabric, paint, or undercarriage.  Make sure to make a copy of the sales contract documents before you go in, since they may convince you to surrender the ones they gave you too.

        Bear in mind that the contract also says that you promise you gave truthful information in your credit application, and upon request, you will provide documents or other information necessary to verify the information of your credit application, so you don't want the failure to obtain financing to be blamed on your lack of cooperation.

       The dealership has the right to simply tell you that no financing could be obtained, so make the payments directly to them.  Technically, your contract is between the buyer and seller, whereby the buyer obligates themselves to make payments to the seller, rather than to a finance company.  Before agreeing to do this, you should have them verify, in writing, that your timely payments will be reported to major credit reporting service(s), as it would have by a finance company, so that your credit score will benefit.