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Volume 34 Issue 4

6-1-1930

Three Types of Auction Sales

Nicholas Unkovic

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Recommended Citation
Nicholas Unkovic, Three Types of Auction Sales, 34 DICK. L. REV. 233 (1930).
Available at: https://ideas.dickinsonlaw.psu.edu/dlra/vol34/iss4/5

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 DICKINSON LAW REVIEW

THE THREE TYPES OF AUCTION SALES-The

wide use of auction sales prevalent in the modern busi-
ness world justifies a study of them, both as to their de-
velopment and their present status. It is the aim of this
paper to deal generally with the growth of auction sales,
and more specifically with the familiar types now existing.
For this purpose this note is divided into two parts: (1) a
short history of auction sales; and (2) the three types of
auction sales.

(1) A Short History of Auction Sales

An auction is a public sale of property, either land or
goods, to the highest bidder.' The obvious advantages of
such a type of sale were recognized as far back as the
time of the Babylonians. Herodotus speaks of a Babylonian
custom by means of which, at an annual assembly held for
the purpose, young maidens were disposed of in marriage
2
by delivering then to the highest bidders.
It is, however, with the Romans that the real origin
of the auction sale is found. Among them, auctions, both
public and private, undoubtedly had a definite place, and
this despite the fact the Corpus Iuris Civilis does not clearly
enumerate the rules governing such sales. Auctions were
held either in an open public place, or in particular rooms
or halls termed atria auctionaria. 3 A spear or hasta was set
up therein as the legal sign of the sale, much as some com-
munities today display a red flag. Since the sale was held
under the spear and hasta, the familiar term "sub hasta",
often incorrectly stated to be "sub hastio", originated. The
crier (praeco) called out the prices and the article was
adjudged to the highest bidder by the magistrate who was
present, a money broker (argentarius) meanwhile noting

'Hibler v. Hoag, 1 W. & S. 552 (1841). For similar definitions see

64 L. R. 1. 190; 2 R. C. L. 1116; Crandall v. Ohio, 28 Ohio 479 (1876).
2
Herodotus, Book 1, 196; Anderson v. Wdsconsin Cent. Ry., 120
N. W. 39 (Minn. 1909); and 6 C. J. p. 821, note b.
3Juv. 7, 7.
 DICKINSON'LAW REVIEW

down the price and receiving the money or security for

the article sold.'
Military spoils and prisoners of war were commonly
auctioned off by the Romans, and when they conquered
part of England the best portions of the land were in many
instances sold to the highest bidder. What perhaps may
be rightly called the most famous and far reaching auction
sale in all history is recorded by the historian Gibbon.
After the Roman Emperor Pertinax had been atrociously
murdered and Sulpicanius was treating with the fames
Praetorian Guard for the Emperorship, the leaders of the
Guard realized that the sum which Sulpicanius offered them
was not equal to the amount other wealthy Romans could
offer them. At this period it must be remembered that the
Praetorian Guard was the most powerful single factor in
Roman politics and military strategy. Thus, desiring to
bargain with others, the Guard from their ramparts outside
of the city proclaimed that the emperorship of Rome and
the entire Roman world was to be disposed of to the highest
bidder. News of this having reached Rome, among others,
one Didius Julianus, an extremely rich Roman senator at-
tended the sale. By offering six thousand two hundred fifty
drachms (upwards of $1000.00) to each soldier, Julianus
purchased the emperorship of the mighty Roman Empire,
and soon afterwards the Praetorian Guard supervised his
installation as Emperor, the Senate silently acquiescing to
this unusual proceeding. 5
Between the time of the downfall of Rome and the
decision in Payne v. Cave,6 there grew up two odd types of
auction sales. The first, a type originating in Holland, was
peculiar in that the usual process was inverted. At the
beginning of the sale the price was put up above the value
of the property and then as the sale proceeded the price of

'For a list of the Latin terms used in auctions see Harper's Ed. of
Freund's Latin Dict. (1907) at p. 198.
A1 Gibbon: Decline & Fall of Roman Empire, ch: V, p. 119 et
seq. Also see Rostovtzeff: Social & Economic History of the Roman
Empire (1926-Oxford Press), p. 351.
63 Term Reports, (1789).
 DICKINSON LAW REVIEW 235

the article was gradually lowered until someone became a

purchaser. 7
The second type had its origin in the custom of certain
English localities. In these communities an inch of lighted
candle would be set up at the auctions and the persons mak-
ing the last bid before the fall of the wick became the
purchasers. 8 This method is obsolete, although the Dutch
auction still may be occasionally found.

(2) The Three Types of Auction Sales

There are three general types of auction sales: first,
the ordinary auction governed by the rules of Payne v. Cave,
supra, and Fisherv. Seltzer;9 secondly, a sale without reserve
which is provided for by the Uniform Sales Act but which
had previously existed; and thirdly, a type, rather infre-
quent, which for want of a better name may be designated
as a sale with reserve or a sale with a set up price.

(a) The First Type of Auction Sales

An approach to the first type is best obtained by study-
ing the parent case of Payne v. Cave, supra. It is in this
case that for the first time all the essential elements of the
ordinary auction sale are gathered, and in such an excellent
manner that it has become the basis of the modern law of
auctions. The plaintiff in this celebrated case offered a
distilling apparatus for sale, at public auction on the usual
conditions that the highest bidder should become the pur-
chaser. Cave, having bid up to forty pounds, retracted his
bid before the fall of the auctioneer's hammer. Then
later the goods were sold to another person for thirty
pounds, and the plaintiff brought suit against Cave for the
difference. Lord Kenyon non-suited the plaintiff. The court
ruled in deciding the plaintiff's appeal to have the non-suit

7Crandall
v. State, 28 Ohio 479 at 482 (1876); Black's Law Dict.
104; Anderson v. Wisconsin Cent. Ry., supra.
aAnderson v. Wisconsin Cent. Ry., supra.
923 Pa. 308, (1854).
 DICKINSON LAW REVIEW

set aside that

"The auctioneer is the agent of the vendor,1" and the
assent of both parties is necessary to make the contract
binding; that is signified on the part of the seller by
knocking down the hammer, which was not done here
until the defendant had retracted. An auction is not in-
aptly called locus poenitentiae. Every bidding is nothing
more than an offer to one side which is not binding on
either side until it is assented to. But according to what
is now contended for one party would be bound by the
offer, and the other not, which can never be allowed".

Despite this clear cut decision, based on the theory that

putting up property for sale is an invitation to those pre-
sent to make offers which they do by making bids, one of
which is ultimately accepted by the knocking down of the
hammer, thus completing a valid contract, a new theory
was advanced seventy years later. In the English case of
Warlow v. Harrison," the court based its decision on the
view that an offer to sell property at auction is indistin-
guishable from the case of the offer of a reward to the
general public, such as a reward for lost property. The
auctioneer is treated as impliedly making an offer by put-
ting up the property for sale. This offer ripens into a
contract when the ultimate purchaser by making the high-
est bid accepts the auctioneer's offer. A whole line of

'ONot nicely correct. Although the auctioneer is primarily the

agent of the seller, Payne v. Cave, supra; 2 R. C. L. 1119; and 6
C. J. No. 10, P. 824: it is a well settled principle that he becomes for
certain purposes the agent of both part_ .s (e. g., in accepting the
buyer's bid and entering his name on the memorandum of the sale
the auctioneer becomes the buyer's agent). See to this effect: O'Don-
nell v. Leeman, 43 Me. 158, (1857); 1 Williston on Sales No. 115, p.
227; 1 Mechem on Agency No. 72, p. 44. For the necessity of agent's
authority in writing see: "Agent's Need of Written Authority", 34
Dick. L. R. 105 at 112, 113. This article discusses all leading Penn-
sylvania cases on this point.
I11 El. & El. 309, (1859). But as to doubt whether this view was
generally acquiesced to in England see Halsbury's Laws of Eng., Vol.
1, p. 511, footnote r.
 DICKINSON LAW REVIEW

English decisions follows this view, 12 Langdell being the

only American writer to favor it.13
There is really no reason why the view advocated by
this line of English cases and by Langdell should be adopted
in the ordinary type of auction. From the very facts them-
selves, the auctioneer may be accurately stated to invite
offers rather than himself be the offeror. The view that
the auctioneer merely makes an invitation to treat for
offers is the one adopted by the law. 4 This is the law in
Pennsylvania and all the states that have adopted the Uni-
form Sales Act. Section 21 (2) of the Act provides:

"A sale by auction is complete when the auctioneer an-

nounces its completion by the fall of the hammer, or in
other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer
may withdraw the goods from sale unless the auction
has been announced to be without reserve".

In the United States the leading case is Fisher v. Seltz-

1 5
er, a case dealing with the auction of real estate. This
case follows the leading principles expounded in Payne v.
Cave, supra. It may be safely said than an auction sale in
the absence of any and all announcements is governed by
the doctrine of Fisher v. Seltzer and Payne v. Cave, and that
the great weight of authority is to the effect that until
the bid is accepted by the fall of the hammer or customary
announcement by the auctioneer, there is no complete con-

' 2Dicta in Harris v. Nicholson, L. R., 8 Q. B. 288 (1873); John-

son v. Boyes, 2 Ch. 73 (1899); Carlill v. Carbolic Smokeball Co., 1 Q.
B. 256; Spencer v. Harding, L. R., 5 C. P. 563 (1870).
' 3 Langdell, Summary of Contracts, No. 19, at p. 24; note 57 L.
R. A. 784 at 789.
"4See Eng. Sale of Goods Act, 56 & 57 Vict., c. 71, S. 58 (2),
(1893); with some changes the Pa. Sales Act (1915, P. L. 543 at 550)
follows in general the British statute; Contracts Restatement, Sec.
27, "at an auction, the auctioneer merely invites offers fromn suc-
cessive bidders. . . ;" also explanatory notes to Sec. 27 in Restate.
ment App; 1 Williston Sales, No. 296, p. 683.
1523 Pa. 308 (1854),
 DICKINSON LAW REVIEW

tract and either the bidder or auctioneer may withdraw.'

Since a great number of auction sales are of the type
governed by the Payne and Fisher cases, it is proper that the
external conditions surrounding such sales be examined.
"Chilling" or collusive abstention from bidding as a result
of an agreement made for the purpose of preventing compe-
tition and procuring the property to be sold below its fair
value is contrary to public policy and the sale voidable."
Not only is chilling illegal, but its antithesis or "puffing"
is also illegal.' As may be gathered from its name, puf-
fing is the running up of the price by the making of spurious
bids with no intention on the part of the puffer to buy the
property. It is the duty of the auctioneer to conduct the
sale in an open and aboveboard manner with the result
that if he employs a puffer, such an act is a fraud for which
the sale may be avoided.
Usually the most interested party is the owner of the
property offered for sale, and it is to be expected that he
has the right to prescribe the manner, conditions, and terms
of the sale. 19 If there are no prescribed conditions, the duty
devolves upon the auctioneer to use his discretion reason-
1 6Fisher v. Seltzer, supra; Payne v. Cave, supra; 30 Yale L. R.
414; note No. 15, supra.
'T Barton v. Benson, 126 Pa. 431 (1889); Hay's Est., 159 Pa. 381
(1893); Eisenberg v. Mifflin, 12 D. & C. 162 (1929). Also see 2
R. C. L. 1129-1133; 20 L. R. A. 545; 1 Williston on Sales 689. How-
ever, there is a line of English cases that hold that an agreement
between two or more persons not to bid against each other at an
auction,- even if it amount to what in England is termed as a "knock-
out", is not illegal and does not invalidate a sale. Doolubdass v.
Ramboll, 15 Jur. 257 (1850) and Heifer v. Martyn, 36 L. J. (Ch) 372
(1867). But to an opposite effect cf. dictum in Levi v. Levi, 6 C. &
P. 239 (1833), suggesting that such an agreement is an unlawful
conspiracy.
LsFreeman v. Poole, 93 AtI. 786 (R. I. 1915), L. R. A. 1917A 63,
rehearing denied 94 Atl. 152 (1915); Staines v. Shore, 16 Pa. 200
(1851); Flannery v. Jones, 180 Pa. 338 (1897). See annotation 46 A. L.
R. 122; 20 L. R. A..503; 2 R. C. L. 1128. The employment by an
auctioneer of a puffer invalidates the sale irrespective of knowledge
thereof by the-owner rf the goods, Cerrata v. Costello; 209 N. Y. S,
257 (1925).
196 C. J. No. 18, p. 827,
 DICKINSON LAW REVIEW

ably in order to effect a proper disposal of the property

offered for sale to the highest bidder. But Fisher v. Seltzer,
supra, brings out the fact that the auctioneer cannot pre-
scribe conditions that would do away with the mutuality
of obligation. In that case the sheriff attempted to lay
down the condition that "no person shall retract his or her
bid". The court held that such a condition was invalid, and
rightfully so.20 However, it is well to note that a right to
bid may be expressly reserved on behalf of the seller."'
The printed conditions issued before the auction sale
control the proceedings of the sale and bind both the buyer
and seller. Ordinarily they may not be varied. 22 Although
it may be natural to think of advertisements as part of the
conditions of the sale, such is not the law. 2 Only when
advertisements are expressly so made a part of the con-
ditions are they effective as such. The function of adver-
tising is best stated in Chief Justice Gibson's own words:
"(The object of an advertisement for a public sale) is to
give notice of the fact that a sale is intended to attract
bidders, leaving the terms to be settled on the ground...
The conditions of sale are superadded as a distinct matter
by the auctioneer, and published by parol or writing", and
2
will control the advertisement. '
Whetrer the purchaser knows of the conditions of the
public sale as announced by the auctioneer or not, he is
bound by them. Where it is the custom to post conditions
in the room and the auctioneer so announces, the pur-
20See 24 L. R. A. (NS) 488 for case note on binding effect of
conditions announced by the auctioneer; 22 Ann. Cas. 1912 A 1127;
Keske v. Boeder, 168 Wis. 369, 170 N. W. 247 (1919).
2"A right to bid may be reserved expressly by or on behalf of
the seller". Uniform Sales Act, Sec. 21 (3); Yerkes v. Wilson, 81*
Pa. 9 (1870).
226 C. J. No. 19, 827, and cases cited under notes 65, 66, and 67.
2
3Aschom v. Smith, 2 Penrose and Watts 211 (1830); Harrison v.
Nickerson, supra. In re: effect of advertisements in general see, 28
A. L. R. 1001; 2 R. C. L. 1122. In re: catalogue statements see 28
A. L. R. 1003.
'Aschom v. Smith, supra, at p. 218.
 DICKINSON LAW REVIEW

chaser is bound whether he saw them or not." The terms

of the sale may be changed or goods not listed sold on dif-
ferent terms from those announced, if due public announce-
ment is made at the sale, and a bidder who does not hear
26
it is none the less bound by his bid.
Sales of goods over five hundred dollars27 and land
sales 21 must satisfy the statutes of frauds as to the necessity
for a writing. Under the Sales Act 29 each lot of goods put
up for sale is the subject of a separate contract of sale,
although before the Act the Pennsylvania law was to the
opposite effect.30
It is stated, supra, that the contract is complete with
the fall of the hammer. This is the moment the title passes,
but until the goods are paid for possession may be retained
by the seller. 3 ' The Pennsylvania cases prior to the Sales
Act on the passing of title were all contrary to this view; 2
however, they are now in accord with the New York view.

(b) The Second Type of Auction Sales

The second type of auction is the sale without reserve.
In Pennsylvania this is sanctioned by Section 21 (2) of the
Sales Act, which of course applies only to personal property.
In this type it is the auctioneer who, by announcing that
the sale is one without reserve, makes an offer to sell a
specific chattel to the highest bona fide bidder. The auc-
tioneer cannot withdraw the article or refuse the highest
bid after the second bid. Thus the auctioneer is continually
26"Notice
of Conditions", 6 C. J. No. 20 p. 828.
26Burlin
v. Brinn, 116 Misc. 130, 189 N. Y. S. 707 (1921).
27 Pa. Sales Act, supra, Sec. 4 (1); 28 Dick. L. R. 175 at 179.
28Act Mar. 21, 1772, 1 Sm. 389, 2 Stewart's Purdon 1753.
29
Pa. Sales Act, supra, Sec. 21 (1).
30
Coffman v.* Hampton, 2 W. & S. 377 (1841).
31Jawitz v. Reitman, 128 Misc. 20, 217 N. Y. S. 480 (1926); Forbes
v. Hunter, 223 Ii. App. 400 (1921). The loss of goods sold at auction,
but retained temporarily by the seller under engagement with the
buyer, falls upon the buyer, the seller being a mere bailee and the
sale being complete. Stanhope Bank v. Paterson, 205 Ia. 578, 218
N. W. 262 (1928).
*2See 26 Dick. L. R. 151 at p.p. 158, 159.
 DICKINSON LAW REVIEW

bound to a succession of bidders, although ultimately only

to the final bidder. Each successive bidder is discharged
33
from his contract by the making of a higher bid.
It is in a sale without reserve that the view advanced
by Langdell and the English cases as to the underlying
theory of an auction sale finds it best exposition. For in a
sale without reserve, it is the auctioneer who makes an
offer, namely to sell a specific chattel to the person and
at the highest price fixed by the bid, the highest bidder
being the acceptor of the offer and the contract thus con-
summated without any need for assent on the auctioncer's
part by knocking down a hammer. Prior to the bidding
the auctioneer may withdraw goods even though the sale
34
has been advertised to be without reserve.
This type of auction is a novelty in Pennsylvania and
the courts have not as yet defined the exact position of a
bidder at such a sale." When they do, there is nothing to
prevent adoption of the English view, since it appears to
be the logical theory upon which to view a sale without
reserve.

(c) The Third Type of Auction Sales

There is a much quoted English case that deals with
what may be termed, for want of a better name, a sale with
reserve, or a sale with a set up price. This case 6 affirms
the right of an auctioneer to set up a price for each article
and to refuse to sell if this price is not reached. The origin
of this type is probably in the so called "dumb bidding"
prevalent at one time in certain English localities.3 1 In

33.Sales Act, Sec. 21 (2); Sec. 27, Restatement of Contracts pro-

vides that ". . by announcing that the sale is without reserve . .. , he
(the auctioneer) indicates that he is making an offer to sell at any
price bid by the highest bidder". See example No. 4 same section and
appendix notes on Sec. 27.
34
Harris v. Nickerson, supra.
a"Effect of Uniform Sales Act on Pre-existing Law in Pa.", 26
Dick L. R. 151 at 160.
86McManus v. Fortescue, 2 K. B. 1, (1907).
PrEncyc. Brit., Vol. 2, p. 672 (14th Ed.).
 242 DICKINSON LAW REVIEW

these communities it was the custom for the owner to put

a price under a candlestick and then to announce a stipula-
tion that no bidding should avail if not equal to it. It is
readily seen that the effect of an announcement that a
sale is to be subject to a reserved or set up price is, that
unless that price is reached, the property will not be con-
sidered as sold. Thus knocking down the hammer to the
highest bidder is of no effect legally until the bidding has
reached the set up price. In effect such a sale is subject
to a condition precedent that the bidding must attain the
reserved price."s Although this is a very plausible type
of case, yet the fact of a set up price appears to be con-
trary to our general notions concerning auction sales. It
is not an auction in the true sense: yet if the parties do not
intend that the fall of the hammer shall signify acceptance
unless the set up price is reached, there can be no valid
objection to giving the transaction the legal effect the
parties desire. In this type, the final bid, providing it at
least equals the price reserved, marks the acceptance of the
auctioneer's offer and a contract is then complete. The
hammer may fall, but the auctioneer must first investigate
and see whether or not the bid price reaches the set up
price before he may accept the highest bid. In this sense,

38 Where a reserve has been fixed by the vendor, there is no im-

plied authority to sell without reserve even though the auctioneer
has ostensibly so sold; and if, in breach of his instructions, the auc-
tioneer sells without reserve, a sale below the reserve price will not
give the purchaser any right to enforce the contract against the
vendor, McManus v. Fortescue, 2 K. B. 1 (1907); overruling Rain-
bow v. Hawkins, 2 K. B. 322 (1904). If however, the vendor's in-
structions are to carry out a sale subject to a secret reserve and so
to act as agent in effecting a fraud, the auctioneer will not be liable
to the vendor for disregarding such instructions, Bexwell v. Christie,
1 Cowp. 395 (1776). But note that where the sale is not subject to a
reserve price and the property has been withdrawn during the auc-
tion, some English cases allow an action for damages against the
vendor or auctioneer, if the latter has not disclosed his principal, on
an implied undertaking that the sale shall be without reserve, Warlow
v. Harrison, supra; Johnson v. Boyes, supra. However, cf. Fenwick
v. McDonald Co., 6 F. (Ct. of Sen.) 850 and Halsbury's Laws of Eng.
Vol. 1, p. 511,
 DICKINSON LAW REVIEW 243

the parties are not completely bound until there is the defi-
nite ascertainment by the auctioneer that the reserved price
has been attained.
This third type, like the second, is used but little in the
United States, at least not to the extent that it 'has been
developed in England. Taking into consideration the par-
ticular circumstances surrounding the second and third
types of auction sales, it may be said that as a general.rule
many of the external conditions of sale applying to the
ordinary type of auction apply also to these two.
There are then three types of auction sales each with
its own peculiar characteristics. The first, or ordinary
auction, based upon two different theories; the second, or
sale without reserve, in which the auctioneer makes the
offer, that in turn is accepted by the highest bidder; and the
third, or the sale with a reserve price, in which there is a
condition precedent that a certain price must be reached
by the bidding before the highest bid can be accepted.

Nicholas Unkovic