NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI

Research Paper

On

DIFFERENCE BETWEEN CONTRACT OF SALE AND CONTRACT FOR SALE

Submitted by:

APURV KUMAR (1161)

BATCH OF 2020-25

On

NOVEMBER 12, 2022

Under the guidance of

MR. UTKASRH VERMA

INTRODUCTION

A contract for sale is a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfilment of the condition agreed upon, that is, full payment of the purchase price.

In such contract, the prospective seller expressly reserves the transfer of title to the prospective
buyer, until the happening of an event, which in this case is the full payment of the purchase
price. What the seller agrees or obligates himself to do is to fulfil his promise to sell the subject
property when the entire amount of the purchase price is delivered to him. Stated differently,
the full payment of the purchase price partakes of a suspensive condition, the non-fulfilment
of which prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.

It is different from contract of sale, since ownership in contract for sell is reserved by the vendor
and is not to pass to the vendee until full payment of the purchase price, while in contracts of
sale, title to the property passes to the vendee upon the delivery of the thing sold. In contracts
of sale, the vendor loses ownership over the property and cannot recover it unless and until the
contract is resolved or rescinded, while in contract for sale, title is retained by the vendor until
full payment of the price. In contracts to sale, full payment is a positive suspensive condition
while in contracts of sale, non-payment is a negative resolutely condition.

A contract for sale may further be distinguished from a conditional contract of sale, in that, the
fulfilment of the suspensive condition, which is the full payment of the purchase price, will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective vendor still has to convey title to the prospective buyer by
entering into a contract of absolute sale. While in a conditional contract of sale, the fulfilment
of the suspensive condition renders the sale absolute and affects the seller’s title thereto such
that if there was previous delivery of the property, the seller’s ownership or title to the property
is automatically transferred to the buyer.

Indeed, in contract for sale, the obligation of the seller to sell becomes demandable only upon
the happening of the suspensive condition, that is, the full payment of the purchase price by the
buyer. It is only upon the existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of

2
sale, the seller is not obligated to transfer the ownership to the buyer, even if there is a contract
for sale between them.

WHAT IS SALE?

Sale is defined under Section 54 of Transfer of Property Act, 18821 which states “Sale” is a
transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
However, in further explanation, it differentiates Contract of Sale and Contract for Sale.

There are three requisites to complete a transfer by sale:

 one person must agree to transfer his ownership to another person and that other person
must agree to accept such a transfer;
 a price must be paid or agreed to be paid by the latter to the former; and
 Both persons must be competent to contract.

As section 54 shows even after contract for sale title clearly resides in the vendor and even
though the vendee has taken possession, his possession is under the contract and is therefore
clearly permissive. Where, therefore, the origin of possession of the proposed vendee is proved
to be permissive it will be presumed to be so unless and until something happened to make it
adverse. Possession which is preferable to a lawful title can never be considered adverse, unless
the proposed vendee asserts hostile or over act to show that he disclaimed title of the vendor,
his possession would not be adverse.

Even if the vendee is put in possession by the vendor in part performance of the contract of sale,
that does not recognize any element of title in the vendee who is merely a promisee qua the
vendor. Title is bestowed on the vendee on the execution and registration of the sale deed,
where registration is required.

Some of the essential ingredients of an agreement to sell an immovable property are:

(i) identity of vendor and purchaser

(ii) complete description of the property subject matter of the agreement
(iii) amount of consideration to be paid by the purchaser to the seller
(iv) time within which the agreement is to be performed, and

1
TRANSFER OF PROPERTY ACT, Sec. 54.

3
 (v) earnest money, if any, paid to the vendor; if one of these essential ingredients is
missing, the agreement between the parties would not amount to a
concluded contract.

CONTRACT FOR SALE

It is merely an agreement to sell immovable property. Under the Transfer of Property Act, a
contract for sale creates by itself no interest in such property. A mere agreement to sell
immovable property, even if price is paid and possession is delivered passes no title unless
registered conveyance required under the law is executed.2 Mere execution of agreement to
sale does not by itself confer any right or interest in the property.3 Where after the agreement
for sale and before the execution of sale deed in pursuance of the agreement, a mortgage is
executed, the mortgagee must have its due effect against the sale deed.4 No change of
ownership takes place, and the purchaser acquires no interest in the property or any charge on
the property5 unless deposit is made. Even part-payment of the price or earnest makes no
difference.6 The utmost right which is conferred upon the purchaser, is to enable him to call
upon the vendor for possession and conveyance on payment of the purchase-money. 7 The
purchaser, however, can transfer or assign his benefits under the contract to a third party, so as
to confer upon him the rights possessed by him and impose upon him the same obligation to
which he, the purchaser, is subject. The purchaser’s remedy is personal against the vendor or
his assignee with notice of the agreement, either to enforce the contract by a suit for specific
or to claim damages. Where the vendor has sold the property to a bona fide purchaser for value
without notice of the agreement, the purchaser’s remedy is in damages. A suit for specific
performance is not the purchaser’s only remedy. If there are no other facts operating to his
prejudice, he may successfully plead his contract for sale and the possession acquired under it.
The agreement for sale transfers no estate, so that even the right of a co-sharer cannot be
transferred or assigned by such an agreement. The purchaser is entitled to the benefit of an
obligation arising out of contract and annexed to the ownership of immoveable property and
such obligation may be enforced against a transferee with notice thereof or a gratuitous
transferee. Contract for sale operates as a sale, on fulfilment of conditions mentioned therein.

2
Muthukaruppan v Muthu Samban, (1915) 38 Mad 1158.
3
Ma Kyan v Maung Min Din, AIR 1929 Ranj 259.
4
AIR 1928 Mad 546.
5
Udho Das v Mehr Baksh, AIR 1933 Lah 262.
6
Chanda Bai v Anwarkhan, AIR 1997 MP 238.
7
Ram Prashad v Chajju, AIR 1964 All 300.

4
On an agreement to sell property devised, the devisee can be called upon to pass a conveyance
and receive the purchase-money. Until sale, it is attachable at the instance of the vendor’s
creditors though the Court purchaser could only take the judgment debtor’s right, title and
interest existing at the date of sale, namely, subject to the equity in favour of the purchaser to
compel specific performance.8 A distinction was, however, made when the vendor had
delivered possession and received the purchase-money, though no registered deed was
executed; A distinction has been observed between a contract of sale and a contract for sale,
the former being an executed contract and the latter only executory. Sale creates a jus in rem,
as it passes ownership immediately it is executed, and a contract to sell is a jus ad rem, for it
only creates an obligation attached to the ownership of property and does not amount to an
interest therein.9 Where on the date of the agreement for sale, the property subject matter of
the agreement was not in existence; held, there was no valid concluded contract for sale in
favour of the plaintiff. A mere agreement for sale does not create any interest/title in the
property subject matter of agreement. An agreement to re-sell can be enforced against the
vendee by the assignee of the vendor unless the agreement prohibits such assignment.10

CONTRACT OF SALE

A Contract of Sale is an agreement between a buyer and a seller whereby the seller agrees to
give or deliver something to the buyer for a certain price which the buyer agrees to pay. In
contracts like this, when the buyer pays and the seller delivers, the transfer of ownership is also
done at the same time. This is usually not applicable to situations where the seller is not yet
ready to deliver the thing being sold. Nor is it applicable where the buyer is not yet ready to
pay the price in full. However, even if the buyer cannot pay in full right away, both parties may
still agree on the transfer of ownership to the buyer. This is, provided that the seller can readily
deliver what he is selling. And subject to what we call a “resolutory condition” that when the
buyer fails with his payment(s), the seller will take back the thing sold.

In real estate transactions, this type of contract is usually executed only when the property is
ready to be turned over and if the buyer is ready to pay the price in full.

A contract of sale is different from a sale, as it does not require registration. However, it does
not create a charge or an interest in the property. It is merely a document or an agreement that

8
Nemai Basak v Kalyani Rakshit, AIR 2005 Cal 163.
9
Hardayal Singh v Aram Singh, AIR 2001 MP 203.
10
Ramdas v Sitabai, AIR 2009 SC 2735.

5
gives a right to obtain another document, i.e., a sale deed. Therefore, it does not require
registration. However, some equities do arise in favour of the transferee. For instance: where,
despite an agreement of sale, the property is transferred to another person, the subsequent
transferee with notice of the earlier transaction holds the property in trust for the prior
agreement holder.

In the case of Ramesh Chand Ardavatiya v. Anil Pangwani 11, decided by Supreme Court the
owner of a piece of land entered into an agreement for its sale with B. On payment of the
advance amount, he handed, over the possession to B but failed to execute a sale deed in his
favour. B constructed a boundary wall, but this land was encroached upon by the trespassers
on behest of A.B. filed a suit in a court of law for a declaration that he was in peaceful
possession of property and sought a permanent injunction from the court restraining the
trespassers from interfering with his peaceful possession of the property. The court held that B
is entitled to protect his possession. Directions were issued that A should assert his title through
due process of law and was restrained from taking the law his own hands. The court observed
that as,

“A contract for sale of immovable property is a contract that a sale of such property shall take
place on terms settled between the parties; it does not of itself create any interest in or charge
on such immovable property. However, still if a person who entered into possession over
immovable property under a contract for sale and is in peaceful and settled possession of the
property with the consent of the person in whom the title vests, he is entitled to protect his
possession against the whole world, excepting a person having a title better than what he or
his vendor possesses. If he is in possession of the property in part performance of the contract
for sale and the requirements of Section 53 A are satisfied, he may protect his possession even
against the true owner.”

CONCLUSION

Contract of Sale and Contract for sale, 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

11
AIR 2003 SC 2508.

6
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.