DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

A “Contract of Sale” is a general term which includes both an actual sale, where the ownership in the goods transfers from seller 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 agreement to sell the ownership in goods is transferred at a future time or the transfer is contingent upon the fulfilment of certain conditions. An agreement to sale becomes sale when the time lapses or on the fulfilment of certain condition.

The point that is to be understood from the above discussion is that a contract for the sale of goods can either be a sale or an agreement of sale. Let us see both the cases in the light of the Sale of Goods ACT, 1930.

Sale

Here the property in goods is transferred at once to the buyer from the seller. The Section 4(3) of the Act says that “where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is then known as a sale.” A sale is carried out on deliverable goods. Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under the contract, be bound to take delivery of them [Section 2(3)]

Agreement to Sell

We saw that in a sale the property in the goods are transferred from the seller to the buyer. However, in an agreement to sell, the ownership of the property in goods is not transferred immediately. The objective of the agreement is to transfer the goods at a future date, once some contingent clauses in the agreement or certain conditions are satisfied.

The Act in Section 4(3) defines what an agreement to sell is. The section 4(3) of the sale of Goods Act defines it as, “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.”

Thus, we see that a contract for the sale of goods may be either sale or agreement to sell. This depends on the condition whether it postulates an immediate transfer of property from the seller to the buyer or whether it postulates the transfer to take place at some future date.

In Union Of India VS Tarachand, the defendants contracted to sell the coal ash that might accumulate for a period of one year. Later on it was found that the defendants unilaterally cancelled the contract and consumed a part of it and distributed rest of it to the third party. The plaintiff sued the defendants not only for the breach of contract, but also for the tort of conversion. It was held by the Madhya Pradesh High Court that because the contract was the sale of future goods, it was merely an agreement to sell and since the buyer has not yet become the owner, the seller did not commit any tort of conversion. The only remedy which was left was to sue for breach of contract and refund the price which the buyer had paid to seller.

Goods perishing before sale but after agreement to sell

According to Section 8, when there is an agreement to sell specific goods and without any fault on the part of buyer or seller, goods perish or become so damaged that they no longer answer to the description in the agreement, before the risk passes to buyer, the agreement is avoided.

For Example, if a buyer took a horse on trial for 8 days and the horse died within the period without any fault of the buyer, the contract which was in form of an agreement to sell, became void and the seller cannot recover the price of the horse from the buyer.

Distinction between Agreement to Sell and Sale Deed (Related to Immovable property)

An agreement to sell is a promise or willingness to transfer the rights in the property to another person. Whereas, Sale deed is a document showing actual transfer of ownership rights.

1.) Agreement to sell involves the terms and conditions on which the sale/purchase will be transacted. While, a sale deed involves the detailed information about the parties, the property, the amount of consideration, whether paid or not, and more.

2.) An agreement to sell shows future transfer, while a sale deed signifies immediate effect of the transfer.

3.) Rights and obligations remain with the seller in case of mere agreement to sell, whereas in the scenario of sale deed, the rights and liabilities are transferred to the buyer instantly.

4.) An agreement to sell needs not to be executed by a stamp duty, unlike a sale deed. Buyer has to pay a certain amount of stamp duty for the transfer to be registered.

5.) An agreement to sell is a mere understanding between the parties. While, the sale deed requires witnesses to be present before the registrar at the time of registration of the deed.

Status of an Unregistered Agreement to Sell

Whenever we transfer any immoveable property, it is basically divided into two parts, first is, agreement to sell, second is sale deed or conveyance deed. Now a days according to Section 17 Sub section 2 clause 5 of Registration act, it is optional and not compulsory for the parties to register the agreement to sell as there is final document (Sale Deed) which would set the rules and liabilities and to avoid double registration of the deeds.

The object of Section 53A of the Transfer of Property Act 1882 gives a right to the defendant who is in possession or to continue the possession of property against the transferor under an unregistered contract. It is equally available against a persons who claim under him such as heirs, assigns and legal representative. This section is ordinarily to be used as a defence and not as a weapon of attack. It only creates a right of the seller to receive consideration and of the purchaser to purchase and enjoy the property rights.

It was also held in Mahadeo Nathuji Patil Vs Surajbai Khushal Chand Lakkad And Ors. on November 2, 1993 that statutory protection granted under Section 53A of the act to transferee in possession or to continue his possession under an unregistered contract is not lost by the lapse of time to file the suit for specific performance of contract of acquiring the title if it fulfils the essential requirements of section 53A.

The protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement.

It has nothing to do with the ownership of the proposed transferor who remains the full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee.

It is thus clear that a transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred.

The Supreme Court in caseof Suraj Lamp and Industries (P) Ltd. Vs State of Haryana 2012 held that under Section 54 of the Transfer of Property Act, 1882 makes it clear that agreement to sell does not create any charge in title or change on such property. So Immoveable property could be transferred only by sales deed or conveyance deed on which stamp duty has to paid and it has to be registered. Sale agreement would in no way be considered as sales deed in any manner. So according to Section 54 of Transfer of Property act immoveable properties could be transferred through registered instruments only.