Introduction:
The basis for the Indian economy is contracting. If there is a contract then there is the performance of sales. And the law dealing with the sale is The Sale of Goods Act, 1930 which was derived from The Indian Contract Act, 1872. These Acts helps to promote the business transactions legally where both seller and buyer agree for the transfer of goods with consideration.
Contract of Sale
It is an agreement between two parties (seller and buyer) where the seller agrees to deliver the goods to the buyer on a set price upon which they both agreed. It is defined under section 4(1) of the Sale of Goods Act, 1930. Contract of sale may be sale or agreement of sale. When there is a definite sale of goods it is known as sale, whereas if the transfer of goods is made in the future at a particular time while meeting certain conditions is called as agreement of sale.
Components of Contract of Sale
- Two parties.
- Products to be sold.
- Price of goods/products.
- Transfer of ownership
- Contract of sale.
- Other essentials which constitute a valid contract.
Sale
Section 4(3) of the Sale of Goods Act, 1930 describes the sale as a contract under which the seller, for a price, agrees to transfer the property in goods to the buyer. The agreement is said to be completed when the conditions are fulfilled and the specified time is completed. Based on an idea to purchase or sell anything this contract is made. The transfer of ownership of property and the transfer of agreed price happens in the present. If the transactions / the conditions are not fulfilled then either of the parties can sue the other party in the court of law. Section 5 of this Act describes how to make (forming of) a contract of sale.
Agreement of Sale
Section 4(3) of the Sale of Goods Act, 1930 states that when there is a transfer of property in the goods (transfer of ownership) to be taken place in the future at a certain time / subjected to some conditions to be fulfilled thereafter is known as agreement to sale/ sell.
An agreement to sale/ sell also becomes a sale when the future given time elapses or the conditions are fulfilled which is required for the transfer of property. Therefore, an agreement to sale/ sell sets out the terms and conditions of the sellers’ offer of a property to the buyer.
These terms and conditions include the selling price and the future date of payment. It may also be integrated into the definition of a contingent contract pursuant to section 31 of the Indian Contract Act, 1872. Therefore an agreement to sale/ sell is a contract to do something or not to do something, if anything collateral to such contract happens or not.
Agreement to sale is a basic foundation document upon which the sale deed is drafted. A sale deed is a document produced when the full payment is done by the buyer and transfer of property takes place.
| BASIS | SALE | AGREEMENT TO SALE |
| Meaning | The seller agrees to transfer the goods for a price to the buyer. | Two parties agree to transfer the goods at a particular time in the future by fulfilling the agreed conditions. |
| Transfer | An immediate transfer of property in goods. | Transfer of property in goods happens in the future at a certain time. |
| Types of goods | Existing and specific goods | Contingent, unascertained, and future goods. |
| Right to resell | The buyer gets this right. | Seller has this right. |
| Transfer of risk | Transfer of risk happens immediately. | No transfer of risk. |
| Risk taken | Taken by the buyer even though the goods are in the seller’s possession. | Taken by the seller even though the possession of goods is with the buyer. |
| Consequences of breach of contract | If the buyer breaches the contract by changing the price, the seller can sue the buyer even though the goods are in his possession. | If the buyer breached the contract then the seller can sue him in the court of law even though the goods are in the buyer’s possession. |
| Example of | It is an example of an executed contract. | It is an example of an executory contract. |
| General and particular property | It is a blend of contract and conveyance. It creates jus in rem (gives the right to the buyer to enjoy the goods, including the seller, against the world). | It is just a contract. It creates jus in personam (gives the buyer the right to sue the seller for damages. |
Suits for breach of contract are described in chapter 6, section 55 to 61 of the Sale of Goods Act, 1930.
Cancellation of Agreement to Sale
If it is registered then both parties can cancel the agreement to sale. Seller has the right to cancel the agreement, to cancel the agreement he has to notify the buyer that buyer has failed to comply with the terms and conditions of the agreement. Where the price is partially paid but the buyer has not paid the complete amount in the specified period then the seller may sell the goods to another buyer after notifying it to the buyer.
If the agreement is not registered and only if it is signed on a stamped paper, if the buyer is no longer interested in it then he can communicate it to the seller by stating specific reasons and the seller might seek for the monetary damages and then they can stop the proceedings/ the process of formation of the agreement.
Unregistered Agreement to Sale
Judiciary took a conflicting position. An agreement that conceives a part of performance, of an agreement to sale/ sell as conceived by section 53A of the Transfer of Property Act, 1882 can be obtained as a proof/ evidence of the agreement, whether a specific performance suit will lie on the basis of unregistered agreement.
Section 53A of the above mentioned Act gives the right to the defendant for protecting his possession against the transferor.
In the case of Gurbachan Singh vs. Raghubir Singh, there is a conflict in the court regarding the position as to whether a specific performance suit can be pronounced(decree) on the basis of unregistered agreement to sale/ sell in light of section 17 (1A) and section 49 of the Indian Registration Act. And the court held thatif it is not registered the agreement of sale acquired by possession is invalid in evidence/ proof. But in pursuant of section 49 of the Indian Registration Act, in the case of Birham Pal vs. Niranjan Singh, the court held that for the basis of a suit for the specific performance an agreement can be formed. These decisions by the court disagree with one another and question the legal position of these two sections of the Registration Act.
It was held that section 17 (1A) declares that for the purpose of section 53A of the Transfer of Property Act such unregistered agreement will not be pressed into service.
Case Laws
- Cehave N.V vs. Bremer Handelsgesellschaft mbH, 1976, Q.B.44, – case facts states that there was a contract to sell the fruit pellets and to be delivered in good condition. When delivered some were not in good condition, but they can be used although they are worthless than expected/ they should have been. In the court, it was held that there is no violation of the condition and the buyer is not allowed to renounce the contract and to discard the goods, but the buyer is entitled to seek the compensation.
- Rowland vs. Divall 1923- Facts are Rowland purchased a car that has no title from Divall and used for 4 months. Later he gave that car to the real owner and sued Divall to recover the money paid to him. Court held that there is a breach of implied condition regarding the title, and Rowland was entitled to recover the full amount paid to the Divall. The reasoning behind the decision was the seller’s side consideration was completely collapsed as there is a breach of contract.
Conclusion
Indian Contract Act and the Sale of Goods Act play a major role in business transactions. According to these Acts sale and agreement to sale/sell seems to be similar but there is a lot of distinction between them.
Sale and agreement to sale doesn’t limit itself to the above-mentioned Acts but also extends to the Transfer of Property Act 1882, the Indian registration Act 1908, and the Motor vehicles Act 1988.
References:
- Sale of Goods Act, 1930
- Legalserviceindia.com
- Blog.ipleaders.in
- Keydifferences.com
- Kaanoon.com
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