From the English definition of Contract of sale comprises of two things one is sale and other is agreement to sell. Having regard to the sharp distinction maintained in the Indian Act between Agreement and contract it is not desirable to use the expression agreement to sell. But now the chapter Sale of goods stands in the Indian Act, the expression sale contract of sale, contract for the sale of goods and agreement for sale are used more or less discriminately. It is so as to maintain a distinction between sale and contract of sale corresponding to with agreement to sell in the English Act.
The term sale has been separately defined in the Act C.I.T. V. Hind Construction Ltd.[1]
The distinction between an agreement to sell and a sale is fundamental. The former is a contract pure and simple. At the time of the contract the property in the goods does not pass, but the buyer acquires a right in personam to the transfer of the property upon the happening of an event or the fulfillment of a condition. A sale on the other hand is more than a contract. Its effect is to transfer to the buyer forthwith a right in rem – the property in the goods. Under an agreement to sell the seller remains the owner until the agreement to sell becomes a sale, under a sale the buyer becomes the owner forthwith. An agreement to sell and a sale are sometimes referred to as an executory contract of sale and an executed contract of sale respectively.
Section 4(1) of the Sales of goods Act, 1930 defines a contract of sale as under:
“4(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.
(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, (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 he transferred.”
The essentials to constitute a contract are:
- It is a contract between two parties, one known as the seller and the other as buyer.
- The subject matter of a contract is goods.
- The seller should transfer or agree to transfer the property in the goods to the buyer.
- The transfer of property in the goods from the property to the buyer is for consideration known as price. A price is money paid or promised.
- Mutual Consent
- Parties competent to contract.
It defines sale and agreement to sell. A contract of sale may be absolute or conditional. If under the contract of sale 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 conditions thereafter to be fulfilled the contract is called an agreement to sell. The agreement to sell may become sale when the time elapses or the conditions, subject to which the property in the goods is to be transferred, are fulfilled.
Sale is distinguished from agreement to sell
The term contract of sale includes both actual sale and agreement for sale. It is important to distinguish both of them as an agreement to sell is also known as executor contract of sale and is a pure contract and a simple one whereas sale is as executed contract of sale is a contract plus a conveyance.
A “sale” is a transfer of the absolute title to property for a certain agreed price. It is contract between two parties, one of whom acquires a property in the thing sold, and the other parts with it for a valuable consideration known as price. If there is no consideration for the goods then it is not sale but a gift because sale is only for a valuable consideration. And if there is exchange of goods for one another then it is barter and no sale. Sale takes place only when there is transfer of the title to property for a price.
In the case of Firm of Sunder Singh v. Firm of Gulab Singh[2] it was held that where goods are sent through railway, the railway receipt being addressed to the consignor to be delivered to the purchaser only on receipt of the price for the goods, the property in the goods does not pass to the purchaser till the price is paid.
An “agreement to sell” is a contract that defines a future sale, thus all conditions precedent and other terms like delivery, payment, etc, continue to be “executory”, that is are yet to be fully carried out. A breach of this contract could result in a court order of specific performance, or for damages caused by the loss of the opportunity to buy or sell.
An agreement to sell is just that. A promise if you will, that you will sell something to someone.
A sales contract is far more important and far more legal. If for example you want to purchase a new car, this contract that you and the dealer fill out is called a Sales Contract, and both parties are bound by what this contract says.
A ‘Contract of Sale’ is a generic term and includes both an actual sale, where the ownership in the goods passes to the buyer immediately when the contract is made, and an agreement to sell, where the ownership in the goods is to pass subsequent to the making of the contract.
In the case of M.R.Dhawan V. Madan Mohan[3] it was held that in sale the property in the goods in transferred from the buyer to the seller.
The important points of distinction between a sale and an agreement to sell are as follows:
- If the property in the goods passes from the seller to the buyer at the time of making of the contract, it is known as sale; but if the passing of the property in the goods is postponed until some future time or fulfillment of certain conditions, it is an agreement to sell. It means that in case of sale the buyer becomes the owner of the goods at the time of making of the contract whereas in an agreement to sell, he is to become the owner of the goods at a later time.
In the case of Dwarka das Ayodhya v. Ram Ratan[4] it was held that on the sale of ascertained goods the property in the goods passes to the purchaser as soon as the contract of sale is made even though the delivery of the goods is postponed at his request and to suit his own convenience.
- If after making the contract there is loss or damage to the goods, the question may arise as to which of the two parties has to bear the loss to the goods. According to the general rule contained in Section 26, the goods are at the risk of the person who is their owner at the relevant time. It means that in the case of sale, since the ownership in the goods has passed to the buyer, the loss to the goods has to be borne by the buyer. On the other hand, in the case of an agreement to sell, while the seller is still the owner of the goods, the loss has to be borne by him.
In the case of Firm of Ramdyal Ram Narain V. Firm of Bhairo Bux Gouridutta[5] it was held that where the goods are purchased on a condition that they would be damaged and subject to inspection and approval, there is an implied warranty that they are such as fall under the denomination of undamaged goods. The goods cannot be said to be ascertained until they are inspected and approved.
- In case of sale, i.e., where the property in the goods has passed to the buyer, if he 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 In case of an agreement to sell, the seller being still the owner of the goods can dispose them of and, therefore, if the buyer wrongfully neglects or accept and pay for the goods, the seller may sue him for for non-acceptance.
Gulab Rai Sagar Mal. V. Nirbal Ram Nagar Mal[6] in this case a Manchester firm sent goods to India for defendant firm at Delhi, after shipment sent the drafts and shipping documents to the National bank of Delhi with directions for the delivery to the buyer on payment of the money to the Bank, held that the property in the goods did not pass to the buyer till the money was paid to the Bank.
- Sale is an executed contract, where there is a contract conveyance, whereas an agreement to sell is termed as contract, as it is contract pure and simple. In case of sale, seller breaks the engagement to deliver the goods or sells goods to a third party, the buyer may sue the seller not the breach of a contract but may also sue him for the conversion and detinue. The buyer has also a right in rem. In case of sale in many cases, he may follow the goods fiats hands of third parties. If there is a breach of agreement by the seller, then the buyer has only a right in personam, i.e. only a personal remedy against the seller.
In Union of India v. Thrachand[7], the defendants contracted to to the plaintiff all the coal-ash that might accumulate at a pump-house fora period of one year, from 15-6-1968 to 14-6-1969. ft found that the defendants unilaterally cancelled the contract and ” of allowing the plaintiff to remove the coal-ash, themselves co,:— part of it and issued the remainder to third parties. The plaintiff sued the defendants not only for the breach of but also for the tort of conversion. It was held by the Madhya High Court that because the contract was for the sale of future sell was merely an agreement to sell and since the buyer had not yet the owner of the goods, the seller did not commit any tort of conversion. The only remedy recognized in this case was an action for breach of – and refund of price which the buyer had paid to the seller.
In the case of Md. Serujuddin v. State of Orissa[8] it was held that where a person has contracted to sell mineral ore to a corporation who entered into contract with a foreign buyer for sale of identical goods, purchased by corporation from the former person the sales by that person to the corporation were not in the course to the purchaser.
- In a contract of sale, the seller has lost and cannot recover ownership of the thing until and unless the contract is resolved or rescinded whereas in an agreement to sell the title of the thing remains in the seller, and when he seeks to eject the buyer because of noncompliance by such buyer with the suspensive condition stipulated, he is only enforcing the contract and not resolving the same.
Wheels India Ltd. V. Khem Chand Raj Kumar[9] where the seller has property performed all his obligations with respect to the goods delivery to his career thus becomes delivery to the buyer for purpose of risk and title.
Gopabandhu Type Foundry v. State of Orissa[10] it was held that unless both the parties are juristic persons, a supply of materials by one another cannot amount to sale.
- In a contract of sale the title of the thing passes to the buyer upon the delivery of the thing sold and in an agreement to sell the ownership of the thing is reserved in the seller and is not to pass to the buyer untill the full payment of the price.
[1] (1971) 2 SCWR 535
[2] AIR 1927 Lah 269
[3] AIR 1969 Delhi 313 at p. 315
[4] 20 ALJ 579
[5] 1 Pat LR 398
[6] 4 Lah 423 AIR 1924 Lah 239
[7] AIR 1976 M.P. 101
[8] (1975) 2 SCC 47
[9] (1970) 2 Mad LJ 648
[10] (1970) 36 Cut LT 1156