Contract: Subject matter and the Price

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Our modern age has evolved into an age of trade and commerce and the sale and purchase of goods are inseparable and a core element of trade and commerce. In a diverse country like India, there is a need to set up rules and regulations governing different types of contracts and the sales of goods is one of them.

A typical bargain between seller and buyer is termed a sale, laws relating to these types of contracts are governed under the Sale of Goods Act, 1930. This act came into force on 1st July 1930 and extends to the whole of India except Jammu and Kashmir. Before 1930, the issues related to the sale of goods were governed by the Indian Contract Act 1872 under section 76-123, but these were not enough to cover all aspects, so, the constituent assembly separated these sections and formulated a whole new act in 1930 under the name, Sale of Goods Act 1930.

As defined under section 4(1), contact of sales of goods is a contract under which the seller transfers or agrees to transfer certain goods in exchange for some consideration preferably money. According to Blackstone, when ownership of any goods is transferred in exchange for money, then a sale has been made. This contract can be absolute or conditional. When a person buys goods outrightly it is considered absolute but when a person buys goods on an approval or trial basis then it is termed as a conditional contract.

 Price

One of the essential elements that separate sale from merely an exchange(barter) or gift or donation, is the price of goods and no sale can take place without price. Herein, price means consideration in terms of money. There are three essential elements of price:

1- It should be in terms of money.

2- It should be definite.

3- It should be realistic.

To make sure all these essentials are met, there should be an ascertainment of the price which can be done in many ways, as per sections 9 and 10 of Sales of Goods Act 1930:

Contract- one of the basic methods of ascertaining price is directly mentioning it in the contract of sale of goods. Reasonability of price does matter to the court of law. Seller and buyer can any price which is to be paid by the buyer to the seller.

A course of mutual dealing- in case there is no price or particular method to set price is laid down in the contract, it can be set by course of dealing between the parties through mutual understanding.

Fixing a reasonable price– according to law of the land, when no price is set in the contract of sale of goods, at the time of execution of the contract the buyer must pay the reasonable price which is subjective and depends upon the circumstances of the case.

Fixing it in the manner agreed- price can also be set by any manner that is agreed in the contract.

Fixing by third-party- acc to section 10, the buyer and seller of the goods can also include the third party to ascertain the price of goods, but if the third party fails to do so, the contract becomes void. In case there has been any transfer of goods then the buyer has to pay a reasonable price.

For example, L has 5 cars. He agreements elements to an agreement to sell 4 out of 5 cars to Z if A ascertain the price of all 4 cars. But A does not ascertain the price but 2 cars have been delivered to Z. in this case Z has to pay the reasonable price to L. For the rest 2 cars, it entirely depends upon L and Z, if they want to proceed or not.

Apart from this when a certain part or full price is paid in advance by the buyer to the seller as a part of his performance, it is known as earnest money or security. This amount is adjusted against the cost of goods at the time of completion of the contract. In case there is a default on the part of any party the other party has a right to ask for a refund of that amount.

Section 6 sale of goods act bifurcates goods into 3 types: existing goods; future goods; contingent goods. 

Existing goods

At the time of making the contract, ownership or possession of the goods is under the authority of the seller and after fulfilling the obligations of the contract seller has all legal rights to transfer the ownership or possession of those goods to the buyer, those goods are known as existing goods under section 6 of the sale of goods act. Existing goods may be classified as:

Ascertained goods

Certain kinds of goods need there need to be identified at the time of making the contract, those goods that needed to be selected specifically are also known as specific goods. From a lot of unascertained goods when a specific quantity is set aside after making the contract of sales, it will be considered as specific goods.

For instance, A agrees with B to sell a car, at that A was having 5 similar looking cars, when B specifically chooses a car of a particular from an unascertained lot of 5 cars, then the selected car will be considered as ascertained goods.

Unascertained goods

The goods which are not identified specifically but are indicated by description or sample from a lot of goods are known as unascertained goods. For instance, A agrees with B to sell a car, at that A was having 5 same cars, when B does not specifically choose a car but gives the description of car which includes colour, then it will be considered as unascertained goods.

Future goods

The goods which made or acquired or produced on demand of the buyer and does not exist at the time of making the contract are known as future goods. These types of goods is not a contract of sale but an agreement to sale because the essential condition of existence of goods is not fulfilled and the seller cannot transfer which is not yet produced.

Contingent goods

These goods are the type of future goods, the acquisition of which by the seller is dependent on a contingent event that may or may not happen. The contract is not a sale but an agreement to sell. For instance, when A proposes to sell his car to B if and only if A’s brother returns from England and return his car.

Section 6 explains that the contract’s subject matter must always be goods. The products can be products that are currently in existence or will be in the future. As an ordinary contract, a contract for the sale of goods may also be concluded for the goods, the purchase of which relies on a contingency by the seller, which may or may not occur. 

For instance, a contract for the sale of the bag to be produced by a factory is a legal contract. If the specific good is destroyed or damaged without the knowledge of the seller at the time a contract of sale is entered, the contract is considered void ab initio. The Section is based on the rule that if both parties to a contract are in error as regards a matter of fact which is necessary to a contract, the contract becomes void as mentioned in Section 7 of the act.

Price’ means the monetary value for the sale of goods referred to in Section 2(10). According to Section 9, the price can be set by the contract or accepted to be set in the way mentioned in the contract, e.g. by the valuer, or decided in the process of the negotiations between both the parties.

Section 10 allows for the price to be decided by a third party. When there is an agreement to sell goods on the terms on which the price has to be set by a third party and the third party does not or can not make such a valuation, then the agreement would be invalid.

In the situation that the third party is prohibited for setting the price by default of either party, the third party shall be responsible for damages to the other party and the other party can not be blamed for the same. Though, in any case, the buyer who has received and retained the goods must pay a fair price for them.

2 Day Certificate Masterclass on AI and LawBy: Professor (Dr) Sanjay Rout

📚 Masterclass Highlights:
- The Role of Artificial Intelligence in Legal Practice: Exploring the Possibilities and Limitations
- Future of Legal Education: Preparing Law Students for a Technology-Driven Future
- Blockchain and Smart Contracts in the Legal Industry: Opportunities and Challenges

Ticket Price: Rs. 149 (Early bird offer ending soon)

Don't miss this chance to delve into the future of law and technology with a renowned expert! Secure your spot now.

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