A CONDITIONAL CONTRACT OF SALE AS AN AGREEMENT TO SELL

A conditional contract of sale only comes into existence when the conditions are performed. Parties are not liable to perform their obligations in the agreement until and unless the conditions have been fulfilled. It therefore means that a conditional contract of sale is an agreement to sell that only becomes a sale when the conditions have been fulfilled. In short, it would be right to state that an absolute contract of sale is a sale, while a conditional contract of sale is simply an agreement to sell.

Section 3 (5) of CAP 31 provides that an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Whether an agreement to sell is grounded on passage of time or happening of an event or something to be done by one of the parties to the contract, this makes it a conditional contract. Take for example, a contract that states that time is of essence and then requires certain action to be taken within a stipulated amount of time, this is a conditional contract in which the condition is, first the performance of the condition and secondly performance of the condition within the time agreed upon. Should either of those two conditions fail to be fulfilled, the contract will be deemed cancelled and the parties will be relieved from performance.

An agreement to sell is in itself only an expression of intention premised on the performance or happening or a condition. It does not transfer any property to the buyer. The intention will turn into a contract when the condition is fulfilled. There may be a contract premised on the seller acquiring the goods subject of the contract. These may be goods to be manufactured or in any other manner, goods to be acquired by the seller after the making of the contract (section 2 CAP 31). This are called future goods. Where there is such a contract, the condition is the seller acquiring the goods. Should the seller fail to acquire the goods, the contract is deemed cancelled and the buyer has no duty to fulfill any obligations he had in the contract. As is expressed under section 7 (3) of CAP 31 where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

An agreement to sell precedes a sale agreement. So that once the conditions stipulated in the agreement to sell are fulfilled, the parties then get into a sale agreement in which the seller agrees to transfer the property in the goods to the buyer in exchange for the consideration to be furnished by the buyer. In some instances parties will use the same instrument to cater for both the agreement to sell and the sale agreement. So that the agreement provides that the seller agrees to transfer the property to the buyer if certain conditions are fulfilled. So that parties do not have to execute two different documents. In such a case, the document will function both as an agreement to sell and a sale agreement depending on the circumstances at hand.

Where it is a contract for the sale of existing goods, the buyer may take possession of the goods under an agreement to sell. However, property does not transfer to the buyer until he fulfills the conditions in the agreement, for example paying of the full purchase price. This makes the agreement between the parties a conditional contract of sale.

Section 19 (1) CAP 31 provides that where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. This creates a leeway for the parties to make their agreement a conditional agreement. Take the example given above; where the parties agree that the property will not be transferred until the purchase price is paid, this makes it a conditional contract. It also makes it an agreement to sell. It is not a sale yet until the full purchase price is furnished. There is however an agreement that binds both parties, so that as long the buyer is paying the purchase price as agreed upon the seller has no authority to sell the same goods to another party.

There are however events beyond the control of the parties that may halt a conditional agreement and relieve parties from performance. This may be expressly stated in the agreement or implied from the law. Take for instance section 9 of CAP 31, it provides that where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided. The effect of this is that in addition to failure to fulfill the set conditions and failure of the contemplated events happening, there is an implied condition that the goods under an agreement to sell will not perish. Should they perish, the agreement is deemed cancelled and the parties do not have to proceed to the stage of entering into the sale agreement.

What this means is that conditional agreements are not only subject to the conditions stipulated by the parties, they are also subject to the conditions implied by the law. It also means that the law has power to make an agreement between parties a conditional agreement and thus only an agreement to sell but not a sale agreement. Primarily, a force majeure clause turns a contract of sale into a conditional contract. Performance of the agreement is conditional on the events stated in the force majeure clause not happening i.e. it is an agreement to sell the goods if those events don’t occur. If those events happen, at that stage the agreement does not mature to a sale agreement, the contract is avoided and the parties are relieved from performance.