We hear the term “sale” in our day-to-day dealings with the local vendors, traders, etc. Owing to the fact that we tend to use this word so casually, we often confuse “sale” with an “agreement to sell”. Irrespective of how you construe the two concepts, an actual sale and an agreement to sell are at two different ends of the spectrum. The two concepts differ from each other and must not be used interchangeably. We come across the difference between a sale and an agreement to sell while studying laws such as the Sale of Goods Act, 1930 (hereinafter referred to as “the Act”). This is an extremely old mercantile law and was initially a part of the Indian Contract Act, 1872 (hereinafter referred to as “Contract Act”). Hence, it is right to say that some provisions of the Contract Act apply to a contract of Sale of Goods Act. In fact, requirements or as we call them essential conditions of a valid contract such as Offer and acceptance, legally enforceable agreement, mutual consent, parties competent to contract; free consent, lawful object, consideration etc. apply to a contract of Sale of Goods Act. Therefore, if one has clarity regarding such conditions and other similar principles, understanding the contract of sale would seem like a rather simpler task.
Buyer And Seller As Per Sale of Goods Act, 1930
While understanding the concept of sale or an agreement to sell, it is extremely important to determine who is a seller and who is a buyer. Although this may seem like an unnecessary task, without determining the actual buyer or seller, it would be merely impossible for one enters into a contract for sale. This is because they form the ‘parties’ to the contract and without determining who the parties are, it would simply be impossible to fulfill the essentials of a contract like ‘offer’, ‘acceptance’, ‘capacity to contract’, etc. Therefore, to help demarcate a real seller or a real buyer, the Act has given a lucid yet descriptive meaning to it. The first definition that has been defined in the Act is that of a ‘buyer’. While Section 2 (1) explicitly mentions that a buyer is someone who either agrees to buy or buy goods, subsection 13 states that a seller is a person who either agrees to sell or sells the goods.
Subject Matter of a Contract for Sale
Primarily, the subject matter of the contract of sale is goods. Hence, before delving into the concept of sale and an agreement to sell as given in the Act, we must understand the meaning of the term ‘goods. Section 2 (7) of the Act clearly provides that goods refer to a type of movable property that is not the same as actionable claims and money. They may include growing crops, grass, stock and shares, and things that are either attached to or are forming a part of the land provided they can be severed prior to sale. There are different types of goods: contingent goods, future goods and existing goods. Let us study them in detail.
1. Contingent Goods
When the possession of the goods is dependent upon a contingency, such goods are being referred to as ‘contingent goods. For instance, X agrees to sell his friend Y’s car to his employer Z, only if he manages to acquire it from Y. Since this is an agreement to sell a car (contingent goods) that is not in his possession and can only be sold if he manages to get it from the real owner (contingency), he cannot be held liable for damages if the contingency does not happen for no fault of the seller. Such goods could further be categorized as future goods.
2. Future Goods
Future goods have been defined in section 2 (6) of the Act. These are goods are only present or acquired or manufactured or produced by the seller when the actual contract of sale is made. Hence, there is only an ‘agreement to sell’ future goods. For instance, T owns a pumpkin farm and agrees to sell 20 pumpkins to S once they are ripe. In this case, the goods i.e., the 20 pumpkins have already been identified and may be referred to as ‘future goods’.
3. Existing Goods
Such goods are either owned or possessed by the seller at the time of the contract of sale. Here, it is not mandatory for the goods to be owned by the seller, hence, the definition deliberately uses the term “possessed” to indicate that the goods could still be sold if the goods are being sold by an agent or a pledgee. Furthermore, there are various types of existing goods. Ascertained goods are those goods that have been categorically selected or identified for purchase or sale at the time of contract for sale. Unascertained goods are those goods that have not been explicitly selected but may have been indicated by description. For instance, A walks into a mobile shop and asks the store owner to pack a ‘XYZ brand – 123 models mobile phone’. Here, A has not specifically selected the mobile phone he wants to purchase, instead, he has just asked the store owner to pack a mobile phone of the given description from the lot. If he would have personally chosen the mobile phone, it would have been a contract of sale of ascertained goods.
It is nearly impossible to enter into a contract for sale or even an agreement to sell without actually paying consideration for the goods. Price acts as a consideration and is necessary for a contract of sale. According to section 2 (10), the price has been defined as money consideration for the sale of goods. Price need not be by the parties fixed at the time of the contract, it can be determined during the course of the dealings between the parties or in a way that is already established in the contract of sale. It is pertinent to note that it is not absolutely necessary for the price to be determined by only the parties to the contract. It can be determined by a third party, but if the party fails to do so, the contract will be declared void. Nonetheless, if the buyer reaps the benefit of such goods, he is under the obligation to at least pay a ‘reasonable price’ for it. Reasonable price being subjective would differ for different goods. Hence, the reasonable price must not be misinterpreted to mean a ‘standard price for all goods’, instead, the market price for a specific kind of goods could be considered its reasonable price.
Contract of Sale of Goods
A contract of sale is not the same as a sale or an agreement to sell. Instead, a contract of sale may either result in an actual sale or a simple agreement to sell. Hence, in order to perceive the exact meaning and difference between the two, it becomes necessary to understand the meaning and components of a contract of sale. In case of a contract for sale, a party to the contract i.e., the seller must either transfers the ownership or agrees to transfer the ownership of the goods for money consideration i.e., a price to the other party who will be deemed to be the buyer. There is no sale without the actual transfer of ownership of goods. This is often referred to as ‘title of ownership’ of goods. Amongst other things, a thin line of difference between sale and agreement to sell is demarcated by ownership of goods and not possession. The formalities of a contract for sale have been laid down in Section 5 of the Act.
As we already know, for a contract to be a valid contract, there are certain essential conditions that need to be met with. Similarly, in the case of a contract of sale, there are a few essential conditions that need to be met with. They are as follows:
1. Subject Matter: As stated earlier, the subject matter of a contract for sale must be goods. Goods must not be actionable claims and money. Goods refer to a type of movable property that are not the same actionable claims and money. They may include growing crops, grass, stock and shares, and things that are either attached to or are forming a part of the land provided they can be severed prior to sale.
2. Money consideration: The goods must be sold for some monetary consideration, such monetary consideration is referred to as ‘price’. It is pertinent to note that if goods are exchanged for other goods and not price, it may not classify as a sale. Such an exchange of goods is referred to as barter.
3. Bilateral contract: The contract of sale of goods is a bilateral contract. This indicates that the goods are transferred from one party to another.
4. Transfer of property: The most important condition of a contract for the sale of goods is the ‘transfer of property’. Transfer of property does not indicate the mere transfer of possession from one party to another. Unless there is a transfer of ownership, a sale cannot have been executed. Therefore, the primary goal of such a contract is to ensure the transfer of property, precisely the transfer of ownership in goods from one person to another.
5. Essentials of a Valid Contract: A contract of sale is a contract. Hence, for it to be valid, it must fulfill all the conditions of a valid contract as provided in the Contract Act.
What is a Sale?
Studying the meaning as well as the essentials of a contract of sale has made it far simpler for us to understand the concept of sale as a sale is nothing but the ‘executed contract of sale’. Sale i.e., an executed contract of sale must possess all the conditions of a contract of sale that makes it valid. An executed contract of sale must never be confused with an ‘executory contract of sale’. An actual sale is the end result of a successfully executed contract of sale.
What is an Agreement to Sell?
An agreement to sell comes within the ambit of the contract of sale. In case of an agreement to sell, there is an agreement between the parties to transfer the goods for monetary consideration in the form of price, at a future date or when some conditions have been fulfilled. The actual performance of the contract is deferred to a future date. An agreement to sell is an executory contract and not an executed contract as the actual sale is prolonged to a future date or is determined upon fulfillment of the prerequisites.
What is the difference between sale and agreement to sell?
The following points must be taken into consideration while distinguishing between a sale and an agreement to sell.
1. Transfer of Property
Only in case of an actual sale, the goods sold are transferred to the buyer i.e., there is the transfer of ownership and not mere possession. In sale, the buyer becomes the owner of the goods. In case of an agreement to sell, the ownership does not pass to the buyer unless and until the sale is completed, such a sale may be upon the expiration of set time or the fulfillment of some conditions post which the property in the goods are transferred.
2. Type of Contract
While an agreement to sell is an executory contract, a sale is an executed contract.
The liability or loss in case of sale and an agreement to sell differs. Where there is an agreement to sell and the goods have been destroyed by accident, the seller must bear the losses. But in case of a sale, the buyer bears the losses. It is essential to note that, in case of a sale, irrespective of whether the possession of the goods lies with the buyer, the buyer is liable to bear the losses.
4. Remedy for breach
In case of an agreement to sell, the seller commits a breach, the buyer may only have a personal remedy against him. If the seller commits a breach after the sale is completed by refusing to deliver the goods, the buyer has a personal remedy as well as other remedies which an owner has in respect of goods.
The concept of sale and agreement to sell may sound similar but are far from it. The differences between the two make it extremely important to study them in-depth. The difference between Sale and Agreement to Sell is not quite vast, but exhaustive and is important from a legal point of view as the remedies available in case of a breach differ in both cases.
3. The Sale of Goods Act, 1930.
4. The Indian Contract Act, 1872.
5. Business Environment and Law Module by ICSI.
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