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Agreement and contract are common terms used synonymously in day-to-day life. But the fact is people commonly do not know the real difference in legal terms. This confusion results in additional doubts with the related phrases and phenomena. Sale and agreement to sell is one such classic example. While buying a property, is it an agreement to sell or is it a contract of sale? Know the difference between sale and agreement to sell applicable to business transactions.
What is Sale and Agreement to Sale?
Before jumping to the said terms, it is better to go step by step. Given below are some legal definitions which are a must to understand the difference between sale and agreement to sell:
Agreement
As per section 2(e) of Contract Act states “every promise or set of promises forming a consideration for each other” is an agreement. Simply put, when two people agree for something in exchange of a consideration (or money), it becomes an agreement. It is not necessarily a contract since it could be betting as well which is not permissible by law. Reach out to Kolkata lawyers for contracts and agreements for in-depth understanding.
Contract
As per section 2(h) of the Indian Contract Act, 1872, “an agreement enforceable by law is a contract”. In other words, when two parties agree to certain terms in exchange of consideration which is in consonance with the existing laws, it becomes a contract. Eg, A agrees to pay B Rs 1000 in return for some goods and such a promise is mutually agreed, goods promised are legally permitted, it is a contract in the eyes of law. Valid contract is the one which complies with conditions enunciated under Sections 10 to 30 of the Indian contract which include free consent, no undue influence, no misrepresentation, etc.
Sale
Section 54 of Transfer of property provides that “sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.” In other words, when the ownership of a property is handed over to another person in exchange of a certain price (whether fully or partially paid), the phenomenon is known as sale.
Agreement to Sell
Section 4 (3) of Sale of Goods Act, 1930 directly explains this context with the words as “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.” It is a promise among parties regarding a future transaction.
Difference Between Contract of Sale and Agreement to Sell
People usually assume the difference between agreement and contract to be nothing and that the terms are synonymous. Now that it is clear that both have different meanings in the eyes of law, it is pertinent that the difference between contract of sale and agreement to sell is there.
We can say that a contract of sale is a broader term where two parties agree to exchange goods in return for a consideration. When the exchange takes place immediately, it is termed as sale. However, when it is supposed to take place in the future, it is known as an agreement to sell. For disputes over business transactions in Kolkata, lawyer in Kolkata may be able to help legally. The difference between sale and agreement to sell in tabular form will help understand the context in an easier way.
Major Differences Between Sale and Agreement to Sell
|
Particulars of Difference |
Sale |
Agreement to Sell |
|
Meaning |
A contract of sale is the exchange of goods for consideration which takes place immediately. Transfer of possession and ownership is instant. |
An agreement to sell is the exchange of goods for consideration in the future at a specific time or after fulfillment of specific conditions. |
|
Type of Contract |
Executed Contract |
Executory Contract |
|
Conditions |
May be absolute or conditional |
Scheduled over a particular time or conditions |
|
Transfer |
Immediate |
In future |
|
Nature of Rights |
Gives buyer a right against the whole world (Right in rem). |
Gives rights to buyer and seller against each other (Right in personam). |
|
Title |
Title transfers with the execution |
Title remains with the seller until sale is executed |
|
Risk |
Risk transfers to the buyer immediately upon execution. |
Risk remains with the seller until the actual sale is executed. |
|
Subsequent Responsibility |
Any subsequent loss to the property is the buyer’s responsibility. |
After an agreement to sell, any subsequent loss is still borne by the seller. |
|
Tax |
Depending upon nature and cost of the property, tax is charged at the time of sale. |
No tax is charged for an agreement to sell. |
|
Subjected Property |
Existing property - The property sold must be under the title of seller at the time of sale. |
Can be a property/goods already owned (existing property) or may be future property/goods. |
|
Relation |
Execution is when an agreement to sell becomes a sale. |
Agreement to sell is the basis of a sale deed. |
|
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 as ownership has transferred to the buyer. |
The seller can resell the goods if the buyer fails to meet the conditions. |
|
Confidentiality |
Buyer gains immediate access to any confidential information upon completion of the sale. |
Confidential information is shared upon fulfillment of the agreement’s conditions. NDAs may protect sensitive information until ownership transfer. |
|
Registration |
Registration is not mandatory and can be oral or written. However, having a written agreement helps avoid disputes and provides clear evidence of the terms agreed upon. |
Registration of a sale deed is mandatory as per applicable laws to ensure the legal transfer of property ownership. |
|
Illustrations |
When A goes to the grocery store, pays money in return for a few kgs of beans, the transaction is immediate. |
When B agrees to sell A 5 kg of beans every month. |
Difference Between Agreement to Sell and Sale Deed
- A written agreement to sell includes all terms and conditions agreed upon by the buyer and seller for a future exchange of goods and consideration. However, a sale deed contains the terms and conditions of a sale being executed. For such matters, civil lawyer in Kolkata can assist the legal matters arising in Kolkata.
- An agreement of sale contains a future date or the set of conditions on which a future sale may take place. While a deed of contract of sale contains the date on which such sale is being executed and it does not contain any future conditions except in regard with partial payment.
- In case of an agreement of sale, future transfer of title of goods is clearly mentioned. While in case of a sale deed, immediate transfer of ownership and title is clarified in the terms.
- An agreement to sell is the base for future contract of sale/ sale deed. When an agreement to sell becomes a sale it is executed on the said terms only.
- An agreement to sell can be used to secure loans or financing based on the agreed future purchase, providing a framework for the transaction and helping manage risks associated with future conditions. In contrast, a sale deed allows the buyer to take immediate ownership and possession, enabling immediate use, modification, or resale.
- In an agreement to sell, physical possession of goods or property typically remains with the seller until the terms are fulfilled. In a sale deed, physical possession is transferred to the buyer immediately upon execution.
- An agreement to sell can be used to legally enforce the terms agreed upon for a future sale. On the other hand, a sale deed serves as proof of immediate ownership transfer and can be used to assert property rights legally.
- The rights and responsibilities of the parties in an agreement to sell are limited to their mutual agreement until the transaction is completed, whereas a sale deed ensures all legal obligations and rights related to the possession of a property are transferred to the buyer.
FAQs
-
What is the difference between a sales contract and a sales agreement?
A sales contract and a sales agreement are essentially the same thing and are often used interchangeably. They both refer to a legally binding agreement between a buyer and a seller for the exchange of goods or services for a price. However, in legal contexts, a sales contract might refer to a more formalized document that outlines all the terms and conditions of the sale, while a sales agreement can be a broader term that encompasses any agreement, whether formal or informal, for the sale of goods or services.
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What is an example of an agreement to sell?
For instance, if A agrees to sell a piece of land to B for a specified amount, but the transfer of ownership will only happen after B has paid the full amount, this would be considered an agreement to sell.
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What is the validity of agreement to sell?
An agreement to sell is valid when it meets the essential elements required for a valid contract under the law. This includes mutual consent, lawful consideration, capacity of parties, lawful object, and compliance with legal formalities. Additionally, the terms of the agreement must be clear and definite.
-
Is an agreement to sell mandatory?
An agreement to sell is not mandatory in all cases. However, in transactions involving the sale of immovable property (real estate) or high-value movable property, it is generally advisable to have a written agreement to avoid disputes and to provide clear evidence of the terms agreed upon by the parties. The registration of an agreement to sell is not mandatory in all jurisdictions, but it may be required to enforce certain rights.
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