Explore the Legal Difference Between Sale and Agreement to Sell
Transfer of ownership isn’t the only way to distinguish between how a sale and an agreement to sell. These concepts must be understood properly. So, here are sale and agreement to sell differences in terms of Indian law.
Both sale and agreement to sell are contracts. Legally, under the Sale of Goods Act 1930, these two terms are not the same. Sale is the transfer of ownership from a seller to the buyer for a determined price. Agreement to sell is also a transfer of ownership, but at a future date or when specified conditions are met. You can think of the agreement to sell as a sale that comes with specific terms and conditions.
This is the primary basis of the difference between sale and agreement to sell. Also, there are different kinds of risks involved in both. In both situations, there are varying rights reserved for both sellers and buyers when it comes to sale and agreement to sell.
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Key Parameters Difference Between Sale and Agreement to Sell
Check out the critical parameters in the table below to know the difference between sale and agreement to sell. Note that these parameters are keys to understanding how these two contracts, sale and agreement to sell, tend to differ in Indian law.
| Parameters | Sale | Agreement to Sell |
|---|---|---|
| Meaning | Immediate transfer of ownership once the payment is made. | The agreement of selling to a buyer under certain conditions on the specified future date. |
| Type of Contract | It is an executed contract. | It is an executory contract. |
| What happens if there is a breach of contract | The buyer can return the product or get a refund if the product or service does not meet expectations. | The buyer can claim only for damages and not the price. |
| Reselling | The seller cannot resell after a sale. | The seller can resell when conditions are not met. |
| Existence of property/product | The property already exists, and only then is a sale made. | The property doesn’t need to exist when signing an agreement to sell because the sale is made on a future date. |
| Confidentiality | Buyer has immediate access to confidential information, necessitating the enforcement of confidentiality provisions from the outset. | Buyer's access to confidential information is contingent upon the fulfillment of the agreement's terms. NDAs may be executed before confidential information is exchanged, but their enforcement may be delayed until the ownership is transferred. |
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What is a Sale?
In law, a sale is defined as an executed contract. An executed contract is signed among two or more parties. It is considered fully executed when all parties have performed their obligations.
By making a sale, the owner is immediately transferred. Also, a sale is made only when the seller has the product or service available.
There are two types of sale contracts.
- Absolute Sale – When the transfer of goods is completed without any payment dues
- Conditional Sale – When the transfer of goods from seller to buyer is based on small recurring payments routinely to complete the main transaction
What is an Agreement to Sell?
An agreement to sell in law is an executory contract instead of an executed contract. That means the risks are attached to the seller until the product is transferred to the owner.
In simpler terms, the agreement to sell is a contract for a sale to happen later for transferring ownership. A sale, on the other hand, is a transaction of transferring ownership immediately.
The agreement to sell also precedes the deed of the sale. Both parties – the seller and buyer – agree to exchange goods that are not sold immediately but in the future with a specified date.
If the buyer cannot meet the conditions, the seller has the right to resell the product, as the ownership is not yet transferred. In contrast, the seller cannot resell when they have made a sale.
An agreement to sell can be seen in terms of real estate. When a buyer is about to buy a property from a seller, the document of an agreement to sell is used. It states that the seller intends to sell the property under certain conditions.
This registered document will have clauses specifying the details and agreement from both parties (buyer and seller). The buyer can show this document to a bank to get a loan for the transaction with the agreement to sell it.
Under Section 4 of The Sale of Goods Act, 1930 of the Central Government Act, “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.”
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Parting Thoughts
So, these are among the main sale and agreement to sell differences in light of Indian law. Hope you are able to get this distinction clearly.
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Further Reads
- Difference Between Agreement and Contract
- Difference Between Dissolution of Firm and Dissolution of Partnership
- Difference Between Consignment and Sale
FAQs
How does the passing of risk differ in a sale and an agreement to sell?
In a sale, the risk of any loss or damage to the goods passes to the buyer as soon as the ownership is transferred. In an agreement to sell, the risk remains with the seller until the ownership is actually transferred to the buyer.
Can the seller resell the goods in an agreement to sell?
No, in an agreement to sell, the seller cannot resell the goods unless there is an express agreement or custom to the contrary. The goods remain the property of the seller until the ownership is transferred to the buyer.
What is a sale in terms of business law?
A sales contract is an agreement in which the seller transfers or promises to transfer ownership of goods to the buyer in exchange for a price.
What is the relationship between stamp duty and agreement to sell?
Stamp duty is a tax payable under Section 3 of the Indian Stamp Act, 1899. This tax is applicable for immovable properties. During the execution of the agreement to sell, the buyer also has to pay the stamp duty.
How does The Sale of Goods Act, 1930 differentiate between sale and agreement to sell?
According to The Sale of Goods Act, 1930, "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."
Source: indiankanoon.org/doc/651105/
What happens if the buyer fails to meet the conditions in an agreement to sell?
If the buyer fails to meet the conditions stipulated in the agreement to sell, the seller typically has the right to:
- Resell the goods: This is the most common remedy, allowing the seller to recover the sale price from a new buyer.
- Claim damages: The seller can seek compensation for any losses incurred due to the buyer's breach.
- Terminate the agreement: In some cases, the seller may choose to cancel the agreement entirely, particularly if the breach is significant.
The specific remedies available to the seller will depend on the terms of the agreement and applicable laws.
Does an agreement to sell impact the buyer's ability to use the product before ownership transfer?
Generally, an agreement to sell does not automatically grant the buyer the right to use the product before ownership is transferred. However, the parties may include specific terms in the agreement that permit limited use under certain conditions.
It's important to review the agreement carefully to determine the specific rights and obligations of both parties.
Aquib is a seasoned wordsmith, having penned countless blogs for Indian and international brands. These days, he's all about digital marketing and core management subjects - not to mention his unwavering commitment ... Read Full Bio
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