What are the important Modes of fixing the price?

According to Section 9, the price may be fixed by one or the other of the following modes:

1. If may be expressly fixed by the contract itself:

This is most usual mode of fixing the price. The parties are free to fix any price they like and the court will not question the adequacy of price. But the sum should be definite. Where an alternative price is fixed, the agreement is void ab-initio as it involves an element of wager (Bourke vs. Short).

2. It may be fixed in accordance with an agreed manner provided by the contract:

For example, it may be agreed that the buyer wpuld pay the market price prevailing on a particular date, or that the price is to be fixed by a third party (i.e., valuer) appointed by the consent of the parties. But in the following cases where the agreement of the parties as to price is uncertain, price is deemed as ‘not capable of being fixed’ and hence the agreement is void ab-initio for uncertainty:

(a) If the price is agreed to be whatever sum the seller be offered by any third party; or

(b) If the price is left to be fixed by one of the contracting parties, expressly.

Remember that if no price is fixed, then the contract is not void for uncertainty because in that case law usually allows market price prevailing on the date of the supply of goods as the price bargained for.

3. It may be determined by the course of dealings between the parties:

For example, if the buyer has been previously paying to a particular seller the price prevailing on the date of placing the order, the course of dealings suggest that in subsequent transactions also, the price as on the date of order will be paid.

4. If the price is not capable of being determined in accordance with any of the above modes, the buyer is bound to pay to the seller a ‘reasonable price.’ What is a reasonable price is a question of fact depending on the circumstances of each particular case. Ordinarily, the market price of the goods prevailing on the date of supply is taken as reasonable price.

Agreement to sell at valuation (Sec.10):

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 fails to fix the price (either because he cannot value or because he does not want to value), the contract becomes void, except as to part of goods delivered and accepted, if any, under the contract, as regards which the buyer is bound to pay a reasonable price.

If, however, any one of the two parties, namely, the seller or the buyer, prevents the third party from making the valuation, the innocent party may maintain a suit for damages against the party in fault. Notice that although in this case also, the contract becomes void, yet the party at fault is bound to compensate the other party for the actual loss suffered by him because of the act of prevention.

It is to be remembered that unless otherwise agreed, payment of the price and delivery of the goods are concurrent conditions (Sec. 32). Again, Section 64-A, which provides for “Escalation Clause,” is important. As per Section 64-A, unless otherwise agreed, where, after making of the contract and fixing the price but before the delivery of the goods, a new or increased custom or excise duty or sale or purchase tax is imposed and the seller has to pay it, the seller is entitled to add the same to the price. Conversely, if the rate of duty or tax is lowered, the buyer would be entitled to a reduction in price.

Earnest or Deposit :

Money deposited with the seller by the buyer as security for due fulfillment of the contract is called ‘earnest’ or ‘deposit’. Where the contract is carried through, earnest money counts as part payment and only the balance of the price is required to be paid. But if the contract goes off because of the fault of the buyer, the seller is entitled to forfeit it and where it falls through because of the default of the seller, the buyer is entitled to recover the earnest money in addition to damages for breach. If on the breach of the agreement by the buyer, the seller sues him for the breach, the earnest, although forfeited, is to be taken into account as diminishing the amount of damages (Jaganadhayya vs. Ramanatha).

Stipulations as to Time :

Stipulations as to time in a contract of sale fall under the following two heads:

1. Stipulation relating to time of delivery of goods.

2. Stipulation relating to time of payment of the price.

As regards the time fixed of the deliver of goods, time is usually held to be the essence of the contract. Thus if time is fixed for the delivery of goods and the seller makes a delay, the contract is voidable at the option of the buyer. In case of late delivery, therefore, the buyer may refuse to accept the delivery and may put an end to the contract.

As regards the time fixed for the payment of the price, the general rule is that ‘ time is not deemed to be the essence of the contract,’ unless a different intention appears from the terms of the contract (Sec. 11). Thus, even if the price is not paid as agreed, the seller cannot avoid the contract on that account. He has to deliver the goods if the buyer tenders the price within reasonable time before resale of the goods. The seller may, however, claim compensation for the loss occasioned to him by the buyer’s failure to pay on the appointed day.

Document of Title to Goods :

Any document which is used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of
the document to transfer or receive goods thereby represented is a document of title to goods [Sec. 2(4)]. Thus a document of title is a proof of the ownership of the goods. It authorizes its holder to receive goods mentioned therein or to further transfer such right to another person by proper endorsement or delivery.

A document of title to goods contains an undertaking on the part of the issuing authority to deliver the goods to the holder thereof unconditionally. Although such a document can be transferred by mere delivery or by endorsement, yet it is regarded as ‘quasi negotiable instrument’ because the title of the transferee (even if bonafide) will not be superior to that of the transferor in the case of transfer of such document.

Bill of lading, dock-warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway receipt, delivery order, etc. are popular examples of the documents of the title to goods.