BetterLawNotes-5 (2)

CONTRACT LAW

Here the general rule is that a bidder makes an offer by making a bid. Such an offer is accepted by the auctioneer by the fall of the hammer. This rule was previously established at common law and is now contained in the Sale of Goods Act 1979.

Payne v Cave (1789) 3 Term Rep 148

At an auction, D bid £40 for a particular lot. Before the auctioneer brought his hammer down, D withdrew his bid. D acquired the same lot for £30 when it was subsequently put up for sale again. The seller brought an action against D for the difference. The Court of King’s Bench held that the seller had no claim. An auction bid is an offer and is not binding on the bidder until the bid is accepted by the auctioneer.

Sale of Goods Act 1979, s 57

(1) Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.  

(2) A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.  

(3) A sale by auction may be notified to be subject to a reserve or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller.  

(4) Where a sale by auction is not notified to be subject to a right to bid by or on behalf of the seller, it is not lawful for the seller to bid himself or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person.  

(5) A sale contravening subsection (4) above may be treated as fraudulent by the buyer.  

(6) Where, in respect of a sale by auction, a right to bid is expressly reserved (but not otherwise) the seller or any one person on his behalf may bid at the auction.

An auction may be with or without reserve. In an auction with reserve the seller reserves the right to decline any bid.1 An auction without reserve is one where property is to be sold to the highest bidder. It follows that where, in an auction without reserve, the auctioneer refuses to accept the highest bid, he will be liable to that bidder. Note here that the liability is that of the auctioneer, not the seller.

An auction may or may not be subject to a reserve price, ie a minimum price below which the auctioneer will not sell the goods.2 If, in an auction not subject to a reserve price, the auctioneer refuses to accept the highest bid, he will be liable to that bidder.2 Note here that the liability is that of the auctioneer, not the seller.

1 See Sale of Goods Act 1979, s 57(3), above. 

2 So too in an auction with a reserve price: the auctioneer will be liable if they fail to knock down the lost to the highest bidder provided that that bid equals or exceeds the reserve price.

Barry v Davies (t/a Heathcote Ball) [2000] 1 WLR 1962

An auctioneer put up two machines for sale ‘without reserve’ stating that each was worth £14,000. C made the highest bid, being £200 for each machine. The auctioneer withdrew the machines from the sale. C sued the auctioneer for breach of contract. The Court of Appeal held that the auctioneer was in breach of a collateral contract with C and was liable in damages.

Furthermore, unless the seller expressly reserves the right to bid for their own goods, in an auction without reserve, the seller is not allowed to bid, either personally or through an agent.1

1 See Sale of Goods Act 1979, s 57(6), above.

Warlow v Harrison (1859) 1 E & E 309

An auctioneer advertised a horse, Janet Pride, for sale by auction ‘without reserve’. C bid 60 guineas. The owner then bid 61 guineas and the horse was knocked down to him. The court held that the auctioneer was liable to C in damages for breach of contract.

Note that in neither the Barry nor the Warlow case did the claimant have a claim to the actual property put up for auction. The property was never sold to the claimant and so the claim was for the auctioneer’s refusal to sell.

Finally, note that an advertisement for the holding of an auction will not generally amount to an offer to hold the auction:

Harris v Nickerson (1873) LR 8 QB 286

An auctioneer advertised that certain office furniture would be sold by him at auction at Bury St Edmunds on a particular day. C went to the auction to purchase certain lots, but these were withdrawn from sale. C sued for breach of contract, but the court held that the auctioneer D was not liable.

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