Auctions: can you withdraw?

Auctions can be a unique and potentially exciting way to acquire property. But a good understanding of the underlying contract law principles of offer and acceptance can avoid you getting into the type of scrape that my client got into recently.

The power of the gavel: understanding Payne v Cave [1789]

The bids are flying, the excitement is palpable, and suddenly, you have a moment of doubt about your last bid. Can you retract it? Or are you locked in? This seemingly simple question was at the heart of a landmark English contract law case from the late 18th century: Payne v Cave [1789]. It also featured in a matter I was consulted on recently in which my client placed a bid for a development site, discovered a few hours later that there were drainage problems with the site, and then sought to withdraw the bid. The auctioneer’s response? “Nope. You can’t. Bad luck. But good luck with the auction.”

An attempt at gentle persuasion and some warm words between my client and the auctioneer did not do the trick. So my client sought advice.

And so out we wheeled Payne v Cave.

Although centuries old, the principles established in this case remain fundamental to our understanding of offer and acceptance in contract law, particularly within the context of auctions.

Payne v Cave: what happened?

The facts of Payne v Cave were straightforward. Mr Cave made the highest bid for an item at an auction. However, before the auctioneer's hammer fell to signify acceptance, Mr Cave changed his mind and withdrew his bid. Despite this, the auctioneer, acting for the seller (Mr Payne), attempted to hold Mr Cave to his bid, arguing that a contract had been formed. Things got feisty and the parties ended up in court.

What did the Court say?

The court, presided over by Lord Kenyon, ruled in favour of Mr Cave.

The key takeaways from the judgment were that:-

• A bid at an auction is merely an offer.
• An offer can be revoked at any time before it is accepted.
• Acceptance in an auction is only complete when the auctioneer's hammer falls.

Lord Kenyon stated that "the bidder is at liberty to retract his bidding any time before the hammer is down." This established the critical principle that until the final, decisive act of acceptance (the hammer falling), there is no binding contract.

Why is Payne v Cave important?

The case remains important for the following reasons:-

• Clarification of offer and acceptance: The case provided crucial clarity on when an offer is made and when it is accepted in an auction scenario. Before this ruling, there was ambiguity about whether a bid itself constituted a binding agreement.
   
• The "Invitation to Treat" concept: Whilst not explicitly using the term, Payne v Cave solidified the idea that the auctioneer's request for bids is generally an "invitation to treat," not an offer. It is an invitation for prospective buyers to make offers.
   
• Protection for bidders: The ruling offers protection to bidders, allowing them to withdraw their offer if they have second thoughts before the point of no return (the hammer fall). This prevents them from being unfairly bound by a hasty decision.

Implications for today's auctions

Even in the age of online auctions, the significance of Payne v Cave endures:

• Online bidding: When you place a bid on an online auction platform, you are making an offer. Most platforms allow you to retract or amend your bid before the auction closes (which acts as the "hammer fall").
   
• "Going, Going, Gone!": The familiar phrase used by auctioneers isn't just for dramatic effect; it reinforces the idea that offers are still open for acceptance until the final "gone" (or hammer fall).
   
• With Reserve vs Without Reserve: Payne v Cave primarily applies to auctions "with reserve," where the auctioneer can choose to accept or reject bids. In "without reserve" auctions, the auctioneer is making an offer to sell to the highest bidder, and the highest bona fide bid will form the contract, but even then, the right to retract before the close of the auction is generally upheld.

In essence, Payne v Cave provides a vital safeguard in the auction process. It ensures that both parties understand the precise moment a binding agreement is struck, allowing for a dynamic yet ultimately fair exchange.

And in the case of my client, a bit of ancient caselaw resulted in a successful outcome. Sometimes, it is simply a case of understanding the basics and getting the basics right.

If you have any queries in relation to issues raised in this blog or disputed property matters generally, please contact Andrew Turner in the Property Litigation Team at Hughes Paddison Solicitors at aet@hughes-paddison.co.uk or on 01242 586 841.