An auction is “a public event at which things are sold to a person who offers the most money for the things put on sale”[i]. The popular understanding of an auction is identical to the legal definition of an auction. Legally, an auction is defined as the “public sale of property to the highest bidder”[ii].
In Pitchfork Ranch Co. v. Bar TL, the court defined the term auction as “a public sale of property to the highest bidder by one licensed and authorized to do so and the goal is to obtain the best financial return for the seller by free and fair competition among bidders”[iii].
Competitive bidding is an essential element of an auction sale. Free and fair competition among bidders brings the highest financial return to the seller. Any agreement that restricts such competition is against public policy and void. In every sort of auction, there are either successive bids for the property or successive offerings at different prices to promote competition. The definition of auction should be interpreted to preserve and promote competition.
There are generally two methods of selling property at an auction:
- with reserve; or
- without reserve, also known as absolute auction[iv]
A no reserves auction is significantly different from an auction with reserve. In an auction held with reserve, the owner reserves the right not to sell the property. Here, an auctioneer’s bringing a piece of property up for bid is an invitation to make a contract, and is not an offer to contract. Before the highest bid is accepted, a seller can withdraw the property from the auction. The auctioneer can withdraw property from the auction sale before the dropping of the gavel. Additionally, if the bidding is too low, an auctioneer need not sell property[v]
The method of auction varies from place to place. An English auction is different from a Dutch auction. In an English auction or open ascending price auction, participants bid openly against one another, with each subsequent bid higher than the previous bid. However, in a Dutch auction, the property is put up at a price greater than its value. The price is gradually lowered until someone closes the sale by accepting the offer. The English auction is the most common form of auction in use today and is commonly used for selling antiques, artworks as well as real estate.
[i] Oxford Advanced Learners Dictionary of Current English- by A.S.Hornby Seventh edition Oxford University Press
[ii] 615 P.2d 541, 546-547 (Wyo. 1980)
[iii] Foley v. Wheelock, 157 N.H. 329, 334 (N.H. 2008)
[iv] Pyles v. Goller, 674 A.2d 35 (Md. Ct. Spec. App. 1996)
[v] Pitchfork Ranch Co. v. Bar TL, 615 P.2d 541 (Wyo. 1980)
