Difference Between Sale and Agreement to Sell

It’s important to understand the key difference between sale and agreement to sell. These two terms may seem similar, but they hold distinct legal implications that can significantly impact business transactions.

A “sale” represents a straightforward exchange where ownership of goods is immediately transferred from the seller to the buyer. In contrast, an “agreement to sell” sets the stage for a future transfer of ownership, contingent upon certain conditions being met. This simple yet essential point to distinguish between sale and agreement to sell.

Sale

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 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 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 has been explained in section 5 of the Sale of Goods Act.

The existing goods are 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 get 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.

Key Difference Between Sale and Agreement to Sell

Sale and agreement to sell differ in various aspects such as:

The first difference between sale and agreement to sell is that, a sale happens right away, but an agreement to sell takes place in the future, depending on specific terms and conditions. During a sale, ownership is immediately transferred, whereas with an agreement to sell, ownership shifts in the future.

In a sale, risks are passed to the buyer instantly, but in an agreement to sell, the seller bears the risks until the goods are transferred later. A sale is a completed contract, while an agreement to sell is an ongoing arrangement.

Another point of difference between sale and agreement to sell  is: according to Section 6(1), a sale mainly involves existing goods that the seller currently owns or possesses, while in an agreement to sell, the seller offers to sell goods in the future, depending on certain events that may or may not occur.

Section 8 of the law deals with goods becoming damaged or perishing after an agreement to sell but before the actual sale, emphasising situations where goods are lost without fault on the part of the seller or the buyer. This is also an example of an agreement to sell.

Furthermore, Section 9 addresses the determination of the price of goods where there lies a difference between sale and agreement to sell. In a sale, the transfer happens immediately, so the price is fixed, while in some specific cases, the price is determined based on the circumstances of the situation in an agreement to sell, which means the sale is not yet complete.

Another difference between sale and agreement to sell is, if the price of the goods drops after an agreement to sell, the seller bears the loss. However, if the goods or part of them are delivered and accepted by the buyer, the buyer must pay a reasonable price to the seller. In summary, one is an immediate action, while the other is a future action.

In both sale and agreement to sell, the terms “condition” and “warranty,” defined under Section 12 of the law, play a significant role. Section 12(2) defines a condition as something essential to the main purpose of the contract, while Section 12(3) defines a warranty as something tangential to the main purpose of the contract. A breach of a condition can lead to a claim for damages, but it does not grant the right to reject the goods or void the contract. This makes “condition” more relevant to immediate sales, while “warranty” is more associated with agreement to sell.

Additionally, Section 13 of the law leans towards agreement to sell, as it explains when a condition can be treated as a warranty.

In an immediate sale, all rights associated with the goods are automatically transferred from the seller to the buyer. However, in an agreement to sell, this isn’t the case. In some cases, sales also occur based on descriptions, making the law applicable to both scenarios.

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

The major difference between sale and agreement to sell is an agreement to sell is a straightforward contract, while a sale involves both a contract and the actual transfer of goods. If goods are sold and the buyer defaults on the agreement, the seller can take legal action to recover the contract price through a “goods bargained and sold” claim in court. However, if a party agrees to buy but doesn’t follow through, the seller typically seeks compensation for unspecified damages.

Further, sale and agreement to sell differ, as when a seller fails to honour their promise by breaking the agreement to sell, the buyer can only pursue personal remedies against the seller. The buyer also has ownership-related remedies. In the case of an agreement for sale, if the goods are somehow destroyed, the general rule is that the loss falls on the seller. On the other hand, in a sale, if the goods are destroyed, the usual outcome is that the loss falls on the buyer, even if the goods were never in their possession (Instalment Supply Ltd. v. STO., (1974) 4 SCC 739).

Summary on Sale vs Agreement to Sell

The key distinction between a sale and an agreement to sell lies in the timing of ownership transfer. In a sale, ownership of goods transfers immediately from the seller to the buyer, with accompanying risks and benefits. In contrast, an agreement to sell sets the stage for a future transfer, conditional upon certain terms. Risks typically remain with the seller until the goods are eventually transferred. This difference influences legal rights, responsibilities, and remedies in business transactions. Understanding this distinction is vital for businesses, as it impacts when ownership changes hands and bears the consequences of unexpected events like damage to the goods.