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A customer walks into a car dealership and buys a car, signing a contract with a down payment and monthly payments. The customer makes the down payment (partial performance). But when he wants to drive off with the car, the dealer says something like, "You can't have it today because we need to do one last safety check. We'll even deliver to your home in a day or to so you don't have to come down again." (Non performance).

At the beginning of the next month, the car still hasn't been delivered to the customer, but the dealer asks for a monthly payment.

What are the respective rights of the parties? Can the dealer compel a monthly payment without having delivered the car? Can the customer compel delivery of the car, or ask for his down payment back, withholding the monthly payment in the meantime?

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The rights and obligations of parties to a contract are not defined in terms of the performance of the parties, unless it is. The first thing to do is look at the contract and see if anything says that payment can be suspended until the goods are delivered. I assume there is no such clause. So it appears that one party (the dealer) is in breach, and the question is what you can do. You may ignore the breach, sue over the breech, or you may negotiate for an alternative outcome. The first solution is, long-term, unsatisfactory, but easiest. The second solution is most complicated, and may be unsatisfactory (it depends on whether walking away from the deal is a viable option). The third solution, when paired with discussion (with the dealer) of the second option may be easiest and most satisfactory (e.g. "payments are not due until you hand over the car").

Two additional complications related to the fact that this is a car sale are (1) there may be state-specific laws related to delivery of the vehicle and (2) a loan from the dealer is not the same as a loan with a third party, arranged by the dealer. Failing to pay the third party is unambiguously a bad idea. Point 2 does, however, also impinge on your ability to negotiate a delay of the payment (it's out of the dealer's hands?). The question you need to know the answer to is, where in what contract does your obligation to pay come from. and is it dependent on delivery of the item, or just transfer of ownership without taking possession? If the contract says that payment is due on delivery, you are not required to pay until they have performed.

In other words, it almost entirely depends on what the contract(s) require(s).

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Breach of contract by one party does not allow breach by the other

If you are the innocent party you have three options:

  1. Overlook the breach and continue to perform your obligations.
  2. Seek to have the breach rectified in accordance with the terms of the contract which may involve litigation for damages and continue to perform your obligations.
  3. If the breach is egregious enough or allows termination of the contract within the terms, terminate the contract in which case your obligations cease. You can also sue for damages. However, terminating a contract is tricky and technical and if you get it wrong you may have repudiated the contract allowing the other party to terminate and sue you.

For your example, unless the contract contains terms allowing the buyer to suspend payments, they must continue to make them even if the seller is in breach of their obligations (if they are - you would have to read the contract). The customer's rights, if the dealer doesn't deliver, will be spelled out in the contract or, if they aren't, the customer can sue either for damages or to get an order for specific performance (which would likely not be granted since damages will likely suffice unless the car is rare or unique). They can also seek to terminate the contract (and sue) if the contract contemplates the failure to deliver the car as a cause for termination or if the non-delivery extends beyond a reasonable time.

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