Going… going… gone. When is a contract formed at auction?

12 December 2018

Jaws dropped around the globe when a Banksy painting "self-destructed" after selling at auction for £1.04 million.

Banksy's newly-titled "Love is in the Bin" was unveiled on 12 October 2018 at Sotheby's in London. Originally titled "Girl with Balloon," the canvas passed through a hidden shredder seconds after the hammer fell on 5 October 2018 at Sotheby's London Contemporary Art Evening Sale, making it the first artwork in history to have been created live during an auction.

In the immediate aftermath many people questioned what this meant for the winning bidder. Were they obliged to proceed with the purchase of the now partially destroyed painting that they had just bid £1.4M on? When is a deal “done” at an auction?

The main ingredients required for a contract to be formed are offer, acceptance, consideration (usually money), an intention to create a legal relationship and certainty of terms. The question of whether an offer has been made, and that offer has been accepted, might sound fairly straightforward in principle, but in practice that isn’t always the case. This is particularly true in the context of auctions. For example, is the auctioneer making an offer when asking for bids, or is the bidder making an offer when placing a bid? And when is the offer “accepted”?

Section 57(2) of the Sale of Goods Act 1979 confirms that a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer (or in any other customary manner). Until this time, the bidder is entitled to retract their bid.

The auctioneer’s original call for bids is what is known as an “invitation to treat”, which is legal-speak for an invitation to make an offer. The placing of a bid amounts to an “offer”, and the banging of the hammer amounts to “acceptance”.

Assuming that all the ingredients for the formation of a contract exist, is there anything else which might enable the bidder in this scenario to get out of the purchase?

The validity of a contract can be challenged on various grounds. Some make a contract void, some make it voidable. A void contract is ineffective from the moment it is made. It lacks any contractual force. A voidable contract is effective and binding unless and until rescinded. If rescission is unavailable, as sometimes happens, the contract will remain valid and binding.

One possible argument in this scenario might be that the bidder’s agent (assuming they used one) lacked authority, which if established may render the contract void. Another argument (albeit probably a difficult one) might be that the contract was entered on the basis of a mistaken understanding by the bidder as to what he was bidding on, which again if established could render the contract void.

As far as we know, Sotheby’s were unaware of the stunt beforehand. However, if it could be shown to the contrary, then the bidder might even raise the argument that the contract is voidable as a result of misrepresentation. 

Whilst all of the above makes for interesting debate, many art experts believe that this history-making stunt will have actually increased the value of the painting, and therefore it is hard to see why the bidder would want out of the deal. Indeed, it would appear from the press coverage that the bidder was given the option by Sotheby’s to withdraw from the purchase, and opted to keep the work. The buyer, who has been identified as a female European collector and long-time Sotheby’s client, is reported to have commented: “When the hammer came down […] and the work was shredded, I was at first shocked, but gradually I began to realize that I would end up with my own piece of art history”.

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