Key Takeaways

  • An agreement to sell is a legally binding promise to transfer goods or services in the future under defined terms.
  • It differs from a sale in that ownership has not yet transferred.
  • A valid agreement to sell outlines price, parties, payment terms, delivery details, and warranties.
  • These contracts can include contingency clauses and are used in a wide range of industries including real estate and commercial transactions.
  • Understanding obligations and risks helps protect both buyers and sellers.

An agreement to sell is a contract surrounding the sale of products or services. Agreement to sell contracts are also called sales contracts or purchase agreements.

Agreement to Sell Versus a Sale

When a seller agrees to hand goods that they own over to the buyer in exchange for money, this is called a contract of sale. Once the exchange is completed, it is simply called a sale. Before the sale is completed, but the intention to sell is present, it is known as an agreement to sell.

The main difference between an agreement to sell and a sale is that the first is called an executory contract and the second is called an executed contract. Sales are completed and absolute, while agreements dictate the terms of a sale that has not yet occurred.

Sales contracts come in many forms, but it's always a good idea to have one in place, especially when highly valuable goods or services are involved.

Taxes are not imposed until the sale is completed, so there are no taxes involved in an agreement to sell.

When a sale takes place without a contract, both party is at risk because there are no conditions in place to protect either party if something goes wrong or even has unintended consequences. An agreement to sell sets conditions in place before the sale takes place, offering risk protection for both parties involved.

Agreements to sell, also known as sales agreements or purchase agreements, are most common in the real estate business.

Liability

A big difference between a no-contract sale and an agreement to sell lies in the question of liability.

If the products or services transferred in a no-contract sale end up damaged or unsatisfactory, the liability lies with the buyer. The seller isn't legally bound to make good on their sale.

In the case of an agreement to sell, if the products or services that are to be transferred are damaged or unsatisfactory, the seller must bring them up to par in order to complete the sale and uphold their end of the agreement.

Once a sale takes place, the seller can claim damages if they are unpaid, but they cannot resell a product that has already been sold. If a seller tries to resell a previously sold product, the buyer of the already-sold item gets a bad title or false ownership.

In the case of an agreement to sell, a seller can resell the product to a second buyer as long as the second buyer makes the purchase in good faith. The first buyer can, however, claim damages from the seller if they never receive a product they paid for.

What Is a Sale?

Simply put, a sale takes place any time goods are exchanged for payment. This is called consideration in contract law. There are two parties involved in a sale: the debtor and the creditor. The debtor owes money for the product sold, and the creditor receives the money in exchange for their product.

There are several essential conditions that must be a part of every legitimate sale:

  • A minimum of two parties must be involved where one party is buying and one is selling.
  • The subject of the sale must be some form of goods.
  • Payment for the sale has to be made using the legal currency of the country in which the sale is taking place.
  • The goods sold must be given to the buyer once payment is received.
  • The payment owed must be given to the seller.

All legal sales must have the four basic elements of any sales contract:

What Is an Agreement to Sell?

Agreements to sell are also a type of sales contract, but they can be more thorough and legally binding than a simple sale.

In an agreement to sell, the contract clearly states the price a buyer agrees to pay for either goods or the fulfillment of some kind of condition stipulated. Both parties must agree to these terms and sign the contract to make it valid.

The performance of an agreement to sell contract must be done at the time specified in the contract, which will be a future date. An agreement to sell contract cannot cover a sale that has already taken place. The deadline might be a specific date, once a certain amount of time has elapsed, or once certain conditions have been satisfied.

Difference Between Agreement to Sell and Sale Agreement

Though often used interchangeably, there’s a subtle distinction:

  • An agreement to sell typically refers to a contract where ownership transfers in the future.
  • A sale agreement may refer to either a completed transaction or a similar contract pending fulfillment.

In U.S. commercial practice, both terms are valid and frequently overlap. However, the term “agreement to sell” emphasizes the intent to transfer ownership, not the completion of that transfer.

Legal Enforceability and Dispute Resolution

An agreement to sell becomes legally enforceable when it meets contract law requirements: mutual consent, lawful object, consideration, and competent parties. If one party fails to fulfill their obligations:

  • The other party can seek specific performance, requiring completion of the contract terms.
  • Alternatively, damages may be awarded to compensate for any losses suffered due to non-performance.
  • If the agreement includes an arbitration clause, disputes may be resolved outside of court through arbitration proceedings.

Having clearly defined dispute resolution mechanisms and jurisdictional clauses helps streamline conflict resolution and reduce legal uncertainty.

Common Use Cases for Agreements to Sell

Agreements to sell are commonly used in various industries where goods or services are delivered at a future date. Examples include:

  • Real Estate Transactions: Used to secure a property purchase before final paperwork and inspections.
  • Business Asset Sales: Often applied when selling equipment, inventory, or intellectual property.
  • Mergers and Acquisitions: Frequently used in sales of company shares or assets pending due diligence.
  • Vehicle Sales: Useful in scenarios where payment or transfer of title happens later.
  • E-commerce and B2B Contracts: Employed to lock in pricing and delivery terms ahead of shipment.

These contracts help formalize expectations and reduce the risk of misunderstandings or disputes later.

Key Elements of an Agreement to Sell

A comprehensive agreement to sell should include the following components to ensure clarity and legal enforceability:

  • Identification of Parties: Names and details of the buyer and seller.
  • Description of Goods or Services: Detailed information about what is being sold, including quantity and specifications.
  • Purchase Price and Payment Terms: Total agreed price and the structure of payment—whether lump sum, installments, or milestone-based.
  • Delivery Terms: When and how the product or service will be delivered.
  • Transfer of Ownership: Conditions under which ownership is transferred, usually upon full payment or delivery.
  • Warranties and Representations: Statements of quality or condition made by the seller.
  • Contingency Clauses: Any conditions that must be met for the agreement to proceed (e.g., financing approval).
  • Remedies for Breach: Legal actions available to either party in case of non-performance.
  • Governing Law: Specifies the legal jurisdiction that will govern the agreement.

Each clause plays a crucial role in preventing disputes and protecting each party’s interests.

Frequently Asked Questions

  1. Is an agreement to sell legally binding?
    Yes, if it meets standard contract requirements—offer, acceptance, consideration, and legal capacity.
  2. Can an agreement to sell be canceled?
    It can be canceled if both parties agree, or under terms outlined in the agreement such as unmet contingencies or breach.
  3. What happens if one party breaches an agreement to sell?
    The other party may seek legal remedies like damages or specific performance, depending on the contract terms.
  4. Does an agreement to sell transfer ownership?
    No, ownership transfers only after the sale is executed—typically upon full payment or delivery.
  5. Is a sale agreement the same as an agreement to sell?
    Not always. A sale agreement may be used for completed transactions, while an agreement to sell is typically forward-looking.

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