Price is the money consideration for a sale of goods (S.2(10)). Its ascertainment is governed by S.9 and S.10. Hire purchase is a distinct transaction: a bailment of goods coupled with an option to purchase, in which property is withheld until the option is exercised and all instalments paid.
Legal Framework
| Provision | Subject | Key Rule |
|---|---|---|
| S.2(10) | Price defined | The money consideration for a sale of goods |
| S.9(1) | Ascertainment of price | Price may be fixed by the contract, left to be fixed in an agreed manner, or determined by the course of dealing between the parties |
| S.9(2) | Reasonable price | Where the price is not determined as above, the buyer must pay a reasonable price, which is a question of fact in each case |
| S.10(1) | Agreement to sell at a valuation | Where the price is to be fixed by a third party valuer who does not or cannot make the valuation, the agreement is void; but the buyer must pay a reasonable price for goods delivered and appropriated |
| S.10(2) | Fault of a party | A party in fault for the non-valuation is liable in damages to the other |
| S.64A | Effect of change in duty | Unless otherwise agreed, a change in the rate of customs or excise duty or tax after the contract adjusts the price accordingly |
| Hire Purchase Act 1972 | Hire purchase agreements | Requires the agreement to state the hire purchase price, cash price, instalments and the hirer's rights |
Ascertainment of Price
| Mode | Provision | Explanation |
|---|---|---|
| Fixed by the contract | S.9(1) | The parties state a figure |
| Left to be fixed in an agreed manner | S.9(1) | Reference to a formula, a market rate, or a third party valuation |
| Determined by the course of dealing | S.9(1) | Established practice between the same parties |
| Reasonable price | S.9(2) | Default where none of the above applies |
Why a contract does not fail for want of a stated price: Commercial parties frequently contract on the footing that the price will be worked out later, particularly in running supply relationships. Treating the absence of a figure as fatal would defeat transactions the parties plainly intended to make. S.9(2) supplies a reasonable price, which keeps the bargain alive while preventing either side from dictating terms afterwards. What amounts to reasonable is a question of fact, ordinarily the prevailing market rate at the relevant time.
Why a failed third party valuation voids the agreement (S.10): Where the parties have agreed that a specified valuer shall fix the price, they have made the valuation the mechanism of agreement itself. If it fails, there is no consensus on price and the court will not substitute its own figure for the machinery the parties chose. The Act nevertheless protects a party who has delivered and whose goods have been appropriated, by allowing recovery of a reasonable price for those goods, and it penalises the party responsible for the failure under S.10(2).
Hire Purchase Agreements
A hire purchase agreement has two components: a bailment of the goods to the hirer, and an option in the hirer to purchase them. Property remains with the owner until the option is exercised and the price fully paid.
Essential Features
| Feature | Explanation |
|---|---|
| Delivery of possession | The hirer takes possession as bailee, with all the bailee's duties |
| Payment by instalments | Described as hire, not as price |
| Option, not obligation, to purchase | The hirer may return the goods and end future liability |
| Property withheld | Ownership passes only on exercise of the option and payment of all instalments |
| Owner's right to repossess | On default, subject to statutory restrictions |
Facts: A piano was let on terms that the hirer pay monthly instalments, with liberty to return the piano at any time and thereby end liability for future instalments. Ownership was to pass only on payment of all instalments. The hirer pledged the piano before completing payment.
Issue: Had the hirer "agreed to buy" the piano, so as to be able to pass title to the pawnbroker?
Held: No. Because the hirer had a genuine option to return the goods, he had not agreed to buy them. He was a bailee with no title, so the pledge conveyed nothing.
Relevance: The controlling authority on the true nature of hire purchase. The presence of an option to return is decisive.
Facts: Furniture was supplied under a document called a hire agreement, but the possessor was bound to pay the whole sum by instalments with no right to return the goods. She sold the furniture before completing payment.
Held: In substance this was an agreement to buy, since she was obliged to complete the purchase. She could therefore pass good title to an innocent purchaser.
Relevance: The contrasting case to Helby v Matthews. The two together establish that the label is irrelevant and the option is everything.
Facts: The question was at what point a hire purchase transaction becomes a sale for the purposes of sales tax.
Held: A hire purchase agreement has a dual character. Until the option is exercised there is only a bailment. The sale takes place at the point the option is exercised and the property passes, and tax attaches at that stage on the value then transferred.
Relevance: The leading Indian authority on the dual character of hire purchase and the timing of the sale element.
Statutory Protection under the Hire Purchase Act 1972
| Protection | Content |
|---|---|
| Written agreement | The agreement must be in writing and signed by all parties |
| Disclosure of price | Must state the hire purchase price, the cash price, and the amount of each instalment |
| Right to terminate | The hirer may terminate by returning the goods, subject to payment of arrears |
| Restriction on repossession | The owner's right to repossess is regulated, and after a specified proportion of the price is paid repossession may require court intervention |
| Rebate on early payment | The hirer is entitled to a rebate for completing payment ahead of time |
| Relief against forfeiture | Courts may grant relief where forfeiture of instalments paid would be unconscionable |
Why the statute intervenes: Left to freedom of contract, hire purchase allowed an owner to repossess goods after receiving most of the price and to forfeit all instalments paid, so the hirer could lose both goods and money. The Act redistributes that risk by requiring transparency of pricing and restricting repossession once substantial payment has been made.
Illustrations
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Price left to be fixed by course of dealing: A has supplied B with packaging material monthly for three years, invoicing at the prevailing wholesale rate each month. A fresh order is placed with no price stated. Under S.9(1) the price is determined by the course of dealing between the parties.
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Reasonable price: A delivers goods to B on an urgent order with no price agreed and no prior dealing. Under S.9(2) B must pay a reasonable price, ordinarily the market rate at the time of supply.
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Failed valuation: A and B agree that the price of machinery shall be fixed by a named valuer. The valuer dies before valuing. Under S.10(1) the agreement is void. If the machinery was already delivered and used by B, B must pay a reasonable price for it.
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Fault in preventing valuation: On the same facts, if B refuses to give the valuer access to the machinery so that no valuation can be made, B is liable in damages to A under S.10(2).
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Change in duty: A contracts to supply goods at Rs. 100 per unit inclusive of excise duty. Before delivery the duty is increased. Under S.64A, unless the contract provides otherwise, the price is adjusted to reflect the increase.
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True hire purchase: A takes a photocopier on terms allowing return at any time, with title passing only on the final instalment. He sells it after 10 of 24 instalments. Applying Helby v Matthews (1895), A had no title and the buyer acquires none.
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Instalment sale disguised as hire: A takes furniture under a "hire agreement" that obliges him to pay all 18 instalments with no right of return. He resells after 9 instalments to a bona fide purchaser. Applying Lee v Butler (1893), A had agreed to buy and the purchaser gets good title.
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Timing of the sale element: A completes all instalments on a hire purchase vehicle and exercises the option. Applying K.L. Johar and Co (1965), the sale occurs at that point and not at the commencement of the agreement.
Recall Check
- What are the four modes of ascertaining price under S.9?
- Why does the failure of an agreed third party valuation render the agreement void rather than allowing the court to fix a price?
- What single feature determines whether a transaction is a true hire purchase or an instalment sale?
Key Cases
Helby v Matthews (1895) Helby v Matthews 1895
Issue: Whether a hirer with an option to return goods had agreed to buy them.
Rule: A genuine option to return makes the possessor a bailee, not a person who has agreed to buy.
Held: The hirer had no title and could pass none to the pawnbroker.
Lee v Butler (1893) Lee v Butler 1893
Issue: Whether a possessor bound to pay all instalments had agreed to buy the goods.
Rule: An obligation to complete the purchase, with no right of return, makes the transaction an agreement to buy in substance.
Held: She had agreed to buy and passed good title to an innocent purchaser.
K.L. Johar and Co v Deputy Commercial Tax Officer (1965) KL Johar and Co v Deputy CTO 1965
Issue: At what point does a hire purchase transaction involve a sale?
Rule: Hire purchase has a dual character, being a bailment until the option is exercised, at which point a sale occurs.
Held: The sale takes place when the option is exercised and property passes.
Distinctions
| Basis | Sale by Instalments | Hire Purchase |
|---|---|---|
| Obligation to buy | The buyer is bound to pay the full price | The hirer has an option to return the goods |
| Passing of property | On the sale, or on the agreed condition | Only on exercise of the option and final payment |
| Ability to pass title | Buyer in possession may pass good title (S.30(1)) | Hirer has no title and can pass none |
| Effect of default | Seller sues for the price | Owner may repossess, subject to statute |
| Instalments described as | Price | Hire |
| Governing law | Sale of Goods Act 1930 | Hire Purchase Act 1972 and bailment |
| Basis | S.9 Ascertainment of Price | S.10 Agreement to Sell at a Valuation |
|---|---|---|
| Mechanism | Contract, agreed manner, course of dealing, or reasonable price | Valuation by a specified third party |
| Effect of failure | S.9(2) supplies a reasonable price | The agreement is void under S.10(1) |
| Protection for delivered goods | Not applicable | Reasonable price payable for goods delivered and appropriated |
| Liability for obstruction | Not applicable | Party in fault liable in damages (S.10(2)) |
Flashcards
How is price defined in the Sale of Goods Act?
Under S.2(10), the money consideration for a sale of goods.
Name the modes of ascertaining price under S.9.
Fixed by the contract, left to be fixed in an agreed manner, determined by the course of dealing, or failing these, a reasonable price under S.9(2).
What happens if a third party valuer fails to make an agreed valuation?
The agreement is void under S.10(1), but the buyer must pay a reasonable price for goods delivered and appropriated.
What is a hire purchase agreement?
A bailment of goods coupled with an option in the hirer to purchase them, property passing only on exercise of the option and payment of all instalments.
What is the decisive feature distinguishing hire purchase from an instalment sale?
Whether the possessor has a genuine option to return the goods and end future liability (Helby v Matthews, 1895).
Can a hirer under a true hire purchase agreement pass good title?
No. He is a bailee without title, so nothing passes to a transferee.
When does the sale element of a hire purchase transaction take effect?
When the option is exercised and property passes (K.L. Johar and Co, 1965).
What is the effect of a change in tax or duty after the contract?
Under S.64A, unless otherwise agreed, the price is adjusted to reflect the change.
Exam Scenario
Problem: Devika enters two transactions with the same dealer. For a commercial oven, the agreement states that the price shall be "as determined by Mr. Rao, chartered engineer." The oven is delivered and Devika installs and uses it, but Mr. Rao suffers a stroke and never makes the valuation. For a delivery van, Devika signs a document headed "Hire Purchase Agreement" providing for 36 monthly instalments, stating that title passes on the final instalment, and expressly giving her liberty to return the van at any time and cease paying. After 20 instalments she sells the van to Farhan, who pays market value in good faith and knows nothing of the agreement. The dealer now claims the oven price and demands the van back from Farhan. Advise.
Step 1: The oven, the price fixing machinery has failed
The parties made a third party valuation by Mr. Rao the mechanism for fixing the price, and that mechanism has failed through no fault of either.
S.10(1) applies and the agreement is void. The court will not substitute its own price for the machinery the parties chose.
S.10(2) is not engaged, since neither party was at fault for the valuation failing.
Step 2: The oven, the proviso rescues the dealer on a different measure
The goods were delivered and appropriated, Devika having installed and used the oven. The proviso to S.10(1) therefore requires her to pay a reasonable price.
That is a question of fact and will ordinarily be the prevailing market value of a comparable oven at the time of delivery.
The dealer's claim succeeds in substance but on a restitutionary rather than a contractual measure, so he cannot insist on a figure he had privately hoped for.
Step 3: The van, test the substance not the heading
The document is headed "Hire Purchase Agreement", but the decisive feature is the express liberty to return the van at any time and cease paying. That is a genuine option.
| Basis | Lee v Butler (1893) | Helby v Matthews (1895) |
|---|---|---|
| Possessor's obligation | Bound to complete payment | Free to return and stop paying |
| Character | A person who has agreed to buy | A bailee with an option to purchase |
| Protection of a bona fide buyer | Within S.30(1) | Outside it |
| Devika's position | Not applicable | This is her case |
Devika was a bailee with an option to purchase, not a person who had agreed to buy.
Step 4: The van, Farhan takes nothing
Devika had no title and could pass none. She cannot bring herself within S.30(1), because she never agreed to buy, so Lee v Butler is distinguished.
Farhan acquires nothing and must return the van. His remedy is a personal claim against Devika for breach of the implied condition as to title under S.14(a).
Step 5: Qualify the dealer's repossession rights
The dealer's rights against Devika are additionally regulated by the Hire Purchase Act 1972.
Having received 20 of 36 instalments, he may need to observe its restrictions on repossession and any rebate obligations.
A void agreement does not mean the dealer recovers nothing. The oven contract fails under S.10(1), yet the proviso still gives him a reasonable price because the goods were delivered and appropriated. The measure changes, the claim survives.
Good faith cannot cure the absence of title. Farhan paid market value and knew nothing, and still takes nothing. Twenty instalments paid makes no difference either, since S.30(1) turns on the obligation to buy, not on how much has been paid.
Conclusion. Devika must pay a reasonable price for the oven. Farhan must return the van and sue Devika under S.14(a), and the dealer's repossession is subject to the Hire Purchase Act 1972.
See Also
- Sale Distinguished from Agreement to Sell and Other Transactions : the wider set of transactions from which sale must be distinguished.
- Sale by Non-Owner and Nemo Dat Quod Non Habet : the S.30(1) exception which protects a buyer from a person who has agreed to buy.
- Sale of Goods: Formation and Subject Matter : price as an essential element of a contract of sale.