Sale And Agreement to Sell

Contract of sale is a generic term and includes both sale and an agreement to sell. The two, however, have different legal ramifications. The rights and obligations of the parties vary with the fact whether the transaction is a sale or an agreement to sell. Distinction between the two is, therefore, of prime importance.




The vital point of distinction between the two is that in a sale the buyer becomes the owner of the goods as soon as the contract of sale is made, whereas in an agreement to sell, the seller continues to be the owner of the goods agreed to be sold, till it becomes a sale and as you have already read an agreement to sell becomes a sale on the expiry of the stipulated time or when the conditions arc fulfilled subject to which the property in goods is to be transferred. Other points of distinction between the two may be noted as under:

1. A ‘sale’ is an executed contract whereas an agreement to sell is always an executory contract. Executed means that the ownership of the goods has been transferred to the buyer, while executory means that something remains to be done i.e., ownership shall pass on some future date.

2. An agreement to sell is a contract, pure and simple, and creates merely just in person am, i.e., gives a right to either, buyer or seller against the other for any default in fulfilling his part of the agreement. A ‘sale’ is a contract plus conveyance, and creates jus in rem, i.e., gives right to the buyer to enjoy the goods as against the whole world including the seller.

3. In a sale, if the buyer wrongfully refuses to accept the goods, and pay the price, the seller can sue for the price, even if the goods are in his possession and he can exercise the right of lien, stoppage of goods in transit and of resale. But in an agreement to sell only remedy available to the seller is to sue for damages if buyer fails to accept and, pay for the goods. For example, A sells ten bags of rice to B for Rs. 3,000. If B refuses to accept the goods, A can file a suit against B for price even though the goods are in A’s possession. But instead, if it was an agreement to sell, then A’s only remedy is to claim damages from B because the ownership has not yet passed to B.

4. In an agreement to sell, the seller being still the owner, he can dispose of the goods as he likes and the buyer’s remedy against the seller’s breach is a suit for damages. For example, A agreed to sell a particular horse to B for Rs. 5,000. Subsequently A sells the same horse to C for Rs. 6,000. B’s remedy is to claim damages from A. B cannot recover the horse from C. In a ‘sale’ breach by the seller gives the buyer a double remedy; a suit for damages against the seller, and the right to follow property in the hands of the subsequent buyer. Thus, in sale if the goods are resold, the buyer can recover them as the owner from the subsequent purchaser. If, in the above example where A sells a particular horse to B for Rs.5,000 and subsequently it is sold to C for Rs, 6,000, B shall have the right to recover the horse from C, because at the time of sale A was no longer the owner of the said horse. B can also claim damages from A for wrongful conversion.

5. ‘Risk follows ownership’ is the golden rule i.e., whosoever is the owner of the goods at the time of loss, will bear the loss. In case of ‘sale’, if there is any loss to the goods, the loss will fall on the buyer, even though the goods are in the possession of the seller. On the other hand, in case of ‘an agreement to sell’, the loss shall be borne by the seller, even though the goods are in the possession of the buyer. It is because, ownership in case of agreement to sell continues to vest in the seller.

6. Insolvency of the seller: If in a sale the seller becomes insolvent while the goods are still in his possession, the buyer shall have a right to claim the goods from the official Receiver or Assignee because the ownership of goods has passed to the buyer. However, in case of an agreement to sell, the buyer cannot claim the goods even when he has paid the price. Buyer’s only remedy in this case is to claim rateable dividend for the money paid from the estate of the insolvent seller.

7. Insolvency of the Buyer: In case of sale, if the buyer becomes insolvent before paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the Official Assignee or Receiver. For the unpaid price, the seller will rank as an unsecured creditor and thereby entitled to rateable dividend out of the estate of the insolvent buyer.

In case of an agreement to sell, where the seller continues to be the owner of the goods, the seller can refuse to deliver the goods to the Official Assignee or Receiver unless he is paid full price of the goods.

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