While buying a property, is it an agreement to sell or is it a contract of sale?
People usually assume the difference between agreement and contract to be nothing and that the terms are synonyms. This confusion results in additional doubts with the related phrases and phenomena.
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.
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.
Section 2(e) of Contract Act states that “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.
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 agreement with the existing laws, it becomes a contract.
Eg. A agrees to pay B Rs 1000 in return for some goods. If such a promise is mutually agreed and 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. This include free consent, no undue influence, no misrepresentation, etc.
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 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, 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
|Particulars of Difference
|Agreement to Sell
|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 a consideration in future at a specific time or after fulfilment of specific conditions.
|May be absolute or conditional
|Scheduled over a particular time or conditions
|Immediate – Executed Contract
|In future – Executory Contract
|A contract of sale is a subject of various statutes including:
Indian Contract Act, 1872
Sale of Goods Act, 1930
Transfer of Property Act, 1882
|An agreement to sell is mainly a subject of the Sale of Goods Act, 1930.
|Nature of Rights
|Gives buyer a right against the whole world (Right in rem)
|Gives right to buyer and seller against each other (Right in personam)
|Title transfers with the execution
|Title remains with the seller until sale is executed
|Transferred to the buyer
|Remains with the seller
|Any subsequent loss to the property is buyer’s responsibility
|After an agreement to sell, any subsequent loss is still borne by the seller
|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
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
- 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. 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.
- Registration of an agreement to sell is not mandatory. It may be an oral agreement as well. However, registration of a sale deed is mandatory as per applicable law.