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.
