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When the seller either transfers the ownership of goods or agrees to transfer it in the future for monetary consideration to the other party i.e. the buyer, then such contract is known as a contract of sale. This contract of sale can be the sale and agreement to sell and the key difference between both of them is the period when the sale happens. In this blog, we will understand the statutory provision that outlines the difference between sale and agreement to sell. Before understanding the demarcation between the two, let’s understand the concept of the contract of sale.
The legal definition of a contract of sale has been enshrined under section 4(1) of the Sale of Goods Act, 1930, which means that it is a formal written agreement enforceable by law, where the seller either transfers or agrees to transfer the goods to the buyer for a predetermined price. Hence, the contract for the sale of goods can be both sale and agreement to sell depending upon whether the ownership of the goods is transferred immediately or in the future.
A contract of sale should not only include the requirements of a valid contract under the Indian Contract Act, 1872 i.e. consideration, free consent, competency of the parties, and lawful object, but should also include the following essential elements:
A contract of sale of goods is bilateral in which the property of goods is transferred from one party to the other. This means that the seller cannot sell his goods to himself and there must be a different person as one person cannot be both the buyer and seller. An exception to this rule is that a person can purchase his goods when the goods are sold under the execution of the decree. For example, when the goods are distributed among the partners after the dissolution of the partnership firm, then such distribution is not a sale.
The subject matter in the contract of sale should be any movable property except actionable claims and money because the contract related to the sale of the immovable property is covered under the separate statute, ‘Transfer of Property Act‘.
There should be an agreement between the buyer and the seller for an absolute transfer of ownership of goods. However, the physical delivery of goods to the buyer is not necessary. Under contract of sale, only general property in goods is transferred as distinguished from the special property as in the case of a pledge of goods, where the possession of the goods is transferred to the pledgee or pawnee but the pledger retains the ownership rights.
In the contract of sale, the buyers are required to pay a certain amount for the goods which refer to as the ‘Price’. As a result, the consideration in a contract of sale must be in the form of money. When goods are offered in exchange for products, it is referred to as barter or exchange, which was common in ancient times.
In sale, the property in goods is transferred at once from the seller to the buyer and has been laid down under Section 4(3) of the Act that when under the contract of sale the property in goods is transferred from the seller to the buyer, then such contract is known as a sale. The sale takes place only on the deliverable goods in which the buyer is bound to take delivery of them.
This agreement may require prompt moving of the product or prompt payment of the cost, or both, or transportation or payment in installments, or that the transportation or payment in installments is delayed. A contract of sale can be made or recorded in writing or by word of mouth, or partially in writing and partly orally, or can be implied from the conduct of the parties, and it is further subjected to the regulations of any law until further notice in authority. Under section 5 of the relevant Act, the method of drafting a contract of sale is properly outlined.
We saw that in the sale, the property in goods is immediately transferred from the seller to the buyer. However, in an agreement to sell, the transfer of goods does not take place immediately. Such an agreement is made to transfer the goods at the future date after satisfying the contingent clauses or certain conditions.
An agreement to sell is defined under Section 4(3) of the Act in which the transfer of the property in the goods is to take place at a future period or subject to some condition to be fulfilled thereafter. All the terms and conditions for the sale agreement must be recalled by both parties and followed throughout the transaction process until the sale deed is made or finished. As a result, the sale deed is built on the foundation of a sale agreement. In other words, a sale agreement can be seen as a confirmation of a future occurrence that may occur if the terms and circumstances outlined in the present are met.
From the above discussion, we have observed that a contract for sale of goods can be both sale and agreement to sell, depending upon the condition whether it postulates an immediate transfer of the property from the seller to the buyer or the transfer takes place at a later date. However, this is not the only demarcation between sale and agreement to sell.
|S.No.||Basis||Sale||Agreement to Sell|
|1.||Definition||It can be defined as the transfer of ownership of the goods by the seller to the buyer in exchange for the monetary consideration paid or promised or partly paid and partly promised.||It can be defined as the transfer of title of ownership on a future date after satisfying the certain conditions or contingent clauses.|
|2.||Meaning||In sale, the goods are transferred from the seller to the buyer immediately.||In the Agreement to sell, the property in the goods does not transfer immediately but at a future date specified in an agreement.|
|3.||Executed contract/Executory contract||Both the sale and agreement to sell are contracts. A contract of sale is an executed contract which means both the parties have fully performed their obligations.||An agreement to sell is an executed contract where the parties have not fully performed their obligations.|
|4.||Liable to sue||In both the sale and agreement to sell, the seller can sue the buyer. In the contract of sale, the seller can sue the buyer for breaching the contract of sale.||The seller can sue the buyer only for the damages but not the price.|
|5.||Sale tax||Sales are liable for the sales tax.||Agreement to sell is not liable for the sales tax.|
|6.||Right to resale||In the contract of sale, the seller has no right to resale the goods.||In an agreement to sell, the seller has the right to resale the goods.|
|7.||Liability for damage||In both the sale and agreement to sell there is a liability for the damages of goods. If the goods are destroyed, the loss should be borne by the buyer even though the goods are in the possession of the seller.||If the goods are destroyed, the loss should be borne by the seller even though the goods are in the possession of the buyer.|
|8.||Right in rem/Right in personam||The Sale gives the right in rem i.e. against the whole world.||Agreement to sell gives the right in personam i.e. between the parties only.|
|9.||Right to recover the money||If the buyer refuses to pay, the unpaid seller may have the right to recover the money as provided under section 46 of the Sale of Goods Act of 1930.||If the buyer refuses to accept and pay, the seller may claim for non-acceptance damages.|
|10.||Examples||Example- Ram sold 12 bags of sugar to Ravi against payment of Rs. 7,000.||Example- Ram agrees to sell 12 bags of sugar to Ravi against payment of Rs. 7,000 after getting the stock.|
Hence, we conclude that when the seller agrees to sell the goods to the buyer at a future specified date or after the necessary conditions are fulfilled then it is known as an Agreement to sell, whereas when the seller sells goods to the customer for a price, and the transfer of goods from the vendor to the customer takes place at the same time, then it is known as Sale. Also, we have seen there are various points of difference between the sale and agreement to sell apart from the period when the goods are delivered. If you want to know more about the sale and agreement to sell, contact eSahayak.