Verbal Contracts and Timely Payments

A while back I wrote a short piece about whether oral or verbal contracts are legally enforceable and have since been garnering lots of interesting comments and stories. Here's one that came in this week that should be a good warning for people who don't write things down on paper when they complete financial transactions...

My ex-landlord's wife sold me a car. We had an oral agreement that I would pay $1400 for it. She signed the title over to me when I put $400 down on it. I in return sold the car to someone else, I have since still been paying on that last $1000, I have it down to $435. I'm a single mom who makes only $9.00 and hour and I get paid twice a month. I pay when I have extra money. He calls me constantly harassing me for a payment and now is threatening to take me to court..Will this stand? I know I owe him $435 and am paying it a little at a time. We had an oral agreement and no time limit, Also my ex-husband said he would help me pay for it and he has not. What can I do?

Dave's Answer:

The short answer here -- and remember, I'm not a lawyer, this is not legal advice, yadda yadda -- is that the landlord who originally sold the car is kinda screwed by the situation. There's no car to reclaim since she sold it, and there's no written contract that stipulates the duration of the payments to pay off the debt.

Even if it was just a verbal contract, the two of them should definitely have agreed not just on the selling price, but on how long it'd take to pay off the car. I would have recommended something like "Okay, so just to be clear, you're agreeing to buy the car for $1400 and are going to pay that off with $500 now and the remaining $900 paid at $50/mo until paid off, without any interest charges." (if you're doing the math, that'd be 18 months)

The problem is that I think the ex-landlord has what I'd call a reasonable expectation of timely payment. To have agreed to sell the car to someone, signed over the title, and then find out that the payment scheme is $5/mo for 900 months (15 years!) is clearly fraud by intent, if not the legal definition of fraud. Not so good.

Worse, what I wonder about is the fact that the new owner turned around and sold the car again. If she sold it, what happened to the money realized in that transaction? Ethically, shouldn't that have been used to pay off the outstanding debt with the original owner, and then anything over and above would have been, fairly and legally, profit she could pocket? For example, if she knew someone who wanted to pay $2000 for that car and she negotiated a deal to buy it for $1400, she'd make a quick $600. Not bad. But by not paying off her debt, well, the situation's not a good one.

A single mom making $9/hr is someone who is definitely in a tough place. Work that out as a full-time employee and your pre-tax income is $720/paycheck. Hard to make car payments on that, and 10x hard when you don't have the car any more. But a debt is a debt and ethically she should have either already paid the debt off when she sold the car or should at least sit down with the ex-landlord and figure out the max payments she can make to pay off the debt as quickly as possible. If it means she'll have to go without for a few months, well, that's the price of careless financial management, I fear.

But what do you say, readers? You have the scenario, you have my thoughts on the matter. What would you do if you were her or you were the original owner of the vehicle?

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Categorized: d) None of the Above (Article 9886, Written by Dave Taylor)
Tagged: finances, legal, loans, verbal contracts
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Comments (5) · Add Comment

My first thought was the same as yours - What happened to the money when she sold the car? Ethically that money wasn't hers, and she should have paid off the original debt first. Instead, she expects an interest free, never-ending line of credit. Minimum-wage, single mother or not, that's not right! She owes that money and should make it her first priority to get it paid back, and consider it paying for an education in financial management.

Posted by: Jeannine Crooks at April 16, 2011 8:47 AM

Agreed.

I did myself think "What happened to the money made from the sale of the car?" before I'd got to the paragraph mentioning it.

If she made a profit from it, then good for her (but worse in the respect of the debt owed). If she made a loss from the sale though, but still had the finance to pay the debt off, then that is what she should have done.

Whichever it was, the debt should've been repaid from the funds accumulated from the sale.

Like you said yourself though Dave; A lesson learnt in financial management perhaps. Also a lesson in verbal contracts (for both parties concerned).

Posted by: Just J at April 16, 2011 11:51 AM

I think the big take away for the readers is that they are making assumptions.

You only know a portion of the woman's life, yet there are declarations being made as if you have all of the pertinent information.

I agree that she has an ethical obligation to the orignal owner. However, the only other obligations you know about are her obligations to her child, her landlord and her job. You literally do not know why she sold the car, if she profitted from that sale, or her other debts.

This is a very leading story, and the path it leads to is not one that is well substantiated.

Posted by: Chrystoph at April 18, 2011 11:25 AM

You raise a good point, Chrystoph, but then again it also seems like you might be an apologist given your "there are factors you don't know that explain what's going on". Remember, she came to me asking for advice. :-)

There are always additional reasons and explanations, and there's the fact that she appears to have relied on her ex-husband offering to help pay for the car, but, again, without that in writing, she should never have assumed that money would show up.

Financial management is a pain in a capitalist world where we're constantly extolled that we should consume, consume, consume, but I think that ethically paying off debts should always beat out getting the newer, fancier, nicer. That's my bias, and I hope I'm clear with it in this article and elsewhere on my site.

But let me ask you this: if this gal would have come to you for advice, Chrystoph, what would you have responded?

Posted by: Dave Taylor at April 18, 2011 11:31 AM

I can see where you might think apologist, but, honestly, I really don't care about the specific situation so much as the fact that the readers are making a LOT of baseless assumptions. I see this a lot on the web, and it is of great concern to me because it has a penchant for making completely imaginary "facts".

As for the situation, the law as defined "where this is happening" may or may not be the same as "here". My advice would be to actually define a contract between the two parties and have it signed & notorized.

This way, she commits to the obligation in definite terms and the other party she owes money to has a legally recognizable document. What the terms are would be beyond the scope of this discussion because we don't know what her financial situation is.

If you want an opinion of the failure in the original agreement, I would say that it SEEMS to be a lack of communication.

Posted by: Chrystoph at April 20, 2011 10:16 AM

I do have a lot to say, and questions of my own for that matter, but first I'd like to say thank you for all your efforts on this Web site by buying you a cup of coffee!

I do have a comment, now that you mention it!