Question

In: Operations Management

Describe how contract formation rules work in an auction situation. Discuss: a). How offers are made;...

Describe how contract formation rules work in an auction situation. Discuss:
a). How offers are made;
b). How offers are accepted;
c). When offers can be revoked;
d). What results from an auction being listed as “without reserve”
e). Describe a fact situation where auction contract rules would apply.

Solutions

Expert Solution

Here are some rules regarding Auction contract :

Auction contract, like any other contract, is an agreement between two parties i.e, the bidder and the auctioneer , in which a seller proposes to sell an item for the highest bid and the buyer agrees to pay the amount. The goal of an auctioneer is to get the highest price for an item for the seller by means of a free and fair bidding competition among potential buyers.

In order to prevent fraud, there are certain set or rules in Auction contract :

  • At least two bidders are needed to conduct an auction .
  • Any person is qualified to become a bidder.
  • When no participant is willing to bid further, the auction ends for that particular property
  • If one person bids for another at an auction sale without disclosing his/her identity until the auctioneer’s hammer falls, either may be held liable for the purchase price.
  • States are supposed to provide laws only to prevent fraudulent transactions in jewelry auctions, and not to prohibit legitimate sale.
  • If the final bid does not reach the reserve price(previously set by the seller), the property remains unsold.
  • After the auction, if there is something yet to be completed, it will not postpone the transfer of title in the absence of an express stipulation to that effect. For example, if a horse is sold at an auction, title automatically passes to the buyer even though the papers regarding the same are not yet delivered.
  • Competitive bidding is an essential element of an auction sale. Free and fair competition among bidders brings the highest financial return to the seller. Any agreement that restricts such competition is against publich policy and is considered to be null and void.

a) How offers are made : Among various bidders, the one who offers the highest price or bid will normally be the successful purchaser. Initially, the seller often places a minimum price for his/her property. The bidders compete among themselves by offering competitive prices and the highest bid will normally be accepted by the seller.

b) How offers are accepted : When no participant is willing to bid further, the auction ends for the property. Once a bid is accepted, the seller has no right to accept a higher bid, nor can a buyer withdraw the buyer’s bid. Generally, an auction is complete when the bid is accepted. Acceptance of a bid is denoted by the fall of a hammer, or by any other audible or visible means signifying to a bidder that the bidder is entitled to property on paying the amount of a bid according to the terms of a sale

c) How offers can be revoked : Offers can be revoked if any of the party turns out to be a fraud or the buyer does not agree to pay the auction amount. Also, Offers can be revoked if constitutional rights were violated by the buyer.

d) What results from an auction being listed as "without reserve'' : The highest bidder may specifically enforce the acceptance of the bid where the sale is without reserve and the right to withdraw the property does not exist after a bid has been made.The highest bidder may also enforce a transfer of the property thereto, or may recover damages for breach of contract. There is no contract between the parties in the absence of a sale without reserve, or where the property is withdrawn from auction sale before the acceptance of any bid. In such circumstances, the specific performance remedy is not available.

e ) Describe a fact situation where auction contract rules would apply :

A very famous and basic situation where Auction contracts rules would apply is Indian Premier League. On the day of the auction, the players who go under the hammer are put into various sets, based on their roles (Batsmen, Bowlers, Wicket Keepers etc) and when a player's name is announced, the bidding starts, from the base price of the player. The bidding then takes place with the highest bidder getting the player.


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