Auctions — Lots offered without reserve — Auctioneer withdrawing lots after bids he considered inadequate — Section 57 of Sales of Goods Act 1979 — Whether auctioneer entitled to withdraw lots after bids made — Whether collateral contract between auctioneer and highest bidder that lot would be sold to highest bidder — Assessment of damages
The appellant ran an auction business. HM Customs
& Excise instructed the appellant to sell two new machines, without
reserve, at an auction on 25 June 1997. The auctioneer accepted the machines on
that basis. The price of the machines new would have been £14,521 each. At the
auction, the auctioneer stated that the machines were worth £14,000 each and
invited bids. The respondent bid £200 for each machine; these were the only
bids. The auctioneer did not accept the bids and withdrew the machines from the
auction, informing the auction room that, even though they were being offered
without reserve, he could get more by selling them some other way. They were
later sold, after advertisement, for £1,500 each.
The respondent claimed damages on the basis that
he was the highest bidder; he sought the difference between the total bid of
£400 and the value of the two machines of £28,000. In the court below, the
judge decided that there was a collateral contract between the auctioneer and
the highest bidder, constituted by an offer by the auctioneer to sell to the
highest bidder that was accepted when the bid was made. He also held that the
right, under the auction conditions, to withdraw a lot only applied where there
was a dispute between bidders, and there had been no dispute. The appellant
appealed against both liability and the assessment of damages, contending that
there was no collateral contract or any consideration for any promise by an auctioneer.
dismissed. Although the Sale of Goods Act 1979 does not expressly deal with
sales by auction without reserve, the auctioneer is the agent of the seller,
and, unless section 57(4) has been complied with, it is not lawful for the
auctioneer to make a bid. Withdrawing a lot from the sale, because it has not
reached the level the auctioneer considers appropriate, is tantamount to
bidding on behalf of the seller. The highest bid cannot be rejected simply
because it is not high enough. In any event, the appellant was liable under the
collateral contract between the highest bidder and the auctioneer; in the case
of a disclosed principal, the agent can still be liable to a third party under
a collateral contract. Where a seller wrongfully refuses to deliver goods to a
buyer, the measure of damages is the difference between the contract price and
the market or current price. The same measure applies in a claim against an
auctioneer. There was evidence before the judge that the value of the machines
was £14,000 each.
This was an appeal by the appellant, Heathcote
Ball (Commercial Auctions) Ltd, against a decision of Judge Charles Harris QC,
sitting in Northampton County Court, in proceedings by the respondent, Paul
Barry, for damages for breach of contract against the appellant.
Vincent Moran (instructed by Woolley & Co, of
Northampton) appeared for the appellant; Adrian Iles (instructed by Linnells
Solicitors, of Milton Keynes) represented the respondent.
Giving judgment, SIR MURRAY STUART-SMITH
said: This is an appeal from a judgment of Judge Harris given at Northampton
County Court on 6 August 1999, in which he gave judgment for the claimant for
£27,600 against the defendant. The appeal raises a point of some general
interest and importance as to the effect of a sale by auction that is expressed
to be ‘without reserve’.The auction was held on 25 June 1997 at the defendant’s
auction room in Northampton. Mr Cross was the auctioneer. One of the lots for
sale consisted of two Alan Smart engine analysers. They were new machines being
sold by Customs & Excise because of some liability that the manufacturers
had incurred over VAT payment. The price of new machines from the manufacturers
was £14,521 each. Customs & Excise had instructed Mr Cross that the
machines were to be sold without reserve, and he accepted them for sale on that
basis.
The claimant runs a car-tuning business. He saw
the machines being delivered to the auction house on 20 June. He returned on
the viewing day and spoke to Mr Cross, who said that they would be sold at noon
on 25 June without reserve. The claimant decided they would be useful in his
business and decided to bid for them.
The claimant attended the auction house a few
minutes before noon. When it came to the lots in question, Mr Cross said that
the machines were to be ‘sold that day’ on behalf of the VAT office, that each
was worth £14,000, ‘ready to plug in and away you go’. He tried to obtain a bid
of £5,000 to start with; there was no bid; he tried £3,000; still no response.
He then asked what bids there were for the machines, and the claimant bid £200
for each. No other bid was made. In fact, Mr Cross had received a bid from his
son-in-law for £400 each; but he made no mention of this.
Mr Cross then withdrew the machines from the sale.
His explanation was:
I could not see how I could sell for as little as
this, even though it was without reserve. I think I am justified in not selling
at an auction without reserve if I think I could get more in some other way
later. I did not take up [the offer of] £400. I thought they were worth more.
He told
those present that he was not prepared to sell the machines for £200. They were
sold a few days later for £1,500 (£750 each) after advertisement in a magazine.
The claimant claimed damages on the basis that he
was the highest bidder. The particulars of the damage claimed was the
difference between the value of the machines, said to be £28,000, and the bid
of £400.
The judge held that it would be the general and
reasonable expectation of persons attending at an auction sale without reserve
that the highest bidder would, and should, be entitled to the lot for which he
bids. Such an outcome was, in his view, fair and logical. As a matter of law,
he held that there was a collateral contract between the auctioneer and the
highest bidder, constituted by an offer by the auctioneer to sell to the
highest bidder, which was accepted when the bid was made. In so doing, he
followed the views of the majority of the Court of Exchequer Chamber in Warlow
v Harrison (1859) 1 E&E 309.
He also held that this was the effect of condition
1 of the conditions of sale, which was in these terms:
The highest bidder to be the purchaser; but
should any dispute arise between two or more bidders the same shall be
determined by the auctioneers who shall have the right of withdrawing lots.
The judge concluded that the first sentence meant
what it said, and that the right of withdrawal was conditioned upon there being
a dispute between bidders, and there was none.
Mr Vincent Moran, on behalf of the appellant,
criticises this conclusion upon a number of grounds. First, he submits that the
holding of an auction without reserve does not amount to a promise on the part
of the auctioneer to sell the lots to the highest bidder. There are no express
words to the effect, merely a statement of fact that the vendor has not placed
a reserve on the lot. Such an intention, he submits, is inconsistent with two
principles of law, namely that the auctioneer’s request for bids is not an
offer that can be accepted by the highest bidder (Payne v Cave (1789)
3 Term Rep 148) and that there is no completed contract of sale until the
auctioneer’s hammer falls, and the bidder may withdraw his bid up until that
time: see section 57(2) of the Sale of Goods Act 1979, which reflects the
common law. There should be no need to imply such a promise into a statement
that the sale is without reserve, because there may be other valid reasons why
the auctioneer should be entitled to withdraw the lot, for example if he
suspected an illegal ring or that the vendor had no title to sell.
Second, Mr Moran submits that there is no
consideration for the auctioneer’s promise. He submits that the bid itself
cannot amount to consideration because the bidder has not promised to do
anything, he can withdraw the bid until it is accepted and the sale completed
by the fall of the hammer. At most, the bid represents a discretionary promise,
which amounts to illusory consideration, for example promising to do something
‘if I feel like it’. The bid only had real benefit to the auctioneer at the
moment the sale was completed by the fall of the hammer. Furthermore, the
suggestion that consideration is provided because the auctioneer has the
opportunity to accept the bid or to obtain a higher bid as the bidding is
driven up depends upon the bid not being withdrawn.
Finally, Mr Moran submits that where an agent is
acting for a disclosed principal he is not liable on the contract: see Bowstead
and Reynolds on Agency (16th ed) para 9-001 and Mainprice v Westley
(1865) 6 B&S 420. If, therefore, there is any collateral contract, it
is with the principal and not the agent.
These submissions were forcefully and attractively
argued by Mr Moran. The authorities, such as they were, do not speak with one
voice. The starting point is section 57 of the Sale of Goods Act 1979, which
re-enacted the 1893 Act, itself, in this section, a codification of the common
law. I have already referred to the effect of subsection (2). Subsections (3)
and (4) are also important. They provide:
(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.
Although the Act does not expressly deal with
sales by auction without reserve, the auctioneer is the agent of the vendor,
and, unless subsection (4) has been complied with, it is not lawful for him to
make a bid. Yet withdrawing the lot from the sale because it has not reached
the level that the auctioneer considers appropriate is tantamount to bidding on
behalf of the seller. The highest bid cannot be rejected simply because it is
not high enough.
The judge based his decision on the reasoning of
the majority of the Court of Exchequer Chamber in Warlow v Harrison.
The sale was of ‘the three following horses, the property of a gentleman,
without reserve’. The plaintiff bid 60 guineas for one of the horses; another
person, who was, in fact, the owner, immediately bid 61 guineas. The plaintiff,
having been informed that the bid was from the owner, declined to bid higher,
and claimed he was entitled to the horse. He sued the auctioneer; he based his
claim upon a plea that the auctioneer was his agent to complete the contract on
his behalf. On that plea, the plaintiff succeeded at first instance, but the
verdict was set aside in the Court of Queen’s Bench. The plaintiff appealed.
Although the Court of Exchequer Chamber upheld the decision on the case as
pleaded, all five members of the court held that if the pleadings were
appropriately amended, the plaintiff would be entitled to succeed on a retrial.
Martin B gave the judgment of the majority, consisting of Byles and Watson BB.
At p316 he said:
Upon the facts of the case, it seems to us that
the plaintiff is entitled to recover. In a sale by auction there are three
parties, viz the owner of the property to be sold, the auctioneer, and the
portion of the public who attend to bid, which of course includes the highest
bidder. In this, as in most cases of sales by auction, the owner’s name was not
disclosed: he was a concealed principal. The name of the auctioneers, of whom
the defendant was one, alone was published; and the sale was announced by them
to be ‘without reserve.’ This, according to all the cases both at law and
equity, means that neither the vendor nor any person in his behalf shall bid at
the auction, and that the property shall be sold to the highest bidder, whether
the sum bid be equivalent to the real value or not; Thornett v Haines
15 M&W 367. We cannot distinguish the case of an auctioneer putting up
property for sale upon such a condition from the case of the loser of property
offering a reward, or that of a railway company publishing a time table stating
the times when, and the places to which, the trains run. It has been decided
that the person giving the information advertised for, or a passenger taking a
ticket, may sue as upon a contract with him; Denton v Great Northern
Railway Company 5 E&B 860. Upon the same principle, it seems to us that
the highest bone fide bidder at an auction may sue the auctioneer as upon a
contract that the sale shall be without reserve. We think the auctioneer who
puts the property up for sale upon such a condition pledges himself that the
sale shall be without reserve; or, in other words, contracts that it shall be
so; and that this contract is made with the highest bone fide bidder; and, in
case of a breach of it, that he has a right of action against the auctioneer.
And at p317 he said:
We entertain no doubt that the owner may, at any
time before the contract is legally complete, interfere and revoke the
auctioneer’s authority: but he does so at his peril; and, if the auctioneer has
contracted any liability in consequence of his employment and the subsequent
revocation or conduct of the owner, he is entitled to be indemnified.
The two other members of the court, Willes J and
Bramwell B, reached the same conclusion, but based their decision upon breach
of warranty of authority.
Although, therefore, the decision of the majority
is not strictly binding, it was the reasoned judgment of the majority and is
entitled to very great respect. In Mainprice v Westley (1865)
6&BS 420, the court distinguished Warlow v Harrison on the
basis that in Mainprice, the principal was disclosed, whereas in Warlow,
he was not. The judgment of the court, consisting of Cockburn CJ, Blackburn and
Shee JJ, was given by Blackburn J. Upon this basis, it was held that the agent
was not liable. With all respect to the court, it does not seem to me that this
was the basis of the decision in Warlow; rather that there was a
separate collateral contract with the auctioneer. There is no reason why such a
contract should not exist, even if the principal is disclosed. It is, indeed,
the basis of an action for breach of warranty of authority. Moreover, it was in
fact clear in Warlow that the auctioneer was selling as an agent.
In Harris v Nickerson (1873) 8 LR QB
286 (CA), the defendant, an auctioneer, advertised a sale by auction of certain
lots, including office furniture, on a certain day and the two following days.
But the sale of furniture on the third day was withdrawn. The plaintiff
attended the sale and claimed against the defendant for breach of contract in
not holding the sale, seeking to recover his expenses in attending. The claim
was rejected by the Court of Queen’s Bench. In the course of his judgment,
Blackburn J said at p288:
In the case of Warlow v Harrison 1
E&E at pp314, 318; 29 LJ (QB) 14, the opinion of the majority of the judges
in the Exchequer Chamber appears to have been that an action would lie for not
knocking down the lot to the highest bone fide bidder when the sale was
advertised as without reserve; in such a case it may be that there is a
contract to sell to the highest bidder, and that if the owner bids there is a
breach of the contract;…
And at p289 Quain J said:
When a sale is advertised as without reserve, and
a lot is put up and bid for, there is ground for saying, as was said in Warlow
v Harrison, that a contract is entered into between the auctioneer
and the highest bone fide bidder.
In Johnston v Boyes [1899] 2 Ch 73,
Cozens-Hardy J also accepted the majority view in Warlow as being good
law: see p77.
The only other case to which I need refer is Fenwick
v MacDonald Fraser & Co (1904) 6 F 850. The sale was not without
reserve because the condition of sale reserved to the owner the right to make
one offer for each animal. The Lord Ordinary, Lord Kyllachy, appears to have
decided the case both on the grounds that there was a disclosed principal,
following Mainprice, and also that it was not a sale without reserve. In
the Court of Session, the Lord Justice Clerk agreed with the Lord Ordinary.
Lord Young held that because the purchaser could withdraw his bid until the
hammer fell, so could the seller. He also considered that the sale was not
‘without reserve’. Lord Traynor considered that the law of Scotland had been
changed by the Sale of Goods Act 1893, which enabled a bid to be withdrawn
until the hammer had fallen. Prior to that date, the highest bid had to be
accepted. The case, however, is not satisfactory, since there is no reference
in any of the judgments to Warlow v Harrison or the analysis of
the reasoning of the majority in that case. Moreover, it is quite clear, as it
seems to me, that it was not a sale without reserve.
So far as text-book writers are concerned, both Chitty
(28th ed) para 2-010 and Benjamin on Sale of Goods (5th ed) para
2-005 adopt the view expressed by the majority of the court in Warlow.
As to consideration, in my judgment, there is
consideration both in the form of detriment to the bidder, since his bid can be
accepted unless and until it is withdrawn, and benefit to the auctioneer as the
bidding is driven up. Moreover, attendance at the sale is likely to be
increased if it is known that there is no reserve.
As to the agency point, there is no doubt that
when the sale is concluded, the contract is between the purchaser and vendor
and not the auctioneer. Even if the identity of the vendor is not disclosed, it
is clear that the auctioneer is selling as agent. It is true that there was no
such contract between vendor and purchaser. But that does not prevent a
collateral agreement existing between the auctioneer and bidder. A common
example of this is an action for breach of warranty of authority, which arises
upon a collateral contract.
For these reasons, I would uphold the judge’s
decision on liability.
Mr Moran submits that the judge was in error in
awarding the claimant £27,600. He submits that he should have awarded no more
than £1,600. He described it as a pleading point, and I confess I have found it
not altogether easy to follow. The argument appears to be this: the judge’s
assessment was based upon the replacement cost of the machines, yet that was
not the way the claimant’s case was presented, at least until final
submissions. The pleading was ‘the Plaintiff claims the value of the machines,
in the sum of £14,000 each, less the bid price of £200 and the costs of the
auction £82. Sum claimed £27,518.’ Mr Moran submitted that he had come to meet
a case based upon the difference in value and not the cost of replacement. In
the course of the hearing, Mr Moran objected to the claimant giving any
evidence that he had replaced the machines, and this objection was upheld. He
is therefore aggrieved that the judge appears to have assessed quantum upon the
basis of the cost of a new machine. Rather, he submits, it should have been the
price at which they were eventually sold, or £1,000 each, which was what the
claimant himself said he was prepared to bid for them.
The judge expressed the matter in the way at p7,
line 32:
The Plaintiff is entitled to be put in the
position in which he would have been if the contract had not been broken, that
is, he would have had two newly manufactured engine tuning machines. There is
no doubt that on the only evidence there is these would have cost over £14,000
each to buy in the ordinary way. There was no evidence that such machines could
be bought anywhere else by the Plaintiff for less, only that in fact these two
were sold elsewhere for a total of £1,500, which fact the Defendants were not
prepared at the time to tell the Plaintiff. It was not suggested that the
Plaintiff could or should have bought them himself via the magazine
advertisement for this sum.
The plaintiff, of course, has to prove his loss.
He says that he lost these two new machines. Clearly, he did. The defendant’s
contention is that the value of these machines, ie the measure of the plaintiff’s
loss, was only £1,500, but that sum would not put the plaintiff into possession
or into a position to obtain possession of two brand new £14,000 tuning
machines. If the position had been that the plaintiff was simply a trader
concerned only with the sale value of machinery that he was not going to use,
then there is a logic in the defendant’s contention. He would simply have lost
a saleable item with a value, on the evidence, of £1,500 at most. But the
plaintiff wanted to use these new machines in his business and not trade them,
and on the evidence there was — namely that the manufacturer sold such new
machines at £14,521, and the auctioneer’s assertion that they were worth
£14,000 each — and there being no evidence that comparable machines could be got
elsewhere for less, I find that the measure of the plaintiff’s loss is indeed
£28,000, less the £400 of his bid, namely £27,600.
In my opinion, the judge was entitled to approach
the matter in the way he did. Where a seller wrongfully refuses to deliver
goods to the buyer, the measure of damages, where there is a market in the
goods, is prima facie to be ascertained by the difference between the
contract price and the market or current price of the goods at the time when
they ought to have been delivered: see the Sale of Goods Act 1979 section
51(3). Although this is not an action against the vendor, it seems to me that
the same measure of damages applies. It is not necessary that the purchaser
actually goes into the market and replaces the goods.
There was, in fact, evidence that the only market
was to purchase from the manufacturer, and there was also the evidence of Mr
Cross himself in his witness statement that the machines are worth £14,000
each; this was supported by the manufacturer’s invoice. We do not in fact know
whether the claimant purchased replacement machines, and, if so, at what price,
because Mr Moran objected to the evidence being given, no doubt because he
thought that the judge might accept his argument based upon the actual price at
which they were subsequently sold. If the claimant had in fact replaced the
machines at the manufacturer’s list price (the only market), then that would be
the recoverable damages, less, of course, the £400 bid. But of that there is no
evidence. In my view, the judge was entitled to accept that, on the evidence,
the value was £14,000 each. I would therefore dismiss the appeal.
Agreeing, PILL LJ said: I agree that the
auctioneer was under an obligation to sell to the highest bidder, for the
reasons given by Sir Murray Stuart-Smith.
I also agree that the judge was entitled upon the
evidence to award damages of £27,600 for breach of that obligation. The use of
the word ‘value’ in the claimant’s pleading was, in my view, a sufficient
indication that the claimant intended to rely upon the rule provided by section
51(3) of the Sale of Goods Act 1979. The judge was, on the evidence, entitled
to hold that the manufacturer’s list price of £14,000 was the relevant market
price of each machine.
The claimant was perhaps fortunate in that
respect. In most cases involving the sale of second-hand equipment, there will
be evidence of second-hand prices, which would disentitle the judge from
adopting the figure from the manufacturer’s list. In this case, the
auctioneer’s counsel objected to such evidence being given in the hope that the
judge would assess damages on the basis of the sum of £750 each for which the
machines were actually sold subsequent to the auction. In my view, the judge
was not bound to find that the sale price of those particular machines was the
market price. His finding is justified on the special facts of the case. The
finding does not support a principle that the manufacturer’s list price is
normally the market price of second-hand goods.
Appeal dismissed.
