Conditional sales contracts

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Conditional sales contracts

Similar to equipment trust certificates, except that the lender is either the equipment manufacturer or a bank or finance company to which the manufacturer has sold the conditional sales contract.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Conditional Sales Contracts

A sale of an asset in which the buyer assumes possession and may have use of the asset, but the seller retains title until the buyer pays its full price and may repossess the asset if the buyer does not. In exchange for the right to use the asset, the buyer makes payments over an agreed-upon period of time, whether months or years. This arrangement is most common with heavy equipment, machinery, and real estate. See also: Beneficial ownership, Lease.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Having no immediate need for construction funds, IBM parks the funds with a subsidiary that makes loans to customers who purchase IBM servers under conditional sales agreements or leasing arrangements.
The second part of the paper examines the common law and civil law rules, principles, and concepts to which courts have implicitly or explicitly referred in order to interpret the meaning of an acquisition of property for tax purposes, with particular attention to conditional sales agreements and leasing transactions, the most common types of tax cases concerning the acquisition of property.
Similarly, in Browning Harvey, where a taxpayer sold coolers to shopkeepers for the exclusive display of its soft drinks under conditional sales agreements, the Federal Court held that the shopkeepers had not acquired the coolers when they obtained possession because they "did not have all the incidents of title." (34) Despite obtaining possession, the court noted that the shopkeepers' possession was limited by the taxpayer's right to repossess the coolers if they failed to comply with the terms of the agreement and that their use of the coolers was limited to storage and display for sale of sort drinks manufactured by the taxpayer.
Although Henuset Brothers, Gartry, Kirsch, and Browning Harvey all involved conditional sales agreements, tax cases in common law provinces have also applied the second branch of the test in Wardean Drilling to determine whether a lessee has acquired property for tax purposes under the terms of a lease.
The most difficult of these cases involve conditional sales agreements and lease-option agreements--in each of which legal title to the property remains with the vendor or lessor until the conditions are satisfied or the purchase option is exercised.
Where conditional sales agreements are involved, courts in common law provinces have generally held that the purchaser acquires either property in the goods, or equitable ownership, once possession, use, and risk are transferred.
In common law provinces, a definition along these lines would have the same effects as the twofold test in Wardean Drilling, and would presumably apply to purchasers under conditional sales agreements and lessees under security or financing leases.

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