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Agreement to Sell or Sale, two sides of the same coin?

With reference to Section 4(1) of the Sale of Goods Act[1] a contract of sale of goods takes place when two parties enter into an agreement wherein one party transfers or agrees to transfer a property to the other party in return of a price that may be paid or promised to be paid, or for some other valuable consideration[2]. A contract of sale can also be executed between a part owner and another. It may be absolute, or conditional.

If a property is transferred from one party to another, it may be called a sale but when the transfer of the said property is decided to take place on a future date, it must be termed as an agreement to sell. The Sale of Goods Act, 1930 does not define the word `sale` but as a legal term, sale signifies a transaction which has resulted in passing of some property.[3]

If conditions to an agreement to sell are fulfilled in the prescribed time duration and the transfer of property is complete, it becomes a sale. In other words, Sale is completed once the purchaser becomes the real owner of the property[4] The completion of sale takes place when the property ceases to be in the possession of the seller and moves to the buyer[5] and the buyer has accepted it.

Section 5 of the Act defines how a contract of sale is made.[6] When a party offers to sell or buy goods in return of a price and the party to which the offer is made, accepts the offer, an agreement to sale is concluded. The contract may be on the terms of instant transfer of goods or price, or both. It can also be called for the payment or delivery in instalments or both to take place on a future date.

Subject to the law in force, the contract for sale may be oral, or in writing or implied by the conduct of the contracting parties. In simple terms, Sale takes place when the goods move to the buyer from the seller, at once whereas an agreement to sell is an agreement to transfer the goods on a future date. The transaction does not take place immediately, but is decided to take place on a future date.

Nature of Contract of Sale

A sale can be regarded as a transfer of goods in return of a price agreed upon. It is a contract between two parties, where one gets the possession of the goods and the other agrees on parting with a valuable consideration that may be referred to as price. Price is an essential for a contract of sale. Without that, an agreement or a contract can never be one of sale.

Essentials for a contract of sale:

Two basic requisites for a contract of sale are:
  1. An agreement to sell – by which all the terms regarding the contract are decided upon.
  2. An Actual Sale – by which the goods move from the seller to the buyer.

For a valid sale, the following elements should be present[7]:

  1. The parties entering into the agreement must be competent to contract.[8
  2. Mutual Assent.[9]
  3. The thing or property (object of the contract) that the buyer obtains from the seller.
  4. A price (consideration) paid or promised to be paid in future.

There need to be two parties, a person cannot buy their own goods[10] (exception – Auction sale[11]) and the object of the agreement must be goods as defined under Section 2(7) of the Act. The definition of goods is also laid down by the court in the BSNL case.[12] The two parties must essentially form an agreement which may either be express or implied.

Once the agreement has been formed, a successful transfer of the property in return of a price constitutes a valid sale. All the elements mentioned here are essential to a contract of sale and price must mandatorily be money which can either be paid or promised to be paid. If any other consideration apart from money is being paid, it cannot be regarded as a contract of sale.

Distinction between Sale and Agreement to Sell

Some important aspects of difference between an agreement to sell and a sale are discussed below:

  • The ownership of goods gets transferred immediately in a sale whereas an agreement to sale is made for a transfer of those goods on a future date subject to the satisfaction of certain conditions mentioned in that agreement. Till then, the seller continues to be the owner of those goods. In other words, a buyer becomes the owner of the goods immediately in sale, but on some future date, in an agreement to sell. Section 4(4) of the Act states that an agreement to sell becomes a sale at a future date, when the conditions mentioned in that agreement are fulfilled
     
  • A sale is only possible for some specific, existing goods with full certainty whereas an agreement to sell can be made for unascertained goods that may be contingent of future goods, however it can also be made for exiting goods. If under a contract of sale title to the goods has not passed, then there is an agreement to sell and not a complete sale.[13]
    · Sale can be termed as an executed contract but an agreement to sell will always be a future contract. In sale, the ownership rights of the goods are passed to the buyer with immediate effect unlike in an agreement to sell where some specified conditions must be fulfilled. In sale, a buyer gets jus in rem whereas in an agreement to sell, the buyer gets jus in personam[14].
     
  • Once a sale is completed the ownership moves to the buyer and the goods become the liability of the buyer even if they are still in possession of the seller, i.e if there in any loss or damage to those goods, the buyer suffers. On the other hand, in an agreement to sell, the goods belong to the seller until the sale is complete and if any loss or damage takes place even if the goods are in the possession of the buyer, the liability lies on the seller. In other words, the risk passes with the ownership of the property[15], not possession.
     
  • If there is a breach of contract of sale or the goods are not being delivered the seller can be sued for specific performance of the contract. He can also sue for price. But in an agreement to sell, the buyer gets the right to sue for damages but not for price recovery if there is a breach of the contract.
     
  • In a contract to sell, it is implied that the seller has a right to sell those goods if the circumstances do not portray an intention otherwise. But in case of an agreement to sell, the implied term is that the seller will have the right to sell those goods at the future time when the sale is decided to be executed.
     
  • If a buyer turns insolvent, the seller cannot deny delivery of goods to the buyer and can demand return of those goods if they are with the Official Receiver of the buyer if it is a sale, as the ownership rights have already been transferred to the buyer. However, the seller can demand some retainable amount of dividend in accordance with the price of the said goods. In a agreement to sell, if a buyer turns insolvent, the seller is not bound to deliver the goods to him as the ownership rights are still with him.
     
  • If a seller turns insolvent, the buyer can still demand delivery of goods as the ownership title has already passed to the buyer, in a sale. In an agreement to sell, if the price for those goods has already been paid by the buyer but the seller is not in a position to deliver the goods due to insolvency, the buyer cannot go on demanding the delivery, but will be entitled to some retainable dividend as he becomes a creditor in that case.

Conclusion
As defined in Section 4(1) of the Sale of Goods Act, 1930, A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. If we break down the definition, it talks about two things: Transfer of the goods and an agreement to transfer the goods. The former is termed as sale and the latter is an agreement to sell. In other words, sale and agreement to sell are subsets of a contract of sale.

Sale concludes when the goods are transferred to the buyer under a contract of sale.

Agreement to sell is simply an agreement to transfer the said goods at a future time.

As defined under Section 4(4) of the Act, an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Referring to this rule, it can be said that the two doctrines despite being different majorly due to the role ‘time’ plays, can become one on the the fulfilment of conditions.
Closely referring to the distinctions between the two doctrines, it can be said that sale and agreement to sell seem to be different at first sight, but are not completely distinct.

Both deal with transfer of goods, in return of a price where there are two parties namely buyer and seller. The major difference between the two is that one takes place instantly and the other is decided to take place on a future date, and once the specified time comes and the conditions are fulfilled, an agreement to sell becomes a sale.

With all the apparent differences, the two doctrines are one and the same and emanate from one concept. Hence, it can be said that agreement to sell and sale are two sides of the same coin. Where that coin is contract of sale.

End-Notes:
  1. The Sale of Goods Act, 1930, §4(1
  2. Ghasiram Agarwalla v. State, AIR 1967 Cal. 568 (575).
  3. State v. Sinha Govindji, AIR 1967 Del 88.
  4. A. Ramanatha Ayiar, Law of Sale of Goods. (Ninth Edition, 2010)
  5. Minerals and Metals Trading Corpn. Ltd. V. Dimple Overseas Ltd., AIR 2001 Del 427.
  6. The Sale of Goods Act, 1930, §5.
  7. Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer, (1973) 77 CWN 141: AIR 1978 SC 449;
  8. By virtue of §11, The Indian Contract Act, 1872
  9. By virtue of §13 – §19, The Indian Contract Act, 1872.
  10. Khedut Sahakari Ginning & Pressure Society v. State of Gujrat, AIR 1972 SC 1786.
  11. The Sale of Goods Act, 1930, §4(1).
  12. BSNL v. Union of India, (2006) 3 SCC 1.
  13. State of Madras v. Gannon Dunkerby & Co., AIR 1958 SC 560: 1959 SCR 379: 9 STC 353.
  14. A. Ramanatha Ayiar, Law of Sale of Goods. (Ninth Edition, 2010)
  15. By virtue of §26 of the Sale of Goods Act, 1930.

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