Sale and Agreement of Sale

Agreement of Sale or the agreement to sell becomes a sale when certain conditions are met. Here we will see certain aspects derived from the Sale of Goods Act, that determine the nature of a Sale and Agreement of Sale. Let us see more!

Sale and Agreement of Sale (Section 4)

A contract is a formal or verbal agreement that is enforceable by law. Every contract must have an agreement but every agreement is not a contract. The section 4(1) of the Sale of Goods Act, 1930 states  that – ‘A contract of sale of goods is a contract whereby the seller either transfers or agrees to transfer the property in goods to the buyer for a decided price.’

In Section 4(4) of the Act, it is maintained that for an agreement of sale to become a sale, the time has to elapse or the conditions have to be fulfilled subject to which the property in the goods is to be is to be transferred.

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 Act.

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)].

The transfer of goods may be affected directly, after the fulfillment of a contingency or to a party authorized by the seller.

Agreement To Sell

We saw that in a sale the property in the goods is 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.

Now the question is that how does this transition from agreement to sell to sale occur? The agreement to sell will become a sale if and only when the time elapses or the conditions are fulfilled subject to which the contract of sale is to be fulfilled.

Elements of A Contract Of Sale

From the Sale of Goods Act, 1930, we see that certain elements must co-exist for a contract of sale to be constituted. they are as follows:

1. The presence of two parties is a must. As is the case with a contract, there must be at least two parties in the contract of sale. One shall become the seller and the other a buyer.
2. The clauses therein present in the contract of sale must limit their scope to only the movable property. This “movable property” may constitute existing goods, goods in the possession or the ownership of the seller or future goods.
3. One of the important elements is the consideration of price. A price in value (currency and not in kind) has to be paid or promised. The price consideration or the actual payment could be partly in kind and partly in money but never in kind alone.
4. The ownership of the property of goods must change from the seller to the buyer. In the contract of sale, like we saw in the elements of a contract, an offer has to be made and then accepted. The offer is made by a seller and then accepted by the buyer.
5. The contract of sale may be absolute or conditional.
6. The other essential elements of a contract, that we have already seen must also be present here. The crucial elements of a contract like competency of parties, the legality of object and consideration etc. have to be present like in any other contract.

Solved Question on Sale and Agreement of Sale

Q: What is the specific condition that makes a contract an agreement to sell?

Answer: The condition is defined in Section 4(3) of the Sale of Goods Act, 1930 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 here the ownership of goods is not transferred immediately but an intention to transfer the ownership is made clear.