Contract | Formation
Offer: Auctions
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Introduction
The question of when a contract is concluded arises at auctions. At an auction, an auctioneer will invite bids on an item (a lot), people will bid and once the bidding ceases the auctioneer brings down his hammer and the highest bidder is sold the item.
Completion
There is a statutory definition of contracts formed at auction sales.
Sale of Goods Act 1979
S57(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.
The auctioneer's action is the acceptance of the bidder's offer. Therefore, the original call for bids is an invitation to treat.
Reserves
A reserve price may be set by the seller and if this price is not met the lot will be withdrawn and not sold.
Sale of Goods Act 1979
S57(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.
Some auctions may take place without reserve
, meaning no reserve is set and the lot is sold to the highest bidder.
Warlow v Harrison (1859) 1 E & E 309
Facts:
A public auction of a horse, without reserve
, was advertised by the defendant, an auctioneer. The plaintiff bid 60 guineas and the owner of the horse bid 61 guineas. There were no further bids and the defendant put down his hammer on the bid for 61 guineas. The plaintiff claimed the horse should be his as he was the highest bona fide bidder.
Issue:
Was there a contract for sale?
Held:
The advertisement , as it included the words without reserve
, was an offer to sell to the highest bona fide bidder. The defendant was in breach of that promise. It was an offer of a unilateral contract as the defendant bound himself to sell to the highest bidder.
The plaintiff had performed the required act (made the highest bid). However, because the hammer had not been put down on the plaintiff's bid there was no acceptance of his offer. Therefore, there was no contract for the sale.
The plaintiff was only entitled to sue the defendant for the loss of the opportunity to buy the horse.
Barry v Davies (Heathcote Ball & Co.) [2000] 1 WLR 1962
Facts:
The defendant, the auctioneers, were instructed to sell two machines used in the motor industry. The claimant was told the sale would be without reserve
.
The claimant was the highest bidder, bidding £200 for each. The defendant refused the claimant's bid and withdrew the lots from auction as the machines were worth £14000 each. The claimant sought damages for breach of contract.
Issue:
Was there an offer made by the defendant?
Held:
The court followed Warlow v Harrison and found that there was an offer by the defendant because the auction was without reserve. The claimant had accepted by making the highest bid. Therefore, the defendant was in breach of contract.
The claimant was awarded £27600 in damages. The cost of buying the machines (£28000) minus his bid of £400, in order to compensate him for his loss due to the breach of contract.