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When a consumer purchases a high-priced good, like a vehicle, furniture or appliances, the transaction is often dealt with under a conditional sales contract. A conditional sales contract allows the purchaser to take possession of and use the good without paying the full purchase price up front, on the condition that the purchaser will pay off the balance of the purchase price in installments over a set period of time. Although the purchaser has possession and use of the property, the vendor retains title and ownership over the property until the purchaser has paid off the full purchase price in accordance with the terms of the contract.
A conditional sales contract is a type of “secured contract”. The vendor’s claim to the balance of the purchase price owed by the purchaser is “secured” by the property – because the vendor still has legal title for the property, the vendor also retains the right to repossess the property if the purchaser defaults under the contract.
In Alberta, a vendor has two choices for dealing with non-payment by a purchaser under a conditional sales contract, by virtue of Alberta’s “seize or sue” regime. This regime is founded in section 53(1) of the Law of Property Act. The vendor, as a secured creditor, can either (1) seize (i.e. repossess) the property, OR (2) sue the purchaser for the remainder of the debt, but cannot do both.
From the perspective of the secured creditor, the main advantage to seizing the property is that it provides the creditor with certainty that at least some portion of the outstanding debt under the contract will be recovered. The creditor can sell the property and is entitled to keep the proceeds of that sale. This is a desirable option in the event the debtor is having bigger financial problems and may not be able to pay off the debt. The main downside to seizing the property, is that the proceeds of sale of the property will fall short of the full amount of the debt, and the creditor will no longer have the right to sue the debtor for that shortfall.
Of course, the upside of suing for the debt instead of seizing the property is that the creditor may be able to recover the full balance of the debt, plus a portion of the legal fees associated with the lawsuit. However, as with any lawsuit, this approach involves time, costs, and uncertainty. Even if the secured creditor succeeds in obtaining a judgment for the full balance of the debt, there is always the risk that the debtor could try to evade enforcement of the debt judgment. This could make recovery of the debt more challenging, time consuming, and potentially more expensive for the creditor.
In making the choice to seize or sue, the secured creditor must also consider other factors like whether the property has been moved outside of the province or damaged, or whether the debtor has filed for consumer proposal or bankruptcy. If you are a secured creditor faced with the prospect of seizing or suing, you should discuss with your lawyer to ensure you fully understand the options available to you and the implications of each, in order to avoid unnecessary costs or delays.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.