Page 117 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
Example: Ramanathan sells his car to Bhim for ` 1 lakh. If all essential elements of a
valid contract are present, it is a sale and therefore the ownership of the car stands transferred
from Ramanathan to Bhim. This is so even where the payment of the price or the delivery of the
car or both have been postponed.
Agreement to sell means a contract of sale under which the transfer of property in goods is to
take place at a future date or subject to some conditions thereafter to be fulfilled.

Example: Amar agrees to sell certain goods to Akbar. The goods are on their way from
London to Mumbai in a ship. The ownership in the goods will pass to the buyer when the goods
come and the agreement is subject to the condition that the ship arrives at port with the goods.

5.1.2 Distinction between Sale and Agreement to Sell

The distinction between the two is of prime importance as they have different legal repercussions.
The rights and duties of the parties vary with the fact whether the contract of sale is an actual sale
or an agreement to sell. In a sale, the seller transfers the ownership in the goods at the time of
entering into the contract; in the agreement to sell, the ownership is agreed to be transferred
later.

Example: A Sales Tax Officer levied the liability of sales tax on a contract of sale amounting
to an agreement to sell. Held, there was no such liability, as the transaction did not amount to a
completed sale.

The difference between sale and agreement to sell is as follows:
Table 5.1: Difference between Sale and Agreement to Sell

1. A sale is an executed contract. It is an executory contract.
2. Since the ownership has passed to the buyer, In case of breach, the seller can only sue for
the seller can sue the buyer for the price of the damages, unless the price was payable at a
goods, if the latter makes a default in payment. stated date.
3. It creates a right in rem, i.e., against the whole It creates a right in personam, i.e., against
world. specified person only.
4. In case of loss of goods, the loss will fall on the The loss in this case shall be borne by the
buyer, even though the goods are in the seller, even though the goods are in the
possession of the seller. It is because the risk is possession of the buyer.
associated with ownership.
5. In case, the buyer pays the price and the seller In this case, the buyer cannot claim the
thereafter becomes insolvent, the buyer can goods but only a rateable dividend for the
claim the goods from the official receiver or money paid.
assignee, as the case may be.
6. If the buyer becomes insolvent without paying Under this, the seller can refuse to deliver
the price, the ownership having passed to the the goods to the official receiver or assignee,
buyer, the seller shall have to deliver the goods as the case may be.
to the official receiver or assignee, as the case
may be, except where he has a lien over the
goods.

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