Price in a Contract of Sale Under Sections 9–10: Agreed Price, Reasonable Price, and Valuation by Third Party
- Umang
- 5 days ago
- 15 min read
Table of Contents
The Problem of the Unpriced Contract
Two traders agree on the goods and shake hands. Neither specifies a figure. The goods are delivered. The buyer uses them. The seller sends no invoice. Weeks pass. When payment is demanded, the buyer denies any obligation — pointing out that no price was ever agreed. Is the contract void for want of consideration? Or does the law supply a price?
A second scenario: a seller and buyer agree that the price of a commercial property's entire contents will be fixed by an independent valuer. Before the valuer can act, the seller secretly instructs a warehouse employee to block the valuer's access. The valuer cannot complete the assessment. What are the buyer's remedies?
A third: a tax is newly imposed on the goods after the contract is signed but before delivery. The contract says nothing about taxes. Who bears the additional burden?
Each of these scenarios is answered by Sections 9, 10, and 64A of the Sale of Goods Act, 1930 — the statutory provisions that govern the ascertainment of price, the consequences of valuation failure, and the adjustment of price for post-contract tax changes.
These provisions are modest in length but considerable in commercial consequence, and they interact directly with the foundational requirement that price, being the consideration in a contract of sale, must be capable of determination.
Price as Consideration: The Foundational Requirement
Section 2(10): Price Defined
Section 2(10) of the Sale of Goods Act, 1930 defines price simply as the money consideration for a contract of sale of goods. The definition is deliberately spare. Price is money — legal tender — paid or promised by the buyer to the seller in exchange for property in the goods.
Price is not merely a commercial feature of a sale; it is its legal skeleton. The price is the consideration in every contract of sale of goods, and consideration is, by virtue of Section 25 of the Indian Contract Act, 1872, an essential element of every valid contract. Absent consideration, a contract is void ab initio. Accordingly, if the price is not fixed and is not capable of being fixed by any of the modes the Act recognises, the contract of sale fails for want of consideration — it is void from the beginning, not merely voidable at someone's option.
This connection between price-as-consideration and contractual validity is the thread running through both Sections 9 and 10.
Price Must Be in Money: The Barter Boundary
Price must be in money — not in goods. A transaction in which a certain quantity of wheat is exchanged for a certain quantity of rice has no price in the legal sense; neither party is paying money consideration to the other. That is a barter, not a sale, and the Sale of Goods Act does not govern it. Similarly, a gift — a transfer of property in goods without any monetary consideration — is not a sale.
The requirement that consideration be in money is the definitional line between a contract of sale and every other transaction involving the transfer of goods.
Partly Money, Partly Goods: The Hybrid Transaction
Commercial life frequently throws up transactions where the consideration is neither purely money nor purely goods — where it is a combination of both. The law addresses this directly.
Where goods are sold for a definite sum, and that price is paid partly in money and partly in kind, the transaction is still a valid sale. The monetary element supplies the "price" in law; the goods element is part of the payment mechanism.
This is confirmed by the old but enduring case of Aldridge v Johnson [(1857) 26 L.J.Q.B. 296], where 52 bullocks were agreed to be sold at a stated price per head, payable partly by delivery of 100 quarters of barley at a fixed rate and the balance in cash. The court held that this was a valid contract of sale, not a barter — because the parties had agreed upon a money price, even if part of the payment was in kind.
The same principle was applied in S. Australian Insurance Co. v Randell [(1869) 3 PC 101], where corn was delivered on condition that, on demand, either the agreed price would be paid or an equal quantity of corn would be returned. The court held this to be a valid agreement of sale.
The line between sale and barter therefore runs here: if the parties have fixed a money price and merely arranged for part of it to be satisfied by delivery of goods, it is a sale. If no money price has been fixed at all, and the transaction is simply an exchange of goods for goods, it is barter.
What Happens When Price Is Not and Cannot Be Fixed?
Before entering Sections 9 and 10 in detail, it is important to locate the outer boundary. If the price cannot be fixed by any of the modes the Act recognises — not by contract, not by the manner agreed, not by course of dealings, not by a third party — then, in the absence of any delivery and acceptance of goods, the contract is void. The law will not rescue a contract that has no mechanism for determining its essential term of consideration.
But this proposition has a qualification: Section 9 itself provides that where price cannot be fixed by any other means, the buyer must pay a reasonable price. That residual rule, discussed below, means that the truly unpriced sale is rescued by the Act itself — a practical accommodation to the reality that merchants frequently deal without fixing a figure, relying on market rates.
Section 9: The Three Primary Modes of Fixing Price
Section 9 of the Sale of Goods Act, 1930 provides three modes by which price may be ascertained in a contract of sale, plus the residual reasonable-price fallback.
Mode One: Fixed by the Contract Itself
The simplest and most common mode: the price is stated in the contract. The seller and buyer agree on a figure — Rs 50,000 for a machine, Rs 200 per quintal for wheat — and that figure is the price. There is no ambiguity, no reference outward, no need for further determination. The contract carries its own answer.
Most commercial contracts operate on this mode. Purchase orders, invoices, tenders, and formal sale agreements invariably state a price. Where they do, the matter is settled: the buyer is bound to pay that figure and the seller is bound to accept it.
Mode Two: Agreed to Be Fixed in a Manner Provided by the Contract
The second mode covers contracts that do not state a price directly but provide a mechanism by which the price will be determined. The contract might say: the price shall be fixed by the parties' independent chartered accountant; or, the price shall be the closing market rate on the date of delivery; or, the price shall be fixed by a named valuer. In each of these cases, the price itself is not stated, but the method of arriving at it is contractually specified.
Section 9 expressly provides that a price may be agreed to be fixed "in a manner provided by the contract, e.g., by a valuer." This mode is particularly common in commercial contracts for businesses, professional practices, agricultural produce, and commodities — contexts where the appropriate price depends on facts that will only become known in the future or can only be properly assessed by an expert.
The separate provision of Section 10 deals specifically with the consequences when the valuation mechanism fails — see below.
Mode Three: Determined by Course of Dealings — Browne v Byrne
The third mode is the most understated but commercially important: price may be determined by the course of dealings between the parties. Where seller and buyer have transacted repeatedly over time, the practice established between them — the price lists, the customary discounts, the trade usages they have applied in previous contracts — can supply the price for a contract that does not expressly state one.
This mode is illustrated by Browne v Byrne [(1854) 118 E.R. 1304], in which the usage of deducting a customary discount in determining the price was held to be implied from the course of dealings between the parties. The court treated the established commercial relationship between the contracting parties as capable of importing a price term into their new contract by implication.
The course-of-dealings mode recognises a commercial reality: long-standing trading relationships frequently operate on the assumption that the same terms that governed previous transactions will govern the current one, without the parties expressly restating them each time. The law gives legal effect to that assumption.
The Residual Rule: Reasonable Price
What Is a Reasonable Price?
If none of the three modes in Section 9 produces a price — because the contract is silent, no mechanism is agreed, and there are no prior dealings — the buyer is not off the hook. Section 9 provides that in such a case, the buyer must pay a reasonable price. What is reasonable depends on the circumstances of each case, but in cases where a market price for the goods is available, the market price is treated as the reasonable price.
The market price is the most objective benchmark available. It reflects what willing buyers and willing sellers are transacting at in the open market for goods of the same description and quality. Where no market price exists — for unique, bespoke, or specialist goods — the court determines what is reasonable on the facts.
When a Contract Ignores Price Altogether
The source material addresses this directly through an instructive example. A seller and buyer enter into a contract for the sale of a car, but neither mentions a price during negotiations or in the agreement. Later the seller refuses to deliver, claiming there was no valid contract because no price was fixed. The buyer sues.
The court's answer under the Act is clear: the omission to fix a price does not invalidate the contract. The buyer is entitled to the goods, and the seller is entitled to a reasonable price — the market price of the car. Section 9's residual rule preserves the contract and substitutes a judicially determinable figure for the absent agreed price.
This outcome would surprise those who assume that an unpriced agreement is simply unenforceable. The Sale of Goods Act takes the opposite view: commercial transactions should not fail for want of a price term if the goods have a market value capable of objective determination.
Section 10: Agreement to Sell at Valuation by a Third Party
Section 10 of the Sale of Goods Act, 1930 deals with a specific and commercially important variant of Mode Two above: the case where the parties have agreed that the price shall be fixed by a named or identified third party — an independent valuer, surveyor, accountant, or expert. Three distinct legal rules govern such arrangements.
The General Rule: Valuer Does Not or Cannot Fix Price — Agreement Void
Where the parties have agreed that the price shall be fixed by a third party, and the third party either does not or cannot make the valuation, the agreement to sell is void. The agreement has no price — not because the parties did not try, but because the mechanism they chose has failed — and without price, there is no consideration and no valid contract.
This rule applies where the valuer simply declines to act, or is unable to act due to incapacity, death, conflict of interest, or any other reason not attributable to the fault of the contracting parties. In all such cases, the agreement is void from the point of valuation failure, and neither party can compel the other to perform
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The result may seem commercially harsh — the parties are willing, the goods are ready, the only problem is the valuer — but it is legally correct. The parties chose this mechanism; they cannot be forced to accept a different one that neither agreed to.
The Delivery Exception: Reasonable Price on Accepted Goods
The void-agreement rule has one important qualification. Where, under such an agreement, the seller has already delivered a part of the goods and the buyer has accepted them, the voiding of the agreement does not allow the buyer to retain those goods for free. The buyer is legally bound to pay a reasonable price for the goods already delivered and accepted.
The Act therefore draws a sensible distinction between goods not yet delivered (parties are released, no obligation on either side) and goods already delivered and accepted (buyer must pay for what he has received). The reasonable price standard applies to the accepted goods, and the market price is again the reference point.
Consider the illustration from the source material: P has two bikes and agrees to sell both to S at a price to be fixed by Q. He delivers one bike immediately. Q refuses to fix the price. P demands return of the bike; S claims delivery of the second. The legal result: S must pay a reasonable price for the bike already received. As for the second bike, the agreement to sell it is avoided — it need not be delivered, and S has no claim to it.
Default by a Party: Liability in Damages
The third rule under Section 10 addresses fault-based failure of the valuation mechanism. Where the third party is prevented from making the valuation by the default of one of the contracting parties — not by the valuer's own decision but by deliberate obstruction or conduct by one party — that party is liable in damages to the other.
The defaulting party cannot benefit from its own wrong. If the seller blocks the valuer's access to the goods so that no valuation can be made, the seller is liable to the buyer for the damages flowing from the failed agreement. If the buyer instructs the valuer not to proceed, the buyer is liable to the seller. The measure of damages follows the general principles of the Indian Contract Act, 1872.
Returning to the opening scenario: a seller who secretly prevents the valuer from entering the warehouse to value goods is committing a default under Section 10. The buyer can sue for damages — the loss of the benefit of the contract, assessed at what the buyer would have gained if the agreement had been performed.
Practical Illustration of Section 10 in Operation
Samuel agrees to sell certain goods to Browning on the condition that the price will be fixed by a named valuer. Part of the goods has already been delivered to and accepted by Browning. The valuer refuses to fix the price.
The analysis applies in three steps. First, the agreement to sell is void under Section 10 — the valuer's refusal terminates the agreement for the goods not yet delivered. Second, for the goods already delivered and accepted, Browning must pay a reasonable price — the void agreement does not entitle him to retain those goods without payment. Third, if the refusal arose because either Samuel or Browning prevented the valuer from acting, the party at fault must pay damages to the other.
Section 64A: Effect of Tax Changes on Contracted Price
A further price-related provision of practical importance is Section 64A, which deals with the situation where, after a contract of sale is made but before it is performed, there is a revision in the applicable tax.
Where a duty of customs or excise, or a tax on the sale or purchase of goods, is imposed, increased, decreased, or remitted after the contract is made, the parties are entitled to adjust the price accordingly — unless the contract contains a stipulation to the contrary. If a new tax is imposed or an existing tax is increased, the buyer must bear the increased cost by paying the correspondingly higher price. If a tax is decreased or remitted, the buyer is entitled to the benefit of the reduction.
Section 64A effectively inserts a price-adjustment mechanism into every contract of sale (unless the parties have excluded it) to deal with tax-driven changes in the economics of the transaction. The rationale is commercial fairness: the contracted price was struck on the assumption of a particular tax environment, and a subsequent unilateral change in that environment — caused by law, not by either party — should not fall entirely on one party.
The parties remain free to exclude this provision by express agreement. A clause such as "the price is fixed and includes all taxes present and future, at the seller's cost" would override Section 64A and leave the seller to bear any post-contract tax increase.
Connecting Price to Wider Contractual Obligations
Price and the Right to Sue for It
The price determination rules in Sections 9 and 10 are not merely theoretical. They directly govern the seller's right to sue for the price under Section 55 of the Act. A seller can sue for the price of goods only where the property in the goods has passed to the buyer and the buyer wrongfully refuses to pay. Where the price has not been fixed, the seller's right to sue is for a reasonable price — the court does not dismiss the claim for want of a specific figure but assesses what is reasonable.
Where the price was to be paid on a certain day irrespective of delivery, the seller may sue for it under Section 55(2) even if property has not passed and the goods have not been appropriated — but only if the price was fixed or determinable.
Price and Risk Allocation
Price determination also connects to the allocation of risk. Where property passes (which triggers risk under Section 26), the agreed price must have been, or be capable of being, determined — otherwise the transfer of property itself becomes uncertain. A seller who argues that property has passed to the buyer but that no price has been fixed is in a weak position: if no consideration was ever determinable, the question of whether a sale was ever completed is itself in doubt.
Practical Problem-Solving Under Sections 9 and 10
The following fact patterns illustrate the combined operation of both sections:
Problem 1: Suraj and Bhagwat enter into a contract for sale of goods. No price is mentioned. Neither a mechanism nor prior dealings supplies one. Suraj refuses to deliver, claiming the contract is void. Is he right?
No. Section 9 provides that where price cannot be fixed by any other mode, the buyer must pay a reasonable price. The contract is valid; Bhagwat can demand delivery; Suraj is entitled to the reasonable (market) price of the goods.
Problem 2: Samuel agrees to sell goods to Browning at a price to be fixed by a valuer. Part of the goods is delivered and accepted. The valuer refuses to fix the price. What is Browning's obligation?
Browning must pay a reasonable price for the goods already delivered and accepted. The agreement to sell the remaining goods is void. Section 10 is directly applicable.
Problem 3: Sajjad agrees to sell goods to Ibrahim at a price to be fixed by a valuer. Sajjad prevents the valuer from making the valuation. What is Ibrahim's remedy?
Under Section 10, Sajjad's obstruction constitutes a default. Ibrahim is entitled to sue for damages for the loss caused by the non-performance of the contract. The measure of damages is the benefit Ibrahim would have received had the contract been performed.
Problem 4: A contract for sale of goods is made at a fixed price. After the contract but before delivery, a new customs duty is imposed on the goods. The contract says nothing about taxes. Who bears the additional cost?
Under Section 64A, the buyer bears the increased cost. The price is adjusted upward to reflect the new duty. Section 64A operates unless the parties have agreed to exclude it.
Conclusion
Sections 9 and 10 of the Sale of Goods Act, 1930 together constitute the Act's complete answer to the question of how price — the essential monetary consideration in every contract of sale — is to be determined when the parties have not fixed it directly, or when the mechanism they chose for fixing it has failed.
Section 9 is built around flexibility: it recognises three modes by which price may be ascertained (contract, agreed mechanism, course of dealings) and supplements all three with a residual reasonable-price rule that saves contracts from failing merely because a specific figure was never named. The case of Browne v Byrne illustrates how commercial usage built up over a series of dealings can itself supply the missing price term.
Section 10 is built around consequences: what happens when the parties chose a third-party valuation route and that route breaks down? The answer is graduated — void agreement for goods not yet delivered, reasonable price for goods delivered and accepted, damages against the party whose fault caused the failure. The two-bike illustration in the source material captures all three outcomes simultaneously.
Section 64A adds a further dimension: the price term in an already-formed contract is not immutable; it adjusts automatically for post-contract tax changes unless the parties have agreed otherwise.
For commercial lawyers and law students alike, the core takeaway is this: the Sale of Goods Act has a strong preference for keeping contracts alive. It resists voiding an otherwise agreed transaction merely because the price is uncertain — supplying a reasonable price where none was fixed, carving out an accepted-goods exception where valuation fails, and imposing damages rather than a mere void where fault caused the failure. Only where the valuation mechanism fails entirely, without fault and without prior delivery, does the Act concede that the agreement has no price and cannot stand.
Frequently Asked Questions
Q: What is 'price' under the Sale of Goods Act, 1930, and why is it essential?
Under Section 2(10), price is the monetary consideration for a sale of goods. It is essential because consideration is a fundamental element of every valid contract under Section 25 of the Indian Contract Act, 1872. A contract of sale without a price — and without any mode by which price can be determined — is void ab initio for want of consideration.
Q: What are the three modes by which price is fixed under Section 9?
Under Section 9, price may be fixed by the contract itself, agreed to be fixed in a manner provided by the contract (such as by a named valuer), or determined by the course of dealings between the parties. In the case of Browne v Byrne [(1854) 118 E.R. 1304], a customary discount implied from prior dealings was held to fix the price. If none of these modes apply, the buyer must pay a reasonable price.
Q: What is a 'reasonable price' under Section 9, and how is it determined?
A reasonable price is the price that is fair in the circumstances of the particular contract. It varies from case to case. Where a market price for goods of the same description and quality is available, that market price is treated as the reasonable price. For unique, bespoke, or specialist goods with no market comparator, a court will assess what is objectively reasonable on the evidence.
Q: What happens under Section 10 if the third-party valuer refuses to fix the price?
Under Section 10, if the agreed third-party valuer does not or cannot make the valuation, the agreement to sell is void. However, if part of the goods has already been delivered to and accepted by the buyer, the buyer is not discharged from payment — he must pay a reasonable price for those goods. The void-agreement rule applies only to goods not yet delivered.
Q: What is the effect of a post-contract tax change under Section 64A?
Under Section 64A, if a duty of customs or excise or a tax on the sale or purchase of goods is imposed, increased, decreased, or remitted after the contract is made but before performance, the price is adjusted accordingly. Increased tax falls on the buyer; decreased tax benefits the buyer. The parties may exclude this provision by express agreement to the contrary.
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