Payne v Cave (1789) 3 TR 148

Facts

• The dispute arose from an auction in which the defendant, Cave, placed the highest bid for the plaintiff’s goods.
• Before the auctioneer accepted the bid by bringing down the hammer, Cave withdrew his offer.
• The core issue was whether Cave was legally bound to purchase the goods after placing the highest bid, despite withdrawing it prior to acceptance by the auctioneer.
• The court was required to determine the precise moment at which a contract is formed during an auction sale.

Issues

1. Whether a bid made at an auction constitutes a binding contract or merely an offer that may be withdrawn before acceptance.
2. Whether Cave’s retraction of his bid prior to the auctioneer’s acceptance negated any contractual obligation to purchase the goods.
3. At what point during an auction process a legally binding contract is formed.

Decision

• The court held that Cave was not bound to purchase the goods, as he withdrew his bid before it was accepted.
• It was determined that a bid at auction is an offer, which can be withdrawn at any moment before the auctioneer accepts it.
• Acceptance in the auction context is signified by the fall of the auctioneer’s hammer, which marks the formation of a contract.
• The court clarified that no binding agreement exists until the offer (bid) is accepted, leaving both parties free to alter their positions prior to that point.

Legal Principles

• An offer made at an auction (a bid) may be revoked at any point before acceptance.
• Acceptance in auctions occurs when the auctioneer signals it, typically by the fall of the hammer.
• The judgment distinguished offers from invitations to treat, as in cases regarding shop displays or advertisements.
• The principle from this case was codified in the Sale of Goods Act 1979, section 57(2), confirming the auction contract is completed only with the auctioneer’s acceptance.
• Distinctions were drawn between auctions and other contract situations, such as invitations to treat and unilateral offers, emphasizing the need for mutual assent for contract formation.

Conclusion

Payne v Cave (1789) established that a bid at an auction is an offer, not a binding contract, and may be withdrawn before acceptance by the auctioneer. A contract is formed only upon the auctioneer’s acceptance, typically signified by the fall of the hammer. This principle remains central to contract law and has been incorporated into statutory law.