Reserve Price and the Seller's Right to Bid: Two Different Protections at an Auction, and What Happens When Neither Is Notified

Both devices let a seller avoid a sale at a price he does not want, and they are often confused. A reserve price is a passive floor: the auctioneer simply will not knock the lot down below it. A right to bid is active participation: the seller, or one person for him, competes with the bidders. The Act treats them differently because their effect on the bidders differs. A reserve is announced and everyone knows a floor exists. Secret bidding by the seller manufactures competition that does not exist, which is why Section 64(4) and (6) deal with it so severely.

The two devices compared, and the consequences of failing to notify

1. Reserve Price and Upset Price

Section 64(5) allows the sale to be notified as subject to a reserved or upset price.
A reserve price is a minimum below which the goods will not be sold. It is often kept confidential, though the existence of a reserve is announced.
An upset price is a stated figure at which the bidding starts, so it is necessarily disclosed.
If the reserve is not reached, the lot is withdrawn and there is no sale.
If the auctioneer knocks the lot down below the reserve, he has no authority to do so, and the seller is not bound.

📖 McManus v. Fortescue, [1907] 2 KB 1 (CA)

Facts: Property was put up at auction subject to a reserve price, which was not disclosed. The auctioneer, by mistake, knocked the lot down to the highest bidder at a figure below the reserve, and then refused to complete. The bidder sued the auctioneer.

Held: There was no binding contract, and the auctioneer was not liable. The sale had been announced as subject to a reserve, so everyone bidding knew that the auctioneer's authority was limited. Knocking the lot down below the reserve was beyond that authority and bound nobody.

Ratio: Where a sale is notified to be subject to a reserve, the auctioneer has no authority to sell below it, and a purported acceptance below the reserve creates no contract.

2. The Seller's Right to Bid

Section 64(3). A right to bid may be reserved expressly by or on behalf of the seller. Where it is, the seller, or any one person on his behalf, may bid.
Section 64(4). Where the sale is not notified to be subject to such a right, it is unlawful for the seller to bid or to employ anyone to bid, and for the auctioneer knowingly to take such a bid. Any sale contravening this may be treated as fraudulent by the buyer.
Section 64(6). If the seller uses pretended bidding to raise the price, the sale is voidable at the option of the buyer.
Only one person may bid for the seller, so a ring of bidders acting for him is not permitted even where the right was reserved.

3. The Two Compared

	Reserve or upset price	Right to bid
Nature	A passive floor	Active competition by the seller
Whom it protects	The seller, against a sale at an undervalue	The seller, in the same sense, but at the bidders' expense
What must be notified	That the sale is subject to a reserve or upset price	That a right to bid is reserved
If not notified	A sale below the reserve binds nobody	The buyer may treat the sale as fraudulent, or as voidable for pretended bidding
Who acts	The auctioneer, by not accepting a lower bid	The seller, or one person for him

4. The Position Stated Shortly

A reserve price is a floor below which the goods will not be sold; an upset price is the figure at which bidding starts.
McManus v. Fortescue: an auctioneer has no authority to sell below a notified reserve, and such a sale binds nobody.
The seller may bid only if the right was expressly reserved, and then only through one person.
Unreserved bidding by or for the seller lets the buyer treat the sale as fraudulent.
Pretended bidding to raise the price makes the sale voidable at the buyer's option.
A reserve is disclosed as a limit; secret bidding by the seller is not, which is why the Act treats it as a fraud on the bidders.