T & C's of sale
As already indicated, the ordinary rules of the common law regarding the passing of ownership and risk or benefit may be modified if the parties agree to certain conditions.
"The contracting parties," writes Mackeurtan, "may include in their agreement any provisions that they wish, subject to the limitations hereinafter laid down. These may suspend the operation, or cause the dissolution of the contract, until or upon the happening of an uncertain future event [....] The first class are suspensive, and the second resolutive."
Whether a condition is suspensive or resolutive is a matter of construction. The courts look beyond the ipse dixit of the parties and interpret the words as they stand. The following prerequisites must exist for a condition to be operative:
- The coming into force or dissolution of the contract must be made to depend upon the occurrence or non-occurrence of an uncertain future event.
- It must not be impossible, illegal or immoral.
- It must not be subversive of the essentials of the contract.
As noted above, conditions proper affect the operation, or bring about the dissolution, of the contract. On the other hand, terms only modify the ordinary effect of the contract. For example, the parties might agree to a term that the ordinary rule of risk is varied.
The legal effect of suspensive conditions in the law of sale is a matter of some controversy, but effectively the position is this: Unlike other contracts, a contract subject to a suspensive condition only becomes a contract of sale once the condition is fulfilled. Since this is contrary to the common-law position (and, indeed, to logic), the significant types of contracts with the character of a sale, and subject to suspensive conditions, have been covered by legislative amendments, so that the anomaly does not apply. Most of its significant effects in practice have been ameliorated by legislation.
A valid resolutive condition has the following effect:
- The contract has full legal effect from the moment it is perfecta pending fulfilment of the condition.
- An affirmative resolutive condition is fulfilled by the occurrence of the event; a negative resolutive condition is fulfilled when it is certain that the event will not occur.
- Should the condition be fulfilled, the contract is dissolved retrospectively, and must therefore be regarded as never having existed.
The following are examples of commonly-encountered conditional sales.
Approval of financial stability or availability of loan
A suspensive condition is sometimes found in commercial transactions to the effect that the transaction depends upon the seller's approval of the buyer's financial stability. There is no contract of sale until the seller gives his approval. He must exercise his discretion reasonably and in good faith.
A similar clause is found in a deed of sale, where the sale of land is subject to the conditions that the buyer is able to:
- Sell his previous home (if relevant)
- Get approval for a loan secured by a mortgage bond from a recognised financial services provider within a particular period of time
If it becomes clear the conditions cannot be satisfied, the contract falls through.
Sale or return
Sale or return (pactum displicentiae) is a type of conditional sale often encountered in practice. It involves the buyer receiving goods from the seller with the option of becoming the owner. He can exercise his option in several ways:
- by buying the goods at the named price;
- by selling the goods to another; or
- by keeping them for so long that it would be unreasonable to return them.
This type of contract could be considered as subject to a condition that suspends the sale until the buyer has done one of the above-mentioned things to indicate his intention to become the buyer. Mackeurtan, however, feels that contracts of sale or return are examples of contracts subject to a resolutive condition.
Sales on approval
There is some disagreement about approval sales. Some argue that these are sales subject to a suspensive condition: Since the sale is subject to the examination and approval of the buyer, the operation of the sale is suspended until the buyer's approval has been expressed.
There is another view: that these are sales subject to a resolutive condition. On this view, the sale transaction is carried out completely, and the client is charged. If, however, the client feels that the merchandise is no good, he is entitled to return the item to the seller, and the transaction is reversed. In modern-day consumer contracts, this seems to be the better view.