TRANSFER OF PROPERTY PROJECT

Difference Between Sale & Agreement to Sell

Submitted By Rahul Rajan Roll No. 545 VIth Semester

NATIONAL UNIVERSITY OF ADVANCED LEGAL STUDIES (NUALS)

The Transfer Of Property Law, 1882

What is a Sale?
A "sale" is (colloquially) a completed transaction where the only remaining duties of the buyer may be timely rejection after inspection, and the only remaining duty of seller is to honor any express or implied warranty. This assumes the full price was paid during the sale and the goods were deli ered, otherwise, the sale is not technically complete.

What is an agreement to sell?

An "agreement to sell" is a contract that en isions (or defines) a future sale, thus all conditions precedent and other terms (deli ery, payment, etc), continue to be "executory", that is, are yet to be fully carried out. A breach of this contract could result in a court order of specific performance, or for damages caused by the loss of the opportunity to buy or sell.

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The Distinction
!ection "(#) of the sale of $oods Act defines a contract of sale of goods as % &a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price'. The definition of contract of sale of goods re eals that either actual sale or an agreement to sell both are co ered under the act. (ut, there are certain differences between the two. )here in a contract of sale, the property in the goods is immediately transferred from the buyer to the seller it is called a sale. )here under a contract of sale, the transfer of property in the goods is to ta*e place in the future or after the fulfillment of certain conditions, it is called +An agreement to sell'. A sale and an agreement to sell can be disting ished as!" #$ Trans%er o% &ro&ert' (o)nershi&*! ,n a -sale-, the property in goods passes to the buyer immediately at the time of ma*ing the contract. ,n other words, a sale implies immediate con eyance of property so that the seller ceases to be the owner of the goods and the buyer becomes the owner thereof. ,t creates a jus in ram, i.e., gi es right to the buyer to enjoy goods as against the whole world. ,n -an agreement to sell-, there is no transfer of property to the buyer at the time of the contract. The con eyance of property ta*es place later so that the seller continues to be the owner until the agreement to sell becomes a sale either by the expiry of certain time or the fulfillment of some condition. Thus where A agrees to buy ./ *g wheat from ( and the wheat is yet to be weighed, the transaction is an agreement to sell because as per !ection 00, in such a case the property does not pass to the buyer till the goods are weighed and the buyer has notice thereof. The transaction becomes a sale and the property in the goods passes to the buyer after the wheat is weighed and the buyer has notice thereof. An agreement to sell creates a just in personam, that is, it gi es a right to either buyer or seller against the other for any default in fulfilling his part of the agreement.

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The Transfer Of Property Law, 1882

,t is worth noting that this is the basic point of distinction between a -sale- and -an agreement to sell.- All other points of distinction follow from this basic difference, i.e., whether the property in the goods has passed or is yet to pass from seller to buyer, on the other hand, in case of an agreement to sale where the ownership in the goods is yet to pass from seller to the buyer, such loss has to be borne by the seller. ii) Ris+ o% ,oss1 The general rule is that, unless otherwise agreed, the ris* of loss passes with property. ,n case of sale, if the goods are destroyed the loss falls on the buyer, e en if the buyer is not in possession of goods because the ownership has been transferred. ,n an agreement to sell, the loss is to be borne by the seller because the ownership has still not passed on to the buyer, e en if the buyer has possession of it. iii) Conse- ences o% .reach1 ,n case of sale, if the buyer fails or refuses to pay the price of the goods, the seller can sue for the price, e en if he has the possession of goods. ,n 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, e en if the goods in possession of the buyer. ,n case of sale, if the buyer wrongfully neglects or refuses to pay the price of the goods, the seller can sue for the price, e en though the goods are still in his possession. ,n case of an agreement to sell, if the buyer fails to accept and pay for the goods, the seller can only sue for damages and not for the price, e en though the goods are in the possession of buyer. /$ Right o% resale! ,n a sale, the property is with the buyer and as such, the seller (in possession of goods after sale) cannot resell the goods. ,f he does so, the subsequent buyer ha ing *nowledge of the pre ious sale does not acquire a title to the goods. The original buyer can sue and reco er the goods from the third person as owner, and can also sue the seller for the breach of contract as well as for the tort of con ersion. The right to reco er the goods from the third person is, howe er, lost if the subsequent buyer had bought them bonafide without notice of the pre ious sale (!ec. 2/).

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The Transfer Of Property Law, 1882

,n an agreement to sell, the property in the goods remains with the seller and as such, he can dispose of the goods as he li*es and the original buyer can sue him for the breach of contract only. ,n this case, the subsequent buyer gets a good title to the goods, irrespecti e of his *nowledge of pre ious sale. 3urther, goods forming the subject matter of an agreement to sell can also be attached in execution of a decree of a court of law against the seller. ) . 'ers 0nsol1enc'1 ,n a sale, if the buyer becomes insol ent before he pays the price of the goods, the seller will ha e to deli er the goods to the official assignee or recei er and he can only claim di idend for the price of the goods. ,n an agreement to sell, if the buyer becomes insol ent and has not paid the price, the seller can refuse to deli er the goods to the official assignee or recei er until paid in full. ,n a sale, if the buyer is adjudged insol ent before he pays for the goods, the seller, in the absence of a -right of lien- o er the goods, must deli er the goods to the 4fficial 5ecei er or Assignee. The seller is entitled only to a rateable di idend for the price of the goods. (ut in an agreement to sell, in these circumstances, the seller may refuse to deli er the goods to the 4fficial 5ecei er or Assignee unless paid for, as ownership has not passed to the buyer. i) Seller2s 0nsol1enc'1 ,f the seller becomes insol ent then in case of sale the buyer is entitled to reco er the goods from the official assignee of recei er since the ownership has been transferred to the buyer. ,n case of an agreement to sell, if the buyer has paid the full price, he can only claim a rateable di idend and not the goods because the property in the goods still rests with the seller. ,n a sale, if the seller is adjudged insol ent, the buyer is entitled to reco er the goods from the 4fficial 5ecei er or Assignee, as the property in the goods rests with the buyer. 4n the other hand, in an agreement to sell, if the buyer has already paid the price and the seller is adjudged insol ent, the buyer can only claim a rateable di idend (as a creditor) and not the goods, because property in them still rests with the seller.

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The Transfer Of Property Law, 1882

ii) Nat re o% Contract1 A sale is an executed contract. An agreement to sell is an executary contract. iii) T'&es o% 3oods1 A sale can only be in the case of existing and specific goods. An agreement to sell mostly ta*es place in the case of future and contingent goods.

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CASE ,AWS

1. Wood v. Manley (1 !"# 11$% &!4 A sale has the immediate effect of transferring property, where as in an agreement to sell the property is to pass at some time or future or subject to some condition. The sale of the whole of the haystac* on the seller6s far, the buyer ha ing the liberty to ta*e away when he li*es, is an immediate. '. White v. (il)s (1 1!# 5 *aunt 1"+ A contract to sell a portion of the oil from the seller6s cistern is an agreement to sale, since it is agreed to be carried out in future or on some condition. ,n other words, this transaction does not ha e immediate effect. !. ,nion o- India v. *ara .hand% $IR 1/"/ M0 111 The buyers rights are only personal against the seller, that is, a jus in personam. 7e can sue only for damages for breach and not for reco ery of goods. A contract to sell coal8ash which might accumulate at a particular pump house has been held to be an agreement to sell future goods. 4. Sale By *rans-er 2- 3o4ument 2- *itle *o 5oods The +sale by transfer of documents of title to goods6 has been interpreted by judiciary in many cases, some of them are cited subsequently for reference. 9ormally the sale is effected by endorsement of transport documents. 4n the bac*side of the document li*e, :.5. the endor can put his signature and transfer the documents to buyer. As held by (ombay 7igh ;ourt in case of ;hhaganlal !a chand (<0 ,T5 #22) the transfer of documents can be effected e en by deli ery. ,t is also held by judiciary that transfer of documents can ta*e place e en by instruction. Therefore it is not necessary that the sale by transfer of documents ta*es place when the document is first ta*en out between first seller and his buyer and then transferred by the buyer to his buyer. The buyer of first seller can gi e instruction to dispatch thegoods

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The Transfer Of Property Law, 1882

directly to his customer. ,f such instructions are gi en and accordingly the goods are dispatched to third party (i.e., buyer6s buyer) it is because of transfer effected by the buyer of first seller. The transfer ta*es place while boo*ing the goods in transport and this is also a transfer during course of mo ement. This is *nown as notional or constructi e transfer. !ince this transfer is ta*ing place during course of mo ement from one !tate to other it is eligible for exemption u=s. <(0). ,n such case the first seller is consignor and the buyer6s buyer is consignee. 7owe er the commercial bills will be by first seller to his buyer and then by the first buyer to his buyer. ,n such a case to enable the first buyer to claim exemption, >8 , form is to be issued by first seller to such first buyer. ,t will be appreciated that e en if the sale is predetermined by your buyer to his buyer it does not ma*e any difference. 4n the contrary it ma*es the case strong in the sense that there is real transfer of documents at the loading station itself and any possibility of ma*e belie e transfer gets a oided. Therefore predetermined sale cannot be an issue. The same will be clear from the judgment gi en below. The abo e legal position is clear, amongst others, from following judgments. .. 6o( $ Sale Is &--e4ted M7s. State o- 5ujarat vs. 6aridas Mulji *ha))er ( 4 S*. !1"#(5uj# 18 ,n this case the facts are that the $ujarat dealer recei ed order from another dealer in $ujarat. 3or supplying the said goods, the endor dealer in $ujarat placed order on ?aharashtra dealer and instructed to send the goods directly to the $ujarat purchasing party. $ujarat 7igh ;ourt held that the sale by ?aharashtra dealer to $ujarat endor dealer is first interstate sale and the one by $ujarat endor dealer to $ujarat purchasing dealer is second interstate sale. $ujarat 7igh ;ourt also held that the second interstate sale is exempt u=s. <(0) being effected by transfer of documents of title to goods. ,n this case though there was no physical transfer of :.5. etc. $ujarat 7igh ;ourt held that there is constructi e transfer by instruction and hence duly co ered by section <(0). This judgment duly co ers both issues, that there is no need for physical transfer and also that ha ing predetermined parties does not affect the claim.

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<. Interstate Sale M7s. 8ate4hand .haturbhujdas vs. State o- Maharashtra (S.$. /4 o- 1//1 dated.1'9 91//1# de4ided by Maharashtra Sales *a: *ribunal 18 ,n this case the local party purchased goods from other local party and directed the same to be despatched to outside !tate party. > en though local party was shown as consignor, ta*ing the iew that while placing order there is term for outside place dispatches, ?aharashtra !ales Tax Tribunal heldthat the sale between two local parties is first interstate sale and the sale by local party to outside party is subsequent interstate sale, duly exempt u=s. <(0). ,n short e en if there is predetermined sale, there is no ad erse effect on the sale to be claimed u=s. <(0). 4n the other hand, in light of abo e judgments, the claim gets more authentic. The transfer of property to ultimate purchaser (consignee) gets synchroni@ed at the time of boo*ing the goods with the carrier and hence the subsequent sales ta*e place by transfer of documents of title to goods as held by 7igh ;ourt in abo e case of A" !T; 2#B. The claim of exemption is to be allowed under abo e circumstances subject to production of required forms. M7s. 3uvent 8ans 0. ;td. vs. State o- *amil Nadu (11! S*. 4!1#(Mad.# 18 :ocal dealer purchased goods from other local dealer and directed to send them to his purchaser6s place in other !tate. ?adras 7igh ;ourt held that the first transaction is first interstate sale and the second sale is also subsequent interstate sale exempt u=s.<(0) of ;!T Act. The abo e judgment is directly on issue and hence will go ern the field. ,n fact there are many judgments on this issue. 7owe er since the legal position about transfer of documents as well as predetermined sale is clear from abo e judgments, no further citations are gi en here for sa*e of bre ity.

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REFERENCES

Law of Contracts and Specific Relief, Avatar Singh, Eighth Edition, Eastern Book Compan !ndian Contract and Specific Relief Acts, Pollock and "#lla, $welfth Edition, %ol&', B#tterworths Contracts B (#tt

B#siness Laws, Ethics and Comm#nication, Board )f St#dies, $he !nstit#te of Chartered Acco#ntants )f !ndia*

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