This article has been written by Deyasini Chakrabarti from KIIT Law of School, Odisha. This article talks mostly about two basic concepts of sale and agreement to sell, various statutory provisions that are related to it and also about their difference.
Table of Contents
Introduction
The basis of Indian society is a contract. The very foundation of Indian society was based on the Social Contract Theory. Thus, contracts are the roots of the law which deals with business, transactions of the Indian economy as well as the society. The mother law being the Indian Contract Act 1872, we had derived the Sale of Goods Act 1930. Thus it helps to enhance, encourage and promote business transactions where the seller transfers or agrees to transfer the title in the goods to the buyer for consideration.
Statutory Provision that draws the difference between Sale & Agreement To Sell
One of the foundation concepts in the Sale of Goods Act 1930, is the sale and an agreement to sell. Section 4 of the Sale of Goods Act 1930 specifically deals with sale and agreement to sell. It explicitly manages and deals with sale and agreement to sell.
It expresses that:
- Firstly, an agreement to sell products is an agreement whereby the merchant moves or consents to move the property in merchandise to the purchaser at a cost. There might be an agreement of offer between one section proprietor and another.
- Secondly, an agreement to sell might be total or restrictive.
- Thirdly, where under an agreement to sell the property in the merchandise is moved from the seller to the buyer, the agreement is known as a sale, yet where the exchange of the property in the products is to happen at a future time or subject to some condition from that point to be satisfied, the agreement is called an agreement to sell.
- Lastly, an agreement to sell turns into a sale when the time slips by or the conditions are satisfied depending upon which the property in the merchandise is to be moved.
Essentials of Contract of Sale
The essential of the contract of sale are as follows:
- There ought to be at least two parties.
- The basis of the contract ought to be products.
- Price.
- Transfer of Property in Goods.
- Absolute or Conditional.
- All other essential constituents of a valid contract.
Sale: Concept And Definition
Section 4(1) defines sale as a contract whereby, the seller transfers or agrees to transfer the property in goods to the buyer for a price. Thus, it happens in the present. Such an event of sale is fixed, conditional and binding upon both the parties. A contract of sale is made by an idea to purchase or sell merchandise at a cost and the affirmation of such an offer.
The agreement may oblige the speedy movement of the product or prompt instalment of the cost or both, or for the transport or instalment by portions, or that the transport or instalment or both will be delayed. It is further being subjected to the arrangements of any law until further notice in power, a contract of sale might be made or recorded in writing or by word of mouth, or partly in writing or partly orally or can be implied from the conduct of the parties. Thus the process of forming a contract of sale had been explained in section 5 of the concerned Act.
The existing goods mostly from the subject of the contract of sale. However, the goods could also be owned or possessed by the seller or future goods.
Agreement to Sell
An agreement to sell can be defined as the transfer of property in goods that is to take place in future time or the transfer might take place depending on the fulfilment of certain conditions. The same had been defined in section 4(3). An agreement to sell also becomes a sale when the given time elapses or the conditions that are needed for the transfer to happen gets fulfilled. Thus, an agreement to sell establishes the terms and conditions of the offer of a property by the seller to the buyer.
These terms and conditions incorporate the sum at which it is to be sold and the future date of payment. The concept of contingent contract as per section 31 of the Indian Contract Act 1872, can also be brought into it. Thus an agreement to sell is a contract, to do or not to do something if some event collateral to such contract, does or does not happen.
All the terms and conditions remembered for the understanding of sale must be done all together by both the parties and obeyed all through the deal procedure until the time the sale deed is made or completed. Thus, an agreement to sell is a basic document on which the sale deed is drafted. In other words, agreement to sell can be called a confirmation of the future event which may take place depending on the fulfilment of the terms and conditions placed forth in the present.
Difference Between Sale And Agreement To Sell
As already described above, the sale takes place immediately, while an agreement to sell takes place in the future depending upon the fulfilment of certain terms and conditions. Thus at the time of the sale, an actual transfer takes place whereas at the time of the agreement to sell future transfer takes place. Risks are transferred immediately in sale whereas in the agreement of sale risks are attached to the seller till the goods are being transferred in the future. The sale is an executed contract whereas agreement to sell is an executory contract.
As per section 6(1) the sale deed mostly comprises of the existing goods owned or possessed by the seller or future goods. Whereas in the agreement to sell, the seller indicates to impact a present offer of future merchandise, thus it entirely depends upon the contingency of the event which may or may not happen.
However, section 8 of the said act, deals with the goods perishing before the sale but after the agreement to sell, thus this section again highlights the goods which damage or perishes without any fault of the seller or the buyer. Thus this also happens to be an instance of an agreement to sell.
Further, section 9 deals with the ascertainment of the price of the goods. Hence, when a sale is made, immediately a transfer takes place, and therefore the price is certain and fixed, whereas in specific conditions the price is determined, depending upon the circumstances of a certain particular case, thus an agreement to sell is completed but the sale is not.
Therefore the price of the goods itself falls and thereby the risk being attached to the seller, he suffers the loss. However, if the goods or a part thereof is delivered and appropriated by the buyer, the buyer is bound to pay a reasonable price to the seller. Thus it could be concluded that one is an instant action while other is a future action.
In the sale and agreement to sell the condition and warranty as being defined under section 12 of the act which also plays an important role. Section 12(2), defines the condition as a stipulation essential to the main purpose of the contract. While section 12 (3) defines warranty as stipulation collateral to the main purpose of the contract and a breach of it may give rise to claim for damages but not to right to reject the goods and to treat the contract as denied.
Thus the term “condition” could be related more to the immediate sale, whereas the term “warranty” could be more associated with the agreement to sell. Subsequently, we also find that section 13 of the said act is also inclined towards the agreement to sell as it states that when a condition could be treated as a warranty.
When an immediate sale happens, all the rights which are attached to the goods to the seller are impliedly transferred immediately to the buyer, whereas, in the agreement to sell, this is not the case. In certain cases the sale also happens as per the descriptions hence it is applicable to both to sale and agreement to sell as per section 15 of the Sale of Goods Act, 1930.
Chart Showing The Differences Between Sale And Agreement To Sell
| SALE | AGREEMENT TO SELL |
| In the contract of sale, the exchange of goods takes place immediately. | In the agreement to sell the parties agree to exchange the goods for a price depending on the fulfilment of certain conditions at a future specified date. |
| The nature in the sale is absolute. | The nature of the agreement to sell is conditional. |
| It is an executed contract. | It is an executory contract. |
| Transfer of risk takes place immediately. | Transfer of risk doesn’t take place, until and unless the goods are transferred. |
| The right to sell remains with the buyer | The right to sell remains with the seller. |
| Here the seller has the right to sue for the price. | Here the seller has the right to sue for damages. |
| It creates a right in rem. | It creates a right in personam. |
| The seller has no right to resell. | The seller has the right to resell the same goods if the conditions are not fulfilled. |
| On the off chance that the products are annihilated, the misfortune is borne by the buyer despite the fact that the merchandise is in the ownership of the seller. | The loss falls on the seller despite the fact that the merchandise is in the ownership of the buyer. |
Case Analysis
In the case of Cehave N.V. v. Bremer Handelsgesellschaft mbH; the Hansa Nord ( 1976) Q.B.44, the facts stated that a written contract to sell fruit pellets contained the express stipulation, “ shipment to be made in good condition.” In fact, some of the pellets were not in good condition when shipped. However, they were, on arrival, still fit to be used for the purpose the buyer intended and although they were worth less than they should have been, they could have been re-sold at a reduced cost.
The question of law which arose:
- Firstly was whether there is a breach of the condition?
- Secondly, whether the buyer is entitled to repudiate the contract and reject the goods?
Thus it was held in this case there was no breach of condition and the buyer was not entitled to repudiate the contract and to reject the goods. But the buyer is entitled to the damages.
The reasoning behind the judgment was the seller was not in breach of the implied conditions as to the fitness and merchantable quality. The express stipulation in the contract was not a condition and the seller’s breach of it had not been serious enough to go to the root of the contract. Therefore the buyer is entitled only to the damages.
Similarly in the case of Rowland v. Divall (1923) 2 K.B. 500., the facts stated that Rowland bought a motor vehicle from Divall and used it for four months. Divall had no title to the car, and consequently, Rowland had to surrender it to the true owner. Rowland sued to recover the total purchase price that he had paid to Divall.
Thus the main question of law,
- Firstly was whether there was a breach of the condition?
- Secondly, whether the buyer is entitled to recover the total purchase price.
However, it was held in this case that there is a breach of the implied condition as to the title on which the sale and agreement to sell were based. Therefore the buyer is entitled to recover the purchase price in full, notwithstanding that he had used the car for four months. The rationale behind the judgment was the consideration on the part of the seller had totally failed as there was a breach of condition.
Thus, the use of the car that he had, was no part of the consideration, that he had contracted for, which was the property in and lawful possession of the car, whereas what he got was an unlawful possession which exposed him to the risk of an action at the suit of the true owner.
Conclusion
Sale and Agreement to sell, as effectively expressed, appears to be under a similar nonexclusive name yet at the same time it is to be treated under various classifications. Along these lines so as to set up a deal there must be an understanding communicated or inferred relating to the idea of items and satisfaction of the condition would result in going off the title in the very products contracted to be sold. These two ideas of offer and consent to deal is itself a powerful idea.
It doesn’t limit itself to the Indian Contract Act 1872 and Sale of Goods Act, 1930, just, however, it additionally extends to Transfer of Property Act 1882 and Motor Vehicles Act 1988 also. Anyway so as to comprise a substantial agreement to sell under this Act, there must be consistent and persuading proof regarding understanding between the able competent parties, the cost for the products and the passing of the properties of the products. Consequently without the genuine exchange of possession in the merchandise, by the seller to the buyer, there can be no deal by any stretch of the imagination.
Reference
- http://comtax.up.nic.in/Miscellaneous%20Act/the-sale-of-goods-act-1930.pdf,
- https://keydifferences.com/difference-between-sale-and-agreement-to-sell.html.
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