The Deed of Sale between you and the original buyer/borrower is VOIDABLE. Simply put, he cannot sell what does not fully belong to him yet, or one that is still legally subject to a third party's claim.

An "assume balance" transaction is not technically possible. What is normally done to do everything above board, is for the bank to cancel the first mortgage, and draw another mortgage in behalf of the succeeding buyer, subject of course, to the bank's scrutiny and investigation.

What will happen here, ultimately, is that the bank will go after the first buyer. Since he/she disposed an encumbered car without the formal consent of the lender, that will not extinguish his primary liability. (No, too late for "shady" insurance escape here). But the original buyer can go after you, and since the sale is voidable ab initio, by the rule of quantum meruit, you should be required to return the car (which has now been missing) and the seller to return the sum you initially paid to him. Now the next problem will be how or what will be the value of the missing object.

Also, what you term as "Conditional Sale Agreement" is fatally defective. A valid Conditional Sale Agreement is an agreement wherein transfer will be enacted in favor of the buyer by the seller (who owns an unencumbered property, free from any claim) after buyer has completed payment of sum due to the seller. In your version of "Conditional Sale", your objective was for borrower (of encumbered car) to convey the property to you after you have paid the original lender of seller/borrower, who has not been solicited for consent, ergo has not given any, to your derelict transaction. Consent is paramount in these arrangements.

So, in short, you'll still be liable to return the car (or the market value thereof) to your SELLER (original borrower). But it is your SELLER (original borrower) will be liable to the bank. Your resort? Go after your buyer (if you can still find him). I'm sorry for such bad luck.

That's my legal opinion.

(But I have another recourse which judiciously, should not be printed here) :grin