Price under Sections 9 and 10 of the Sale of Goods Act, 1930: How the Price Is Ascertained, the Reasonable Price, Sale at a Valuation, and the Consequences When the Valuation Fails

Price is one of the essential elements of a contract of sale, but the Act does not insist that it be stated in the contract. Section 9 lists the ways a price may be fixed, and where none of them yields an answer, requires the buyer to pay a reasonable price. Section 10 deals with a particular arrangement: a price to be fixed by a third party's valuation. Between them, the two sections prevent a sale from failing merely because the parties did not put a figure on it, while respecting the parties' choice where they have deliberately left the price for later agreement.

1. Section 9: Ascertainment of Price

Section 9, Sale of Goods Act, 1930

(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Fixed by the contract. The usual case: a stated sum, or a rate per unit.
Fixed in a manner agreed. The contract may provide a formula, refer to a published market price on a given date, adopt the seller's list price at the time of delivery, or link the price to an index.
Determined by the course of dealing. Where the parties have dealt with each other before on consistent terms, the price may be inferred from their earlier transactions.
A reasonable price. Only where none of the first three applies does Section 9(2) come in. What is reasonable depends on the circumstances, including the market price at the relevant time and place, the quality and quantity, and the terms of delivery and payment.

The order of Section 9, the two outcomes under Section 10, and the line between the leading cases

2. When the Reasonable Price Rule Does Not Apply

Section 9(2) applies where the price is not determined in accordance with the contract. It does not apply where the parties have expressly agreed that the price is to be agreed between them later, without any mechanism for fixing it if they fail to agree. In that case there is no concluded contract at all, since an essential term remains open, and Section 29 of the Contract Act, which makes uncertain agreements void, may apply.

📖 May and Butcher Ltd. v. The King, [1934] 2 KB 17n (HL, 1929)

Facts: The Crown agreed to sell surplus tentage to a company, the price and dates of payment to be agreed from time to time between the parties as the tentage became available. The parties failed to agree the price, and the company sued for breach.

Held: The House of Lords held that there was no binding contract. The parties had not left the price to be fixed by a reasonable standard; they had expressly agreed to agree it later. The statutory rule requiring a reasonable price could not be used to supply a term the parties had deliberately reserved for future agreement.

Ratio: An agreement leaving the price to be agreed by the parties, with no machinery for fixing it, is an incomplete agreement and not a contract. The reasonable price rule does not fill that gap.

📖 Foley v. Classique Coaches Ltd., [1934] 2 KB 1 (CA)

Facts: A company agreed to buy all the petrol it needed for its coaches from the seller, at a price to be agreed from time to time. The agreement contained an arbitration clause covering disputes on its subject matter. The parties performed for three years, and the buyer then sought to escape, arguing that there was no binding contract since the price had never been agreed.

Held: The Court of Appeal held that the contract was binding. The parties had intended to be bound and had acted on the agreement for years, and the arbitration clause provided a way of settling the price if they could not agree. A term was implied that the petrol would be supplied at a reasonable price, to be fixed by arbitration in default of agreement.

Ratio: Where the parties intend to be bound and the contract supplies machinery for fixing the price, or they have acted on it, a failure to agree the price does not defeat the contract, and a reasonable price is implied.

3. Section 10: Sale at a Valuation

Section 10, Sale of Goods Act, 1930

(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided:

Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefor.

(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault.

The valuer's role is essential. Where the parties chose a particular valuer, his valuation is the agreed mechanism. If he cannot or does not value, the court will not substitute its own valuation, and the agreement is avoided.
The proviso prevents unjust enrichment. A buyer who has received and used the goods cannot keep them for nothing; he must pay a reasonable price, on the same principle as Section 70 of the Contract Act.
Prevention is a wrong. If one party prevents the valuation, for example by refusing the valuer access to the goods, the other may sue for damages under Section 10(2), on the principle that a party cannot rely on the failure of a condition he has himself prevented.
The valuer's decision binds the parties, in the absence of fraud or collusion, since they agreed to accept it.

4. The Position Stated Shortly

Section 9(1): the price may be fixed by the contract, in a manner agreed, or by the course of dealing.
Section 9(2): otherwise the buyer pays a reasonable price, which is a question of fact.
May and Butcher: where the parties agree to agree the price later, with no machinery, there is no contract and no reasonable price is implied.
Foley v. Classique Coaches: where there is machinery for fixing the price, or the parties have acted on the agreement, a reasonable price is implied.
Section 10(1): an agreement to sell at a third party's valuation is avoided if he cannot or does not value.
The proviso: a buyer who has received and appropriated the goods pays a reasonable price.
Section 10(2): a party who prevents the valuation is liable in damages to the other.