Difference Between Sale and Agreement to Sell | Law Optional Notes for UPSC PDF Download

Sale vs. Agreement to Sell

Sale

• A sale occurs when the seller immediately transfers the ownership of goods to the buyer.
• It involves a direct exchange where the property in goods is passed to the buyer for a price.
• For example, when you go to a store and buy a book, the transaction is a sale.

Agreement to Sell

• An agreement to sell sets the stage for a future transfer of ownership based on certain conditions.
• Ownership will be transferred at a later date upon meeting specific conditions outlined in the agreement.
• For instance, if you order a customized piece of furniture from a craftsman, it represents an agreement to sell until the item is delivered and payment is made.

Sale

• A sale is defined as a contract where the seller agrees to transfer the property in goods to the buyer for a price.
• This transfer of ownership happens immediately, and the contract is binding on both parties.
• For instance, when you purchase a smartphone from a store, it constitutes a sale.

Formation of Contract of Sale (Section 5)

• A contract of sale is formed when there is an offer to buy or sell goods at a price and the acceptance of that offer.
• The contract may specify immediate delivery, payment, delayed delivery, installment payments, or other terms.
• It can be written, oral, or implied from the parties' conduct.
• For example, when you order a product online and make the payment, a contract of sale is established.

Goods Involved in Sale

• Generally, existing goods are the subject of a contract of sale.
• However, goods can also be future goods or owned by the seller at the time of the contract.
• For instance, when a car dealership sells a car that is currently in stock, it involves existing goods.

Agreement to Sell

• An agreement to sell involves the transfer of goods at a future date or upon certain conditions being met.
• It is outlined in section 4(3) and transitions into a sale when conditions are fulfilled or a specified time elapses.
• This agreement establishes terms such as the selling price and the date of payment.
• It can be seen as a contingent contract under section 31 of the Indian Contract Act 1872.
• All terms must be mutually agreed upon and followed until the sale deed is finalized.
• It serves as the foundation for the eventual creation of a sale deed.
• Essentially, an agreement to sell confirms a future event based on the fulfillment of specified terms and conditions.

Key Differences Between Sale and Agreement to Sell

• Timing: A sale occurs immediately, while an agreement to sell is a future action based on specific terms and conditions.
• Transfer of Ownership: In a sale, ownership is transferred instantly, whereas in an agreement to sell, ownership shifts in the future.
• Risk Responsibility: Risks are passed to the buyer immediately in a sale, but in an agreement to sell, the seller bears the risks until goods are transferred later.
• Contract Status: A sale is a completed contract, whereas an agreement to sell is an ongoing arrangement.
• Goods Involved: In a sale, existing goods owned by the seller are involved, while in an agreement to sell, future goods are offered based on certain events.
• Price Determination: In a sale, the price is fixed immediately; in an agreement to sell, the price may be determined based on circumstances.
• Loss Due to Price Change: If the price of goods drops after an agreement to sell, the seller bears the loss; in a sale, the buyer is responsible.
• Condition and Warranty: Conditions are more relevant to sales, while warranties are more associated with agreements to sell.
• Rights Transfer: In a sale, all rights are transferred to the buyer immediately; in an agreement to sell, this transfer does not happen automatically.
• Description-Based Sale: The law is applicable to both sale and agreement to sell based on descriptions of goods.

Here’s a table summarising the points of difference between Sale and Agreement to Sell:

The major distinction between a sale and an agreement to sell lies in the legal nature of the transaction and the remedies available to the parties involved. In a sale, both a contract and the actual transfer of goods occur simultaneously, while an agreement to sell involves only the contractual commitment to transfer goods in the future.

If a buyer defaults on a sale agreement, the seller can seek legal recourse through a "goods bargained and sold" claim, aiming to recover the contract price in court. Conversely, if a party fails to fulfill an agreement to sell, the seller typically pursues compensation for unspecified damages rather than the specific contract price.

Moreover, the remedies available to the parties differ in cases of breach. In an agreement to sell, if the seller breaches the agreement, the buyer can pursue personal remedies against the seller and may have ownership-related remedies as well. However, if the goods are destroyed before the transfer of ownership in an agreement to sell, the loss generally falls on the seller.

In contrast, in a sale where goods are destroyed after the transfer of ownership, the usual outcome is that the loss falls on the buyer, even if the goods were not yet in their possession. This distinction is illustrated in cases such as Instalment Supply Ltd. v. STO., (1974) 4 SCC 739.

Summary on Sale vs Agreement to Sell

• Ownership Transfer: In a sale, ownership of goods changes hands immediately from the seller to the buyer. On the other hand, in an agreement to sell, the transfer is set for a future date, subject to specific conditions.
• Risks and Benefits: When a sale occurs, risks and benefits associated with the goods are transferred to the buyer. Conversely, in an agreement to sell, risks mostly remain with the seller until the actual transfer takes place.
• Legal Implications: Different legal rights, responsibilities, and remedies apply to sales and agreements to sell. Understanding this difference is crucial for businesses to navigate transactions effectively.
• Timing of Ownership Change: The distinction impacts the timing of when ownership shifts between parties and determines liability in scenarios such as damage to the goods before transfer.