Barry v. Davies (Trading as Heathcote Ball & Co) [2000] 1 WLR 1962, Court of Appeal

Customs and Excise put up two engine analysers for sale by auction, without a reserve price. The price of new machines was £14,521 each. The claimant bid £200 for each machine after the auctioneer tried and failed to get bids of £5,000 and £3,000 for each machine. The auctioneer refused to sell the machines to the claimant for such a low price and they were later sold to a third party for £1,500 each. The claimant brought an action against the auctioneer for breach of contract. The claim succeeded on the ground that there was a collateral contract between the auctioneer and the highest bidder. The contract was constituted by an offer by the auctioneer to sell to the highest bidder and it was accepted when the bid was made. The claimant was held to be entitled to recover £27,600 by way of damages, being the difference between the amount that the claimant had bid to purchase the machines and the amount he would have been required to pay to obtain the machines in the ordinary way.

Sir Murray Stuart-Smith [set out the facts and continued]

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 clause meant what it said and the right of withdrawal was conditioned on there being a dispute between bidders, and there was none.

Mr Moran on behalf of the defendant criticised this conclusion on a number of grounds. First, he submitted 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 submitted, is inconsistent with two principles of law, namely that the auctioneer’s request for bids is not an offer which can be accepted by the highest bid[1]der (Payne v. Cave (1789) 3 Durn & E 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 (Sale of Goods Act 1979, section 57(2), 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.

Secondly, Mr Moran submitted that there is no consideration for the auctioneer’s promise. He submitted 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 is completed by the fall of the ham[1]mer. 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 submitted that where an agent is acting for a disclosed principal he is not liable on the contract: Bowstead & Reynolds on Agency, 16th ed (1996), p. 548, 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 Sale of Goods Act 1893 (56 & 57 Vict. c. 71), 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 the 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 which 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, 1 E & E 309. The sale was of ‘the three following horses, the property of a gentleman, without reserve’: see p. 314. 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 on 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 himself, Byles and Watson BB. He said, at pp. 316–317:

‘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 (1846) 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 timetable 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 Co (1856) 5 E & B 860. Upon the same principle, it seems to us that the highest bona fi de 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 bona fi de bidder; and, in case of breach of it, that he has a right of action against the auctioneer. . . . 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 on 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 Harris v. Nickerson (1873) LR 8 QB 286 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 p. 288:

‘in the case of Warlow v. Harrison 1 E & E 309, 314, 318, 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 bona fi de 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 Quain J said, LR 8 QB 286, 289:

‘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, E & E 309, 314, that a contract is entered into between the auctioneer and the highest bona fi de bidder . . . ’

In Johnston v. Boyes [1899] 2 Ch 73, 77 Cozens-Hardy J also accepted the majority view in Warlow’s case as being good law . . .

So far as textbook writers are concerned both Chitty on Contracts, 28th edn (1999), vol 1, p. 94, para 2–010 and Benjamin’s Sale of Goods, 5th edn (1997), p. 107, para 2–005 adopt the view expressed by the majority of the court in Warlow’s case.

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 on a collateral contract.

For these reasons I would uphold the judge’s decision on liability.

Pill LJ delivered a concurring judgment.