Agreement to Sell Definition: Everything You Need to Know
An agreement to sell, also called sales contracts or purchase agreements, is a contract surrounding the sale of products or services.3 min read
3. What Is a Sale?
4. What Is an Agreement to Sell?
Updated October 29, 2020:
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.
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.
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