Auction Sales

One of the methods of selling the goods is to sell them by auction. Auction sale means a public sale where intending buyers assemble at one place and offer the price at which they are ready to buy the goods. The offer of the price is known as ‘bid’ and the person making the bid is known as the ‘bidder’. The owner of the goods may himself sell them by auction or appoints an ‘auctioneer’ to sell the goods on his behalf. The relationship between the owner of the goods and the auctioneer is that of the principal and agent. In an auction, as a rule, the goods are sold to the highest bidder.

When goods are to be sold by auction, the auctioneer gives wide publicity regarding the time, date and place of sale. The bidders are also given an opportunity to inspect the goods. As you have already learnt in Unit 2 (offer and acceptance) an advertisement to sell goods by auction is not an offer to sell but it is simply an invitation to the public to make offers. The auctioneer is not bound to sell the goods on the date, time and place announced earlier, he can cancel or postpone the sale and the intending buyers have no right to sue the auctioneer since it was only an invitation and not an offer to the public.

The various rules regarding auction sales are given in Section 64 of the Sale of Goods Act, they are as follows:

i) Where the goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale [Section 64(1)].

ii) The sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner, for example, by saying “one, two and three” or by shouting “going, going, gone’: etc

iii) When the auctioneer announces the completion of the sale, the sale is complete and the property in goods passes immediately to the buyer

iv) Since offers are invited from the public, before the sale is completed, the bidders have a right to withdraw their bid (offer). Until the announcement of the completion of sale is made, any bidder may retract his bid [Section 64(2)].

v) A right to bid may be reserved expressly by or on behalf of the seller, and where such right is expressly reserved, the seller or any one person on his behalf, may bid at the auction [Section 64(3)]. This right is given to the seller so that he can protect his interests in case the buyers agree not to outbid each other. Here it should be noted that the seller can appoint only one person to bid on his behalf. If more than one person is appointed, then it amounts to fraud and sale is voidable at the option of the buyer.

vi) Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller himself to bid himself at such sale or to employ any such person on his behalf or for the auctioneer knowingly to accept the bid from such person. Any sale contravening this rule may be treated as fraudulent by the buyer [Section 64(4)].

vii) It is quite usual for the auctioneer to announce a ‘reserve’ price. It is the price below which the auctioneer will not sell. Such a reserve price is fixed by the seller to protect himself from selling the goods at a very low price. Thus, if the highest bid is below the reserve price, the auctioneer by mistake, accepts the bid which is below the reserve price, he can refuse to deliver the goods.

You may note that even where a reserve price is not notified, if the auctioneer feels that the price offered is not up to his expectation, he can refuse to accept the highest bid. This is possible because ‘bid’ is only an offer which may or may not be accepted by the auctioneer.

viii) If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer [Section 64(6)1.

ix) An agreement between the bidders not to bid against each other is called the ‘knock-out’ agreement. Such an agreement is made to avoid competition among themselves. These bidders agree that only one of them will bid, and anything obtained by him shall be shared privately. Knock-out agreements are valid and not illegal. However, if the intention of the parties to the agreement is to defraud a third parry, such an agreement shall be termed as ‘illegal’.

x) Damping is an unlawful act intended to discourage the bidders from bidding. This is done by pointing out ‘defects’ in the goods or scaring them away so that they may not participate in the auction. Damping is highly undesirable and is illegal.

xi) Puffers are persons employed by the seller for the purpose of raising the price. A puffer has no intention to buy the goods. The seller can appoint only one puffer and not more.

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