Sale and Agreement to Sell: Distinction
Introduction:
In the realm of contracts and legal documents, nuances can hold tremendous significance. One such example lies in the distinction between a Sale and an Agreement to Sell a juxtaposition that reveals subtle but essential differences in the world of commerce. As business owners, entrepreneurs, or even consumers, understanding this distinction becomes paramount, shaping our interactions, obligations, and legal rights.
The business transactions that take place between buyers and sellers are
Governed by Sale of Goods Act, 1930, which was initially part of the
Contract Act but was later repealed and transformed into a separate law
which governed contracts of sale.
Section 4 of Sale of Goods Act 1930 deals with the concept of “sale” and
“agreement to sell”.
RELEVANT PROVISIONS:
Sections 4(3) and 26 of the Sale of Goods Act, 1930.
Interpretation of Term Sale:
According to Oxford Dictionary of Law “A contract involving the sale of
goods or a similar contract involving the transfer of land.”
Legal Definitions of The Term “sale”:
-
According to Merriam Webster Dictionary: The transfer of
ownership or a title to property, from one person to another for a
price".
-
According to the American Sale of Goods Act: ‘Sale’ means; The
transfer of title from the seller to the buyer for a price”.
-
According to Section 4(3) of the Sale of Goods Act 1930: A sale
is a contract where the seller agrees to transfer the property in goods
to the buyer for a price.
Essentials of Sale:
- There must be some goods.
-
A price in money must be paid or promised to be paid as a quid pro quo
(something for something).
- There must be at least two persons i.e. a seller and a buyer.
-
There must be a transfer of ownership from the seller to the buyer.
- All the essentials of a valid contract must also be present.
Concept of Sale in Corporate Law:
The concept of sale in corporate law is that the seller who has been
defined as, a person who sells or agrees to sell and the buyer, is a person
who buys or agrees to buy goods, enter into a contract regarding the of
goods and after confirming the condition for the Contract under Sale of
Goods Act, 1930, they set a consideration and thus the transaction completes
When the sellers transfers the goods to buyer. When this happens the goods
are said to be sold. Example: A buys a Cycle from a cycle shop and pays the
whole price to shopkeeper, it is a sale.
Legal Definition of Agreement to Sell:
According to Section 4(3) of the Sale of Goods Act, 1930;
"Agreement to sell is a contract where property in goods or title is yet to
be transferred (i.e. it has to take place at a future time) or subject to
some conditions thereafter to be fulfilled".
Essentials of Agreement to Sell:
- (i) No immediate transfer of property.
- (ii) Transaction at a future time.
- (iii) Subject to a condition
Concept of Agreement to Sell Corporate Law:
When the transfer of property is immediate between a buyer and seller it is
known as a sale but where the transfer of property in goods is to take place
at a future event or which is subject to a condition, it is known as an agreement to sell. Where the agreement to sell is conditional i.e. its
finalization is subject to a condition.
conditions are divided in:
(i) Condition Precedent:
Where an agreement to sell is to become a sale on the fulfillment of a
particular future even, it is known as condition precedent.
Example:
‘A’ agrees to buy ‘B's motorcycle for Rs.50000/if his mechanic approves of
the motorcycle. It is an agreement to sell based on a condition precedent.
(ii) Condition Subsequent:
When the delivery of the goods stops due to the occurrence of some event
then such a condition will be condition subsequent. It applies to both sale
and agreement to sell.
Case Law: Interpretation of the Terms Contract of "Sale " and "Agreement to
sell
(1972 PLD 145 KARACHI HIGH COURT):
Section 4 of the Sale of Goods Act draws a marked distinction between a
contract of sale and agreement to sell. The contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in
the goods to the buyer for a price.
Where under a contract of sale the property in goods is transferred from the
seller to the buyer, the contract is called a sale, but where the transfer
of the property in goods is to take place at a future time or subject to
some conditions thereafter to be fulfilled, the contract is called an
agreement for sale.
Thus the former is an executed contract and the latter is executory
contract.
In other words sale creates a jus in rem as it passes ownership immediately
when it has been executed, while a contract to sell is jus ad rem, for it
only creates an obligation attached to the ownership of property not
amounting to an interest therein.
The expression "sale of goods" is a composite expression consisting of
various ingredients or elements viz. bargain or contract of sale, the
payment or promise of payment of price, the delivery of goods and the actual
passing of title, and each one of them is essential to a transaction of sale
though the sale is not completed or concluded unless purchaser becomes the
owner of the property.
Thus the question whether the transaction is a sale or an agreement to sell,
one of the main points of distinction which would arise for consideration in
this case, is that the sale is a contract plus a conveyance while the
agreement to sell is a contract. The word `sale' in its legal sense,
therefore, imports passing of property in the goods although in the popular
sense it signified the transaction itself which results in the passing of
the property.
So it is not always that ownership of goods passes when the agreement to
sell takes place and, therefore, the test for determining whether sale takes
place at a particular place or not is whether under the contract between the
buyer and seller the property in the goods does or does not pass at that
place. There is no sale in legal sense without actual transfer of property.
It is, therefore, idle to contend that in almost all cases the sale takes
place at the time and place when the contract is entered into. It depends
upon the terms of the contract and the nature of the goods involved in the
transaction. that is to say, whether the contract is in respect of
ascertained (specific) goods or unascertained goods as admittedly in these
cases different considerations prevail.
To add in addition, the time and place of an agreement to sell are
irrelevant but the sole point for consideration is as to when the property
in goods passed to the buyer and unless that point of time arrives there is
no sale within the meaning of terms as defined by section 4 of the Act.
Pappatlal Shah v. State of Madras A I R 1953 S C 274
Distinction between sale and agreement to sell:
The following are the points of distinction between sale and agreement to
sell:
1. Transfer of Property:
In a ‘sale’ the ownership in goods passes to the buyer immediately at the
time of making the contract. In other words, the seller ceases to be the
owner of the goods and the buyer becomes the owner immediately.
Transfer of property in the goods which is the principal element of sale
was a condition to be fulfilled. (2001 YLR 1549) KARACHI HIGH COURT
In “an agreement to sell” there is no transfer of ownership to the buyer at
the time of the contract. the ownership transfer at a certain date or
subject to fulfilment of some condition.
Illustration:
A agrees to buy 50 kg wheat from B and the wheat is yet to be weighed/the
faction is an agreement to sell’’ because the ownership does not transfer to
the buyer till the goods are weighed and the buyer has notice thereof. But
the transaction becomes a sale and the ownership in the goods passes to the
buyer after the wheat is weighed and the buyer is aware of it
2. Risk of Loss:
The general rule is that unless otherwise agreed, the risk of loss prima
facie passes with ownership. (Sec 26 of The sales of Goods Act 1930) In case
of 'sale': if the goods are destroyed the loss falls on the buyer even
though the goods are in the possession of the seller, because ownership has
already passed to the buyer.
In an agreement to sell’ where the ownership in the goods is yet to pass
from seller to the buyer, such loss has to be borne by the seller even
though the goods are in the possession of the buyer.
3. Consequences of Breach:
In case of sale, if the buyer wrongfully neglects or ‘refuses to pay the
price of the
goods, the seller “can sue for the price, even though the goods are still in
possession.
In ‘an agreement to sell’ if the buyer fails to accept and pay for the
goods, the seller can only sue for damages and not for the price, even
though the goods are in the possession of the buyer.
4. Right of Resale:
In a sale, the ownership is with the buyer and so the seller cannot
resell the goods, even though the goods are” in the possession of seller. If
the seller sells the goods, the new buyer having knowledge of the previous
sale does not acquire a title to the goods.
In an agreement to sell, the ownership in goods remains with the seller and
so he can resell those goods to the new buyer. The original buyer can sue
for breach of contract
only. The subsequent buyer gets a good title to the goods, irrespective of
his knowledge of previous sale.
5. Insolvency of Buyer:
In a sale, if the buyer is adjudged insolvent before he pays for the goods,
the seller, in the absence of lien over the goods, must deliver the goods to
the Official Receiver. The seller is entitled only to ratable dividend for
the price of the goods
But in an agreement to sell, in these circumstances, the seller may refuse
to deliver the goods to Official Receiver unless paid for, as ownership is
still with the seller
6. Insolvency of Seller:
In a sale, if the seller is adjudged insolvent, the buyer is entitled to
recover the goods from the Official Receiver because the ownership in goods
is with the buyer.
In an agreement to sell, if the buyer has already paid the price, and the
seller is adjudged insolvent, the buyer can only claim a ratable dividend as
a creditor and not the goods because the ownership in them still rests with
the seller.
7. Nature of Contract:
A sale is an executed contract, because the ownership has passed from seller
to the buyer. An agreement to sell is an executory contract as the
property has to pass in future.
8. Absolute and Conditional:
Sale is an Absolute Contract with no part left to be performed, Whereas
agreement to sell is a conditional contract where the condition can be
subsequent or precedent.
Conclusion:
When the transfer of property is immediate between a buyer and seller it is
known as sale but where the transfer of property in goods is to take place at
a future event or which is Subject to a condition at is known as agreement to
sell. The essential ingredients/characteristic of contract of sale are
explained in section 9 and 10 of the sale of Goods Act, 1930
Relevant Questions and Searches:
(i) How the sale is different from Agreement to sell? Give solid
reasons.
(ii) An agreement to sell is a contract pure and simple, whereas a sale is
a Contract plus Conveyance.” Discuss the above statement.
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