Price in a Contract of Sale : Judicial Interpretation
Authored By Devanshi Goyal
Keywords: contract, sales of goods, title in the goods, consideration.
The ground for Indian society is contract. Indian society norms are based on the theory of social contract which provides that a person moral or political obligations are based on the contract or agreement which forms the society in which they live. The concept of contract has been embedded with law which deals with the business, transactions for the economic development as well as the society. The parent act being the law of contract from where the sales of goods act has derived its existence. Thus it helps in building, encouraging and promoting the business transactions where the seller transfers the goods title to the buyer for a consideration which forms the basis of every contract.
For a contract to be valid and legal it must fulfill the essential four conditions attached to it, i.e offer, agreement, acceptance and consideration. The initiation of contract making starts by making an offer and ends with the performance of the said contract. Contract between the parties must be for a performance with the consideration. The consideration can be in the form of price that is paid by the parties. The provision under the contract specifies the method by which the price is paid at any time decided by the parties. Price as per the law is the monetary compensation or value decided priorly for the sales of goods. The price for the contract of sale must be ascertained in accordance with the provisions of law. The sales of goods act,1930 provide with the provisions which are necessary to ascertain the price of contract, as per the Section 4 of sales goods act,1930 a contract of sale is the contract in which the seller transfers or has agreed to transfer the property in good to the buyer for some price. This constitutes a compoundable transaction of an agreement to sell, including passing of title, delivery of good, payment of price, and other charges of transportation. 1
Provisions under law
According to section 9 of the sales of goods act1930, price in a contract of sale may be fixed by contract, i.e the price mentioned explicitly in the contract of sale or determined prior, or the contract has some clauses that has or defines the authority, i.e the buyer/seller to that will eventually ascertain the price or, the price may be left to be determined by the course of deals between the parties. The provision further provides with the answer to the uncertainty that would arise if no price is determined with the said provision, then the buyer shall pay the seller a reasonable price, that would vary with individual cases and circumstances. The price may be fixed at time of transfer or at a later stage as per the convenience of parties, or can be fixed in the future, future determination of price is valid under the Indian contract act 1872, the contract would not become void for uncertainty because the price was not fixed. In the opinion of Lord Blackburn J. When the price could not be determined with particularity in consequence of the thing perishing, still the seller can recover the price involved in the risk by the purchaser, by ascertaining the amount as nearly as he can.
In the case Martineau vs Kitching (1872) 2 the court decided that where the goods are kept at seller's premises as per the contract and are drawn by the buyer as wanted, the buyer is obligated to pay the seller, for the goods that were destroyed by fire, the price, as recovery.
The court in the case of Bhupendra S Bhatia vs State of MP 3 , held that the price can be made subject to escalation clause in the agreement. Changing of price at the time of delivery of good would not cause any consequences to the subject matter of contract. The buyer may put the condition that price ruling on the date of delivery would apply. Further the court ordered that the adhoc rate should prevail for the entire financial year.
Under English law, if the price is inconclusive for a contract of sale, the reasonable price for the same can be determined later, even when the contract is reticent about the method by which the price is to be determined. An agreement for payable of reasonable price will be implied; and what is implied by law is as strong to bind the parties as if it were under their hand. Another approach to resolve the price ascertainment is given under Section 10 of the sales of goods act,1930 through valuation by a third party. Section 10 explicitly deals with this method. Price can be fixed by valuation which the sales of goods act says for an agreement to sell. This procedure comes into effect when both parties have mutually have come to conclusion that the price is to be determined by a third party, who is not a part of the contract. However when the third party is incapable or unable or refuses to make a proper valuation of the goods that are to be purchased , then the agreement would stand void.
When, in cases where the third party is impeded by default of one of the parties. In such cases, the party making the fault will be responsible to pay appropriate compensation in terms of damages caused to other party, provided that the other party should not be at fault. Once the goods have been properly received by the buyer he is liable to pay the price thereof.
Contract of sale is completed when the property is transferred from seller to buyer for some consideration or any promise for the same. Consideration can be in form of money which is essential for a sale. Determination of price can be done by contract itself or by the course of dealings between the parties as provided under section 9 of the sales of goods act, which specifies that the price could be fixed by the parties as agreed mutually. In absence of such determination the buyer shall pay a reasonable price to the seller for the good. Price can be fixed through valuation also by a third party if both the parties agree to it.
2. (1872) LR 7 QB 436, 26 LT 836
3. Appeal (civil) 445 of 2000