Section 4(1) of the sale of Goods Act defines a contract of sale of goods as — “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”.
The definition of contract of sale of goods reveals that either actual sale or an agreement to sell both are covered under the act. But, there are certain differences between the two.
Where in a contract of sale, the property in the goods is immediately transferred from the buyer to the seller it is called a sale.
Where under a contract of sale, the transfer of property in the goods is to take place in the future or after the fulfillment of certain conditions, it is called ‘An agreement to sell”.
A sale and an agreement to sell can be distinguished as:-
i) Transfer of Property (Ownership): In a sale, the property in goods or the ownership is immediately transferred from the seller to the buyer.
In an agreement to sell the property in the goods is not transferred immediately at the time of contract, but the ownership is transferred at a later time either at the expiry of a certain period or fulfillment of certain condition. Until then, the seller continues to be the owner of the goods.
ii) Risk of Loss: The general rule is that, unless otherwise agreed, the risk of loss passes with property. In case of sale, if the goods are destroyed the loss falls on the buyer, even if the buyer is not in possession of goods because the ownership has been transferred.
In an agreement to sell, the loss is to be borne by the seller because the ownership has still not passed on to the buyer, even if the buyer has possession of it.
iii) Consequences of Breach: In case of sale, if the buyer fails or refuses to pay the price of the goods, the seller can sue for the price, even if he has the possession of goods.
In an agreement to sell, if the buyer fails to accept and pay the price, the seller can sue him only for damages and not for the price, even if the goods in possession of the buyer.
iv) Right of Resale: In a sale the property of goods is immediately transferred to the buyer and so the seller (even if the goods are in his possession) cannot result the goods. If the seller does so, the subsequent buyer cannot acquire the title to the goods. The original buyer can recover the goods from the third person and can also sue the seller for the breach of contract.
In an agreement to sell, the seller can sell the goods to anyone as he has the property of goods and the new buyer gets the title of goods as he purchases the goods for consideration and without any notice of prior agreement. In such a case the original buyer can only sue for damages.
v) Buyers Insolvency: In a sale, if the buyer becomes insolvent before he pays the price of the goods, the seller will have to deliver the goods to the official assignee or receiver and he can only claim dividend for the price of the goods.
In an agreement to sell, if the buyer becomes insolvent and has not paid the price, the seller can refuse to deliver the goods to the official assignee or receiver until paid in full.
vi) Seller’s Insolvency: If the seller becomes insolvent then in case of sale the buyer is entitled to recover the goods from the official assignee of receiver since the ownership has been transferred to the buyer.
In case of an agreement to sell, if the buyer has paid the full price, he can only claim a rateable dividend and not the goods because the property in the goods still rests with the seller.
vii) Nature of Contract: A sale is an executed contract. An agreement to sell is an executary contract.
viii) Types of Goods: A sale can only be in the case of existing and specific goods. An agreement to sell mostly takes place in the case of future and contingent goods.