The topics in the Dial-A-Law series provide only general information on legal issues within the province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation. The purpose is to make you aware of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.
This topic discusses the Conditional Sales Contract.
This sales agreement is a type of credit option available to you when you purchase higher priced goods or services. The contract is written up to state the terms of the sale and purchase of the goods or services and the agreed credit arrangement made between the parties. This type of agreement is often issued by car dealerships, and furniture and appliance stores. The terms of the contract should be clear and understood by both the creditor and the debtor. If there is a term that you do not understand as the debtor, then ask the creditor or seller to explain the term to you.
The contract must provide terms setting out a complete description of the goods sold and full disclosure of all costs. There can be no hidden costs concerning the sale. Full disclosure of costs may include:
- The total purchase price.
- The amount deducted for a trade-in, if applicable.
- G.S.T. or other taxes
- Administration fees.
- The number of payments to be made.
- The interest charged for the loan indicated in both percentage and dollar amount.
The contract will state that the title, ownership, and right of property remains with the seller until full payment is made. Title remains with the seller even though the goods are delivered to you and you use them. The ownership remaining with the seller gives the seller the right to seize the goods if the terms of the agreement are not fulfilled such as making the necessary payments. The terms will also state that you are responsible for anything that happens to the goods once they are in your possession. You are not permitted to sell the goods without the consent of the owner, the creditor, until the last payment has been made and ownership transfer to you.
An “acceleration” term that is generally included in the contract means the debt is due immediately in certain circumstances. If you are late with your payments, the entire amount may become due immediately. The seller will send you written notice that the full amount must be paid. If you cannot pay the entire debt, the seller may sue you for the amount still owing or seize the goods.
Once the contract is signed, the conditional sales contract may be sold to a finance company. Major department stores will often turn over their credit contracts over to a finance company. All payments for the goods are then made directly to the finance company who also assumes all warranty obligations of the goods. If the seller does not fulfill their obligations under the contract, the lender is under an obligation to fulfill the same.
Registration of the outstanding debt under the conditional sales contract may be registered to protect the creditor’s interests. Registration at the Personal Property Registry is made before or after the contract is executed. Once the debt is registered, the lender’s interest in the goods is secure against anyone who takes a claim against the same goods in the future. Registration of the debt provides notice to other creditors and gives priority over any other registered security interest. Registration that is made at the Land Titles Office is made for any purchase that relates to fixtures or goods that attach to your home. For example, furnaces, water heaters, and air conditioners are considered fixtures or attachments that can be registered against title of your home. The registrations made at the Land Titles office will serve as notice to other creditors in the same way as at the Personal Property Registry.
If you do not make your payments as promised, the lender has certain remedies they can enforce. For example, they can either seize the goods or sue you in Court for the balance owed. The lender cannot do both. They must choose which remedy they want to enforce to get their money back. If lender decides to seize your vehicle and sells it for less money than what you owe, the lender cannot sue you to make up the difference. However, if the lender sells the car for more than what you owed, then the difference must be returned to you. If the lender decides to sue you for the debt and is successful, a Writ of Execution may be filed to garnishee your wages or seize your property to pay the debt. The lender would not be able to seize the car, as that would violate the seize-or-sue rule. The exception to this rule is made if you deliberately neglected or damaged the goods and the value of the goods decreased. The Court may find that the seller can both seize the property and also sue you for the value of the damage.
You may be asked to sign a “Quit Claim” at the time of the purchase. A Quit Claim is a document stating that you will voluntarily give up the goods without the seller having to go to Court to obtain a judgment for seizure. You may not want to sign a quit claim at this time and should advise the seller that you want to consult with a lawyer.
Once the contract is paid in full, you will be issued a “Memorandum of Satisfaction” by the lender. This document shows that the debt has been paid in full. The Memorandum should be registered at the Personal Property Security Registry to remove notice of debt.
Always do a search at the Personal Property Registry if you are purchasing used goods. You want to know if there any notices of debt made against the goods you want to purchase. Provide the serial number of the vehicle to the Registry to do the search. If you purchase the vehicle without doing a search and money is still owed against the vehicle by the previous owners, you will lose the money you paid towards the purchase. The previous owner would not have a right to sell the vehicle if it has not been fully paid for.