Introduction
All the transactions relating to a business taking place between buyers and sellers are governed by the Sale of Goods Act 1930. It was initially a part of the Contract Act of 1872. But was later repealed and transformed into a separate law that governed contracts of sale. Section 4 of the 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 deal with the concept of sale and agreement to sell.
Definition of Sale
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.
Concept of Sale
The concept of the sale literally says that the seller and the buyer enter into a contract regarding the transaction of goods after confirming the condition of the contract under the Sale of Goods Act 1930. They decide a consideration for each other and thus the transaction completes when the seller transfers the goods to the buyer. After the whole process, the goods are said to be sold.
Example: A buys a Cycle from a cycle shop and pays the whole price to the shopkeeper. It is a sale.
Essentials of Sale
The essentials of sale are the following.
- There must be some goods.
- A Price in the form of money either paid or promised to be paid.
- There must be at least two parties.
- It must be a valid contract of sale.
- There must be a transfer of ownership from the seller to the buyer.
Modes of Formation of Sale
A contract of sale can be made in any of the following ways.
- By immediate delivery of the goods.
- By immediate payment of price but the delivery is to made at some future date.
- By immediate delivery of goods and also immediate payment of the price.
- By the payment or delivery or both to be made in particular installments.
- The payment or delivery or both may be at some future date.
Agreement to Sell
According to Section 4(3) of the Sale of Goods Act 1930
“Agreement to sell is a contract where the property in goods or title is yet to be transferred (for example; it has to take place at a future time) or subject to some conditions thereafter to be filled.
Concept of Agreement to Sell
Let us discuss the conditions that are essential in the finalization of an agreement to sell.
A) Condition Precedent
Where an agreement to sell is to become a sale on the happening of a particular future event it is known as a condition precedent.
Example: A agrees to buy B’s car for Rs 5,00,000/- if his mechanic approves of the car. It is an agreement to sell based on a condition precedent.
B) Condition Subsequent
When the delivery of the goods stops due to the occurrence of some particular event then such a condition will be condition subsequent.
It applies to both sales and agreements to sell.
Essentials of Agreement to Sell
The essentials of an agreement to sell are the following.
- There is no transfer of property immediately.
- There is a transfer of property at a future date.
- The agreement to sell is always subject to a condition.
Distinction between Sale and Agreement to sell
Following are the points that distinguish between Sale and Agreement to sell.
1. Absoluteness
Sale: A sale is an absolute contract with no part left to be performed.
Agreement to Sell: In an agreement to sell, the condition of the contract may be subsequent or precedent.
2. As to Nature
Sale: A contract of sale is a contract that includes conveyance.
Agreement to Sell: An agreement to sell in a contract is pure and simple.
3. Transfer of Property
Sale: In a sale, the property passes to the buyer immediately at the time of making the contract.
Agreement to Sell: Whereas in agreement to sell, there is no immediate transfer of property to the buyer at the time of the contract rather it transfers to the buyer at a certain date or is subject to the fulfillment of a condition.
4. As to Right
Sale: In the sale, the buyer acquires the JUS IN REM i.e. right against the whole world.
Agreement to Sell: Whereas in agreement to sell the buyer only has JUS IN PERSONAM i.e. his right to goods extends only to the seller.
5. Risk of Loss
Sale: The general rule is, “risk of loss prima facie passes with the ownership”. In case of a sale, if the goods are destroyed, the loss falls on the buyer even if he does not have actual possession of the goods.
Agreement to Sell: In agreement to sell, the loss is suffered by the seller since the goods have not yet been sold; even if at the time of loss they are in the possession of the buyer.
6. Insolvency of Seller
Sale: If the seller is adjudicated insolvent, the buyer is entitled to recover his goods from the official receiver or he can recover the price.
Agreement to Sell: In agreement to sell, the buyer cannot get the price of the goods but he can only sue for damages
7. Insolvency of Buyer
Sale: In a sale, if the buyer is adjudicated insolvent before he pays, the seller would be required to deliver the goods to the “official receiver” who would be holding the buyer’s property for him.
Agreement to Sell: In agreement to sell, the seller may refuse to deliver the goods to the official receiver unless the buyer can pay for them.
8. Breach by Seller
Sale: The seller cannot breach the contract because he is bound by the contract and if he does so, the buyer can recover damages under the tort of conversion.
Agreement to Sell: In the agreement to sell, the buyer can only claim damages for the breach of contract.
9. Breach by Buyer
Sale: If the buyer breaches the contract of sale, the seller can sue him for the price as well as for the damages.
Agreement to Sell: In agreement to sell, the seller can only claim damages and he can also forfeit the earnest money of the buyer.
Final Note
In the Sale, immediate transfer of property takes place between the parties. The seller offers his property and the buyer buys it. However, an agreement to sell is a promise to sell something at some future date.
FREQUENTLY ASKED QUESTIONS
Define “Sale” and “Agreement to sell” and distinguish between the two.
(2019-A 5 year, 2018-A, 2017-A, 2015-S, 2015-A, 2014-A)
Define and distinguish between sale and agreement to sell.
(2013-A)
Distinguish between sale and agreement to sell.
(2010-A)
Define sale and agreement to sell. What is the distinction between the two?
(2009-A)
What is the difference between a sale and an agreement to sell? Also, state the necessary ingredients for the formation of a contract of sale.
(2008-S, 2007-A
REFERENCES
- The Contract Act, 1872
- N-Series by M.A. Chaudhary
- Law of Contract by Avtar Singh
