Difference between Sale and Agreement to Sale

Understanding the difference between sale and agreement to sale  is fundamental in the Sale of Goods Act, 1930. This distinction has been elucidated in various landmark judgments, which clarify the transfer of ownership, risk, and the nature of the contractual obligations involved.

1. State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 560

Facts: The respondent, Gannon Dunkerley & Co., was a construction company engaged in building contracts that involved the use of materials like cement and steel. The State of Madras sought to levy sales tax on the supply of these materials, treating the transaction as a sale of goods.

Issue: Whether the supply of materials in the course of executing a works contract constitutes a “sale” under the Sale of Goods Act, 1930.

Judgment: The Supreme Court held that a works contract is an indivisible contract and the supply of materials therein does not constitute a sale. For a transaction to be classified as a sale, there must be an agreement to sell movables for a price, and the contract must result in the passing of property from one party to another. In a works contract, the property in goods does not pass as movables; hence, it is not a sale.

Significance: This case highlights that for a transaction to be considered a sale, there must be an immediate transfer of ownership of goods. If the transfer is to occur at a future date or subject to conditions, it remains an agreement to sell.

2. M/s. New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, AIR 1963 SC 1207

Facts: The appellant entered into contracts with the State of Uttar Pradesh for the supply of sugarcane. The question arose whether these contracts constituted a sale, making them liable for sales tax.

Issue: Whether the contracts for the supply of sugarcane were “sales” under the Sale of Goods Act, 1930.

Judgment: The Supreme Court observed that the essence of a sale under the Act is the transfer of property in goods from the seller to the buyer for a price. In this case, the contracts were for the supply of sugarcane to be grown and delivered in the future, indicating an agreement to sell rather than an immediate sale.

Significance: This judgment underscores that when goods are to be supplied in the future or are contingent upon certain conditions, the contract is an agreement to sell. The sale is completed, and ownership transfers, only when the goods are ascertained and the conditions are fulfilled.

3. Consolidated Coffee Ltd. and Anr. v. Coffee Board, Bangalore, AIR 1980 SC 1468

Facts: The Coffee Board conducted auctions for the sale of coffee, where bidders would submit offers, and the highest bid would be accepted. The issue was whether the property in the goods passed to the buyer at the fall of the hammer or upon payment and delivery.

Issue: At what point does the property in goods pass from the seller to the buyer in an auction sale under the Sale of Goods Act, 1930.

Judgment: The Supreme Court held that in an auction sale, the property in goods passes to the buyer when the auctioneer announces the completion of the sale by the fall of the hammer or in another customary manner, provided the terms of the auction do not stipulate otherwise.

Significance: This case illustrates that in a sale, the transfer of ownership is immediate upon the completion of the contract, whereas in an agreement to sell, the transfer is deferred until certain conditions are met or a future date arrives.

These landmark cases elucidate the critical distinctions between a sale and an agreement to sell under the Sale of Goods Act, 1930. Understanding these differences is essential for determining the rights, obligations, and liabilities of the parties involved in the sale of goods.