Agreement to Sell Binding or Not?

WHAT?

It is a well-settled law that an Agreement is not enforceable since it is nothing more than a promise made between the parties to carry out a future transaction. This kind of Agreement is often executed in a transaction related to the transfer of ownership. In pursuance of this Agreement, parties execute a Sale Deed in the future for the immediate transfer of property titles.

WHERE?

Section 2(e): Every promise and every set of promises, forming the consideration for each other, is an agreement.

Section 2(h): An agreement enforceable by law is a contract.

HOW/ WHEN DOES IT BECOME BINDING?

For any agreement to become binding in nature, it must meet certain essentials as follows:

1. OFFER: There must be an offer made by one party (Offeror) to the other.
2. ACCEPTANCE: The other party (offeree) accepts the offer made by the other.
3. CONSIDERATION: Parties must receive consideration in exchange (Something of value) for their performance.
4. LAWFUL OBJECT: The purpose of entering into the Agreement should not be illegal or against public policy or morality.
5. FREE CONSENT: Parties to the Agreement must do it with their free consent without being affected by undue influence, fraud, etc.
6. CAPACITY: Parties must have the capacity to enter into an Agreement, they should be of sound mind, major, and not disqualified by any law.

If an Agreement meets all the essentials mentioned hereinabove, in that case, it becomes legally binding on the parties.

ILLUSTRATION

'A' is agreeing to sell off his land to 'B' for a specified amount on a future date upon fulfillment of certain conditions as prescribed under the Agreement to Sell executed between A & B.

At the time of, executing this Agreement 'B' had paid Rs 5 Lakhs to A in Advance as a token amount that indicates his certainty to act on his promise. Further, the acceptance of the advance amount by A witnesses his intention to transfer the property.

(Note: Both A & B are competent to contract).

In the facts stated above the Agreement executed between parties is a legally binding document. thus, either party can seek specific performance of the contract, in case, if either party fails/refuses to act on their part of the contract.

CASE LAW

In the case of Babasaheb Dhondiba Kute vs . Radhu Vithoba Barde ( 15 . 02 . 2024 - SC ), the court observed that "In the view of the Defendant not performing his part of the Agreement to sell the plaintiff was constrained to file suit for specific performance. when all the courts held that the Plaintiff has performed his part of the Agreement in as much as he had tendered a sum of Rs 2,20,000/- out of a total consideration of Rs 2,25,000/- and he was ready and willing to perform the rest of the obligation under the contract, it was only in the context of non-performance by the Defendant that the Plaintiff was constrained to file the suit for specific performance. since there were no reasons to decline the grant of a decree of specific performance. Hence, the trial court as well as the High Court ought to have granted the said decree rather than granting an alternating relief."

Thus, the court modified the judgment of the Trial and High Court and decreed the suit filed by the Plaintiff is entitled to the relief-specific performance of the agreement to sell.

CONCLUSION

Therefore, the nature of an Agreement whether binding or not is affected by a bunch of factors including whether the Agreement meets the essentials of a valid contract, whether parties are ready and willing to perform their part, has either party performed his part in pursuance of the Agreement.