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This article is written by J.Suparna Rao, from Ramaiah Institute of Legal Studies. This article discusses the concept of Auction Sale under the Sale of Goods Act, 1930

Introduction

There are two main terms involved i.e. Auction Sales, Goods. Let us first clearly understand the two terms.

Auction is nothing but selling of goods or property in a public sale where prospective buyers gather in a particular area to buy the goods or property. Auction sales involve the auctioneer and bidder who bids higher than the other to buy the property or goods. 

Goods mean anything of value which can be sold. So we further will see the two terms in accordance with the Sales Goods Act, 1930

History Of Auction Sales

The process or the tradition of the auction is as old as 500 B.C. It can significantly be remarked in Greece where the women were auctioned for marriage. Women were not allowed to marry if they did not pass this step of the procedure. As the highest bid was found equal or higher than the reserved price women were sold to that buyer. if the marriage did not persist or if the marriage dissolves the bidder was allowed to take back all the money paid. 

As the new economic policy, 1990 was introduced in India it brought many changes in the economy of the country as well as there was a tremendous growth of technology which opened the doors for many other goods to be auctioned like computers, mobile phones, printer machines etc. 

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Sale of goods act, 1930

The Sale of Goods Act was brought into existence on 1st July 1930. Earlier this act was part of Indian Contract Act,1972 but in 1930 it was separated and was named ‘Sale of Goods Act,1930’ There are basically two types of property- movable property and immovable property. Sale of Goods Act, 1930 specifically deals with movable properties only. There is a separate law governing immovable property which is ‘The Transfer of Property Act, 1882’.

What all does the word “Goods” include in ‘The Sales of Goods Act’? 

The word goods include the following things as movable property –  

  1. Growing Crops (which The Transfer of Property Act excludes)- Growing crops are the crops which are planted in bulk in the farms or in fields by the farmers. 
  2. Standing Timber- The timber trees in which the timber can be cut off and sold.
  3. Grass- The thin, green, dense plant which covers most areas of the earth.
  4. Old currency- It is considered as movable property as it cannot be used to buy goods, it is treated as an antique item.
  5. Water- The water in its natural form in sea, rivers, water streams etc.
  6. Gas- Gas is considered as movable property as it expands freely to anywhere and everywhere.
  7. Electricity- The electricity power generated to run the day to day usage of it in various sectors and parts of human life is considered as movable property. 
  8. Trademark- Unique symbol or sign used to signify a particular brand, company.
  9. Patent – It can be described as a license issued by the Government.
  10. Copyright- It is a legal right of an individual which is given to protect the unique piece of artwork. 
  11. Share of the Company- After allotment of the share of the company it is treated as the movable property.
  12. Goodwill of the Company- A company’s reputation or image in the market is an added asset to the company which is also included under a movable property.
  13. Stock- Stock of company which can be divided into shares are considered as movable property.

What are all excluded from the word “Goods” under the Sale of Goods Act?

  1. Immovable property 
  2. Actionable claim 
  3. Money / Currency  

Classification of Goods 

Goods can be classified into ‘Existing Goods’ which are the goods existing at the time of contract of sale. Existing goods are further divided into three categories which are specific goods, unascertained goods and ascertained goods. Specific goods are the goods which cannot be replaced, unascertained goods are the goods which are in bulk and which cannot be specifically identified at the time of Contract of Sale, whereas ascertained goods are the goods which are easily separated from the bulk at the time of Contract of Sale. 

The other category of goods is ‘Future Goods’. These are the goods which are yet to be produced or manufactured. The seller manufacture certain goods like jewellery on the order of the buyer, such goods are known as future goods. The last category of the goods is ‘Contingent Goods’. These are the types of goods which may or may not be produced subject to certain conditions. The seller may deliver the goods if the conditions are fulfilled and if the condition is not fulfilled the seller may not deliver the goods.  

Statutory Provisions of Auction Sales under Sale of Goods Act, 1930 

The statutory provisions pertaining to auction sale are found in Sale of Goods Act, 1930. Section 64 of the Act provides rules regarding the auction sale. The rules are explained below.

  1. When the goods are in lots and they are put up for auction sale, each of the categories or a lot of goods will be subjected to separate contract of sale.
  2. The sale of goods in the auction is said to be complete only when the auctioneer declares it to be completed by fall of the hammer or any other usual method or by announcing. Until then the bidder can anytime drawback his bid. 
  3. The seller at the auction can reserve his right to bid and he has to expressly reserve such right. He can appoint a person to bid on his behalf. 
  4. If the seller does not expressly notify his right to bid, he cannot bid at the auction nor can he appoint anyone on his behalf to bid at the auction. Also the auctioneer should not accept and entertain such bids. Any sale which is done in contradiction to this rule is unlawful and will be declared as fraudulent by the buyer. 
  5. The reserve price once declared the auctioneer cannot sell the subjected goods in price below the reserve price. 
  6. In any case, if the seller or his agent purposely and knowingly pretend to bid to raise the price of the goods then such sale is voidable at the option of the buyer
  7. The property in the auction cannot be sold on credit and as per the wish of the auctioneer. 

Essentials of Valid Sale or Contract Of Sale

  1. All essential elements of a valid contract are to be fulfilled. The essential elements of contract consist of offer and acceptance, intention to create a legal relationship, lawful consideration, the capacity of parties to contract, free consent, lawful object, certainty and the possibility of performance, legal formalities, should not be expressly declared void. 
  2. When a contract of sale is concerned there must be two parties that is the buyer who is a potential buyer and is interested in buying the property in the auction and the seller who is ready to sell the property and ready to transfer its ownership to the other. 
  3. The movable property should be there for sale. As this Act deals only with a movable property only.
  4. There must be an agreement created between the buyer and the seller for the transfer of the ownership of the property from the buyer to a seller. 
  5. Section 2(10) of the Sale of Goods Act says that there must be some consideration for the sale of the goods. 

CASE LAWS

  • COFFEE BOARD V. FAMOUS COFFEE AND TEA WORKS 

In this case under the Madras High court, the seller expressly declared that he can accept any bid be it the highest bid or the lowest bid whichever he likes or whichever he believes to be a fair price to the property. This will be completely his decision and he is not bound by the highest bid. He is also not bound to give any reasons for his decision and his decision shall be final and conclusive. 

  • MCMANUS V. FORTESCUE 

In this case, the auctioneer mistakenly sold the said property below the reserved price which was stated in a catalogue for each lot because of which the seller refused to sign the memorandum of sale. The court relieved the auctioneer as it was done mistakenly. 

  • BOMBAY SALT AND CHEMICAL V. JOHNSON & ORS. 

In this case, it was held that the highest bidder can claim his rights over the property in the auction sale only when the auction sale is accepted by the seller and has been approved by the seller and also the sale deed is executed in his favour. Until then the highest bidder has no rights over the property. 

  • BARRY V. DAVIS 

In this case, it was stated that if there exists no reserve price for the property that has to be sold or to be put in the auction then the property should be sold to the genuine highest bidder. There are also certain exceptions to this such as unlawful selling of goods, seller not authorised to sell, the buyer has no right to buy or the buyer does not have enough money to buy the property. 

  • PAYNE V. CAVE 

In this case, Mr Cave was the buyer and he made the highest bid for a good at the auction. Later Mr Cave decided to not to buy the property and withdrew his bid before the auctioneer put down the hammer. It was held that as the Mr. Cave has withdrawn his bid before the auction was completed and he had all the rights to withdraw his bid anytime before the auction is declared to be complete. He is not liable to purchase the goods. 

  • HARRIS V. NICKERSON 

In this case, an advertisement was given in the newspaper that certain items are to be sold and would be auctioned on a particular place for three days. The plaintiff wanted to buy certain goods but the goods were withdrawn. The plaintiff sued the defendant for the loss of time and travel expenses. The court held that advertisement for auction does not amount to offer and therefore the advertiser can withdraw goods anytime prior to the auction. 

ILLUSTRATIONS 

  1. A being the auctioneer in the auction sale. A accepted the highest bid by B. A declared that the auction is complete. Later B decides not to buy the property at Auction sale to which he agreed to buy. B cannot deny buying the property and he will have to pay the consideration to A. 
  2. A held the auction of a House. B made the highest Bid. But before the hammer was slammed down by the auctioneer the seller decides to withdraw the property. B cannot enforce the selling of the property to him. 
  3. A was the auctioneer in the auction sale. A sold the property at the price below the reserve price to B. The seller denied selling his property. B cannot claim the property from the seller. 

Conclusion

The auction sale is covered under Section 64 of ‘The Sales of Goods Act, 1930’. The Sales of Goods Act specifically deals with a movable property only. Auction sale can be defined as a public sale in which various prospective buyers are invited to a particular area where the auction is to be conducted. There are two main parties involved one is the auctioneer who conducts the auction of a property and the other is the buyer who will bid the highest than any other buyer in the auction.

The auction is complete only when the hammer is dropped down or in a customary manner, the auction is declared to be complete. The ownership of the property thus passes from the owner to the highest bidder on the fall of the hammer. The seller himself cannot bid and he also cannot appoint anyone to bid on his behalf.

The auctioneer can be the seller or his agent. Auctioneer should always be an authorised person and should act in the benefit of the seller with a bonafide intention. The bidder can revoke his bid anytime before the completion of the auction. A bid can be said to an offer and to which acceptance is completed only when the sale deed has been executed in the name of the highest bidder.  

References

  1. http://indiankanoon.org/doc/547058/
  2. https://www.toppr.com/guides/business-laws/the-sale-of-goods-act-1930/auction-sale/ 
  3. https://www.legalcrystal.com/cases/search/name:sale-of-goods-act-1930-section-64-auction-sale 
  4. https://www.lawteacher.net/free-law-essays/contract-law/the-sale-of-goods-act-1930-contract-law-essay.php

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