The following are the main points of distinction between a ‘sale’ and ‘an agreement to sell’:
1. Transfer of property (ownership):
In a ‘sale’, the property in goods passes to the buyer immediately at the time of making the contract. In other words, a sale implies immediate conveyance of property so that the seller ceases to be the owner of the goods and the buyer becomes the owner thereof. It creates a jus in ram, i.e., gives right to the buyer to enjoy goods as against the whole world.
In ‘an agreement to sell’, there is no transfer of property to the buyer at the time of the contract. The conveyance of property takes 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 50 kg wheat from B and the wheat is yet to be weighed, the transaction is an agreement to sell because as per Section 22, 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 gives a right to either buyer or seller against the other for any default in fulfilling his part of the agreement.
It 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.
3. Consequences of breach:
In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the goods, the seller can sue for the price, even though the goods are still in his possession. In 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, even though the goods are in the possession of buyer.
4. Right of resale:
In a sale, the property is with the buyer and as such, the seller (in possession of goods after sale) cannot resell the goods. If he does so, the subsequent buyer having knowledge of the previous sale does not acquire a title to the goods. The original buyer can sue and recover 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 conversion. The right to recover the goods from the third person is, however, lost if the subsequent buyer had bought them bonafide without notice of the previous sale (Sec. 30).
In an agreement to sell, the property in the goods remains with the seller and as such, he can dispose of the goods as he likes and the original buyer can sue him for the breach of contract only. In this case, the subsequent buyer gets a good title to the goods, irrespective of his knowledge of previous sale. Further, 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.
5. Insolvency of buyer before he pays for the goods:
In a sale, if the buyer is adjudged insolvent before he pays for the goods, the seller, in the absence of a ‘right of lien’ over the goods, must deliver the goods to the Official Receiver or Assignee. The seller is entitled only to a rateable dividend for the price of the goods. But in an agreement to sell, in these circumstances, the seller may refuse to deliver the goods to the Official Receiver or Assignee unless paid for, as ownership has not passed to the buyer.
6. Insolvency of seller if the buyer has already paid the price:
In a sale, if the seller is adjudged insolvent, the buyer is entitled to recover the goods from the Official Receiver or Assignee, as the property in the goods rests with the buyer. On the other hand, in an agreement to sell, if the buyer has already paid the price and the seller is adjudged insolvent, the buyer can only claim a rateable dividend (as a creditor) and not the goods, because property in them still rests with the seller.