Sale by Auction under Section 64 of the Sale of Goods Act, 1930: Each Lot a Separate Contract, the Fall of the Hammer, Retraction of Bids, the Seller's Right to Bid, Reserve and Upset Prices, and Pretended Bidding

An auction is an ordinary contract of sale conducted in an unusual way, and Section 64 supplies six rules for it. Each lot is a separate contract. The sale is complete on the fall of the hammer, and until then any bidder may retract. The seller may bid only if the right was expressly reserved, and if it was not, bidding by him or by someone on his behalf lets the buyer treat the sale as fraudulent. The sale may be subject to a reserved or upset price, and pretended bidding to force the price up makes the sale voidable at the buyer's option.

The six rules of Section 64, the offer and acceptance analysis, and reserve against upset price

1. The Section

Section 64, Sale of Goods Act, 1930

In the case of a sale by auction:

(1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale;

(2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and, until such announcement is made, any bidder may retract his bid;

(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may bid at the auction;

(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid, or for the auctioneer knowingly to take any such bid; and any sale contravening this rule may be treated as fraudulent by the buyer;

(5) the sale may be notified to be subject to a reserved or upset price;

(6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

2. Offer, Acceptance and the Fall of the Hammer

📖 Payne v. Cave, (1789) 3 TR 148

Facts: A bidder at an auction made the highest bid for a lot but withdrew it before the auctioneer's hammer fell. The seller contended that the bid could not be withdrawn and sued him.

Held: The bidder was not bound. The auctioneer's request for bids is an invitation, the bid is the offer, and the fall of the hammer is the acceptance. Until acceptance, the offer may be withdrawn like any other.

Ratio: At an auction the bid is the offer and the fall of the hammer the acceptance, so a bid may be retracted at any time before the hammer falls. Section 64(2) states the rule.

Each lot is a separate contract, so a defect in one lot does not affect the others, and payment, delivery and rejection are considered lot by lot.
Completion may be announced in another customary manner, such as the striking of a gavel, a call of sold, or the closing of an online auction at a stated time.
The auctioneer may also withdraw a lot before the hammer falls, unless the sale was advertised as being without reserve, where English authority in Warlow v. Harrison (1859) suggests a collateral undertaking to sell to the highest bidder.

3. The Seller's Right to Bid, and Pretended Bidding

The seller may bid only if the right was expressly reserved and notified. Then he, or one person on his behalf, may bid.
If it was not reserved, bidding by the seller or by a person employed by him is unlawful, and the auctioneer may not knowingly take such a bid. The buyer may treat the sale as fraudulent.
Pretended bidding, also called puffing, is the use of bids not intended to buy but to raise the price. Under Section 64(6) it makes the sale voidable at the buyer's option.
The rationale is that a bidder is entitled to assume he is competing with genuine buyers. Secret bidding by the seller manufactures a market that does not exist.

4. Reserve Price and Upset Price

	Reserve price	Upset price
What it is	A minimum below which the goods will not be sold	A stated price at which the bidding starts
Disclosure	Often kept confidential, though the sale is notified to be subject to one	Announced, since bidding begins there
Effect if not reached	The lot is withdrawn and there is no sale	There are no bids and no sale
Effect of a bid below it	The auctioneer cannot accept it; a purported acceptance does not bind the seller	No lower bid is taken at all

5. Online Auctions

Section 64 applies to auctions conducted electronically, since the Act requires no particular form and Section 10A of the Information Technology Act, 2000 validates electronic contracts. The customary manner of announcing completion is the platform's own mechanism, usually the closing of bidding at a stated time, and the platform's terms will say whether and when a bid may be withdrawn. Two points are worth noting. Some platforms provide that a bid is irrevocable once made, which is a contractual variation of the position in Section 64(2). And where the platform acts as agent for the seller, the rules against bidding by or for the seller apply to bids placed through it. The law on online auction platforms continues to develop, and should be checked against current authority and the platform's terms.

6. The Position Stated Shortly

Section 64(1): each lot is prima facie a separate contract.
Section 64(2): the sale is complete on the fall of the hammer or other customary announcement, and until then a bid may be retracted.
Payne v. Cave: the bid is the offer and the hammer the acceptance.
Section 64(3): the seller may bid only where the right was expressly reserved, and then only through one person.
Section 64(4): unreserved bidding by or for the seller lets the buyer treat the sale as fraudulent.
Section 64(5): the sale may be subject to a reserved or upset price.
Section 64(6): pretended bidding to raise the price makes the sale voidable at the buyer's option.