A conditional sales agreement is a financing arrangement between a buyer and a seller for higher-priced goods or services (often the buyer is referred to as the “debtor” and the seller as the “creditor”). This type of agreement is often issued by car dealerships, and furniture or appliance stores. The contract states the nature of the deal, such as terms of the sale, purchase of the goods or services, and the agreed credit arrangement made between the parties. 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 about the sale. Full disclosure of costs may include:
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 (i.e., the creditor) until the last payment has been made, and ownership transfers to you.
An “acceleration” term that is generally included in the contract, which 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 creditor 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 (PPR) is made before or after the contract is executed. Once the debt is registered, the creditor’s interest in the goods is protected, or “secured” against anyone else 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 the 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 PPR.
If you do not make your payments as promised, the creditor has certain remedies they can enforce. For example, they can either seize the goods or sue you in court for the balance owed. The creditor cannot do both. They must choose which remedy they want to enforce to get their money back. If the creditor decides to seize your vehicle and sells it for less money than what you owe, they cannot sue you to make up the difference. However, if they sell the car for more than what you owed, then the difference must be returned to you. If the creditor decides to sue you for the debt and is successful, a Writ of Enforcement may be filed against you to garnishee your wages or seize your property to pay the debt. The creditor 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. Then, the Court may find that the seller can both seize the property and 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 get a judgment for seizure. You may not want to consult a lawyer before you sign a quit claim and should tell the creditor you intend to do so.
Once the contract is paid in full, you will be issued a “Memorandum of Satisfaction” by the creditor. This document shows that the debt has been paid in full. The Memorandum should be registered at the Personal Property Security Registry to remove the notice of debt.
Always search the PPR 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 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.