DISTINCTION BETWEEN SALE

AND AGREEMENT TO SELL

SUBMITTED BY:
ISHA V. CHAVAN
S.Y.LL.B.
Academic Year: 2020-21

DIVISION: A
ROLL NO. 27
SUBJECT: CONTRACT II
SEMESTER: 4

SUBMITTED TO:
DR. DARSHANA PALWANKAR
 INDEX
Sr. No. TITLE Page No.
1 Introduction 3-6
2 Objects 6
3 Relevant Provisions with Case Laws 6-8
4 Conclusion 9
5 Bibliography 10
1) INTRODUCTION:

Initially, the transactions related to sale and purchase of goods was regulated by Chapter VII
(Sections 76 to 123) of the Indian Contract Act, 1872. This was broadly based on the English
common law. As the need was felt the provisions of Chapter VII were repealed. A separate at, the
Sales of Goods Act came into force in 1930.

The Act extends to the whole of India except for Jammu and Kashmir. It does not affect rights,
interests, obligations and titles acquired before the commencement of the Act. The Act deals with
sale but not with mortgage or pledge of the goods.

Section 4 of the Sales of Goods Act, 1930 deals with sale and agreement to sell. As stated in the
section, contract of sale is a type of contract where the seller transfer or agrees to transfer the
property in goods to the buyer for a price. There may be a contract of sale between one part-owner
and another. In simple terms it's when the seller either transfers the ownership of goods or agrees
to transfer it for money to the buyer. The term ‘contract of sale’ includes both a sale and an
agreement to sell.

A contract of sale is made by a seller to buy or sell goods for a price and the acceptance of such
offer buy the other party, that is the buyer. Here the relationship between the seller and the buyer
is of creditor and debtor. The contract may be in writing or orally and it may be absolute or
conditional.

For the purpose of constituting a valid sale, the following conditions are required:

 Two parties: A sale has to be reciprocal because the goods have to pass from one person to
the other. That is, there must be a buyer who buys or agrees to goods and a seller who sells
or agrees to sell goods.
 Subject matter to be goods: Goods is defined in Section 2 (7) of the Sales of Goods Act,
1930. It says that goods are every kind of movable property other than actionable claims
and money and also stock and shares, growing crops, grass and things attached to or
forming part of the land.
 Transfer of ownership of goods: There must be transfer of ownership or an agreement to
transfer the ownership of goods from the seller to the buyer and not a mere transfer of
possession.
  Consideration is price: The consideration in a contract of sale has to be price, that is,
money. If goods are offered as the consideration for goods, it will not amount to a sale. It
will be a barter.
 Essential elements of a valid contract: All the essentials of a valid contract according to the
Indian Contract Act, 1872 must be present. They are offer and acceptance, consideration,
competent parties, free consent and legal object.

The section also talks about an agreement to sell. Where the transfer of the property in the goods
will take place at a future time or is subject to some condition which has to be fulfilled, the contract
is called an agreement to sell. Such an agreement to sell becomes a sale when the prescribed time
lapses or the conditions are fulfilled.

It doesn’t involve any transfer of goods from the seller to the buyer. As mentioned above, in an
agreement to sell, the transfer of property in the goods is to take place at some future date or subject
to some condition or conditions to be fulfilled thereafter. An agreement to sell can also be
considered as a contingent contract.

Now that we have established the meaning of both sale and an agreement to sell, lets understand
the difference between the two. Sale is an executed contract, that is one of the parties have already
performed their part of the contract. Also, in sale the ownership rights are transferred to the buyer
immediately. Whereas, an agreement to sell is an executory contract, that is both the parties are
yet to perform their mutual promises and the ownership rights of the goods are transferred to the
buyer only in the future. This further signifies that a sale is a contract plus a conveyance, whereas
agreement to sell is a pure contract. Sale is absolute whereas, agreement to sell is conditional
because it depends on certain terms and conditions.

The title of the goods is transferred with the transfer of goods in a sale whereas in agreement to
sell the title of goods is not transferred as there is no transfer of goods. In sale, the transfer of risk
takes place immediately but in agreement to sell the transfer of risk doesn’t take place until the
goods are transferred. In a sale the right to sell remains with the buyer, but in agreement to sell the
right to sell is with the seller. A sale creates a right in rem i.e., right against the world like right to
enjoy the goods against the world, while on the other hand an agreement to sell creates a right in
personam i.e., a right against person like right of the buyer to sue the seller for damages, etc.
In a contract of sale, in case of a breach of contract by the buyer, as the ownership of the goods is
passed on to the buyer, the seller can only sue for the price of the goods. Whereas, in an agreement
to sell, the seller is only entitled to damages, as the ownership of goods has not passed to the buyer.
In other words, in a sale, if the buyer fails to pay the price for the goods, then the seller can sue
him for recovery of price. Whereas in an agreement to sell, if the buyer fails to pay for the goods,
then the seller can only sue the buyer for damages.

In a contract of sale, as the ownership of the goods is passed onto the buyer, the seller cannot sell
the goods and if he does so he will be guilty of conversion. Also, the buyer can sue and recover
the goods, even from a third person. But in agreement to sell, as the ownership of the goods in not
passed onto the buyer, the seller can sell the goods to a third party. And the buyer can only claim
the damages from the seller.

In contract of sale, the ownership of the goods is with the buyer and if the goods are destroyed or
lost by accident then the loss is borne by the buyer even if the goods are in the possession of the
seller. While in an agreement to sell, the ownership of the goods is still with the seller and if the
goods are destroyed or lost by accident then the loss is borne by the seller even though the goods
are with the buyer. In case of sale of goods, sales tax is levied, whereas in an agreement to sell it
is not levied.

In a sale, as the ownership of the goods is passed onto the buyer, if the seller becomes insolvent
then the buyer is entitled to recover the goods from the official receiver or assignee, as the case be.
While on the other hand in an agreement to sell, after paying for the goods if the buyer finds out
about the insolvency of the seller, the buyer’s right would be to prove the amount paid in the
insolvency of the seller.

In a sale, considering that the ownership of the goods is passed onto the buyer, if the buyer becomes
insolvent before paying for the goods, it is the duty of the seller to deliver the goods unless he has
a right in lien. And the buyer is only entitled to claim ratably for the price due. While in an
agreement to sell, if the buyer becomes insolvent without paying for the goods, as the ownership
is not passed onto the buyer, the seller can refuse to deliver the goods, unless paid for.

There are other types of agreements which are similar to a sale, but are completely different in
their nature and effect. Some of the common ones are a contract of work and labour done, a hire-
purchase agreement, etc. A contract of sale is in which some goods are sold or are to be sold for a
price. It requires the delivery of goods. But there are transactions where there is a contract of
exercise of skill and labour, and the delivery of goods is subsidiary. These are the contracts for
work or labour or the contracts for service. For example, A commissions B to paint his portrait and
supplies him with the material to paint. It is a contract for work and labour and not a contract of
sale because the substance of the contract is the artist’s skill and not the delivery of the material.

A hire-purchase agreement is an agreement for hire of goods where the person who hires the goods
has an option to purchase the goods at the end. The possession of the goods is delivered to such a
hirer and he has to pay via instalments. The property in the goods passes to the hirer on the payment
of the last instalments.

2) OBJECTS:

 To understand a contract of sale.

 To interpret the meaning of agreement to sell.
 To learn the difference between sale and agreement to sell.

3) RELEVANT PROVISIONS WITH CASE LAWS:

 Sales of Goods Act, 1930

Section 4: Sale and agreement to sell

(1) 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. There may be a contract of sale between one part-owner
and another.

(2) A contract of sale may be absolute or conditional.

Case Law: Wood vs. Manley

Citation: 11 A & E 34
In this case, A agrees to buy haystack from B which is on B’s land, with liberty to go on B’s land
to take it away. This was considered a sale and B cannot revoke the licence given to A to the wood
on his land.

Case Law: State of Gujarat vs. Ramanlal & Co.

Citation: AIR 1965 Guj 60

In this case, a partnership firm was dissolved and the surplus assets, including some goods were
divided amongst the partners. When the tax authorities sought to tax this transaction, it was held
that the same was not a sale. The partners themselves were the joint owners of the goods. It was
also pointed out that no partner had paid any money as consideration for the goods allotted to them.
Therefore, the transaction could not be regarded as a sale.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the
buyer, the contract is called a sale, but where the transfer of the property in the goods is to take
place at a future time or subject to some condition thereafter to be fulfilled, the contract is called
an agreement to sell.

Case Law: White vs. Wilks

Citation: 1813 5 Taunt. 176

In this case, X agrees to buy 50 tons of oil from Y’s cisterns. Y has several cisterns, with more
than 50 tons of oil in them. This was merely an agreement to sell the oil.

Case Law: Johnson vs. Mcdonald

Citation: 1842 9 M. & W. 600

In this case, C agrees to sell D 100 tons of soda nitrate, which is to arrive in England by a particular
ship. This was an agreement to sell as the ownership of soda nitrate was to be transferred on the
arrival of the ship.

(4) 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.
Section 55: Suit for price

(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer
wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller
may sue him for the price of the goods.

(2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and
the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price
although the property in the goods has not passed and the goods have not been appropriated to the
contract.
Case Law: Colley vs. Overseas Exporters

Citation: (1931) All ER 596

In this case, there was a contract for the sale of some unascertained leather goods to the buyer f.o.b
Liverpool. Though the seller sent the goods, yet they could not be put on board as no definite ship
had been named by the buyer. When an action was brought by the buyer against the seller, it was
held that the seller was not entitled to pay the price as the goods had not yet moved into the
possession of the buyer. In the absence of an agreement relating to the payment of price on a certain
day, irrespective of the delivery, the seller is not entitled to sue the buyer for payment, but can
bring about an action for damage.

Case Law: Cehave N.V. vs Bremer Handelsgesellschaft mbH; the Hansa Nord

Citation: (1976) QB 44

In this case, a written contract to sell fruit pellets contained the express stipulation, “shipment to
be made in good condition.” In fact, 1/3rd of the pellets were not in a good condition when shipped.
However, they were, on arrival, still fit to be used for the purpose the buyer had intended and
although they were worth less than they should have been, they could still have been re-sold at a
reduced price. Nevertheless, the buyer sued the seller. It was held that the that there was no breach
of condition and the buyer was not entitled to damages to repudiate the contract and to reject the
goods. But the buyer was entitled to damages.

Section 57: Damages for non-delivery

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may
sue the seller for damages for non-delivery.

4) CONCLUSION:

Sale and an agreement to sell are explained under Section 4 of the Sales of Goods Act, 1930.
Accordingly, we can say that a sale and an agreement to sell considerably vary from each other.
However, the term ‘sale’ is a generic or a blanket term which includes agreement to sell as well.
An agreement to sell becomes a sale when the prescribed time elapses or when the stipulated
conditions are fulfilled. The seller and buyer have rights to sue each other for breach of contract,
non-delivery of goods, loss or damage of goods, etc. Also, sale and an agreement to sell are not
only limited to Sales of Goods Act, 1930, they extend to the Indian Contract Act, 1872, Transfer
of Property Act, 1882 and Motor Vehicles Act, 1988 too.
5) BIBLIOGRAPHY:

 Dr. Avtar Singh, Law of Sale Goods (Eastern Book Company, Lucknow, 7th edn., 2011)
 N. H. Jhabvala, The Sale of Goods Act & Indian Partnership Act (C. Jamnadas & Co.,
Mumbai, 2021
 Sales of Goods Act 1930, India, available at:

https://legislative.gov.in/sites/default/files/A1930-3_0.pdf

 https://www.lawctopus.com/academike/remedies-breach-under-sale-of-goods-act/
 https://blog.ipleaders.in/sale-agreement-sell/
 https://www.srdlawnotes.com/2017/01/distinction-difference-between-sale-and.html
 https://keydifferences.com/difference-between-sale-and-agreement-to-sell.html
 https://www.toppr.com/guides/business-laws/the-sale-of-goods-act-1930/sale-and-
agreement-of-sale/
 https://lexpeeps.in/distinction-between-sale-and-agreement-to-sell/
 https://accountlearning.com/sale-agreement-sell-meaning-differences/
 https://kanwarn.wordpress.com/2015/06/20/sale-of-goods-act-1930-part-i-introduction/
 https://www.shareyouressays.com/knowledge/7-most-important-differences-between-
sale-and-agreement-to-sell/116700
 https://www.owlgen.in/distinguish-between-sale-and-agreement-to-sell/
 https://www.docsity.com/en/distinguish-between-sale-agreement-to-sell/5128810/