We recently had cause to look at an interesting matter for a client whereby they were auctioning their home and the highest bidder ‘reneged’ on his bid and refused to sign the Contract. So, what are your options if this happens?
Generally, when an auction takes place a registered auctioneer is engaged and they obtain bidder registrations and identification from the prospective purchasers. The bidders, through their registrations are bound by the terms of conditions of the auction which relevantly contain, inter alia, that:
- The highest approved Bidder will be the Buyer;
- Immediately, on the fall of the hammer the Buyer must sign the Contract of Sale; and
- Both the Seller and Buyer irrevocably appoint the Auctioneer as their agent to sign the Contract of Sale on their behalf.
So, what happens if the highest bidder walks away or later refuses to sign the Contract of Sale?
In the Queensland Court of Appeal case from 1990, Wright v Madden, the Court embarked on a highly educational judgment going back to principles established in an 1859 UK case. In essence, because of the requirement now embodied in s. 59 of the Property Law Act 1974 (Qld) (“Statute of Frauds”) that no action may be brought upon any contract for the sale of land unless it is in writing there is imply no cause of action available to the vendors for the highest bidders failure or refusal to sign a contract; in other words the court does not have jurisdiction to compel the highest bidder to sign.
The court went onto to also clarify that additionally there could be no cause of action either premised upon the highest bidders’ breach of the “collateral contract”, that being a breach of the terms contained within the bidder’s registration form coupled with the standard legislative conditions of an auction. Williams J. at 349  said that “But where the alleged breach of the collateral contract is no more than the failure by a party to sign the memorandum necessary to make the contract of sale enforceable given the provisions of the Statute of Frauds, there will be no enforceable breach of the collateral contract; to hold otherwise would be to simply negate the operation of the Statute.”
So, the Highest Bidder at my Auction won’t sign the Contract?
So, what should happen?
Because both the Seller and Buyer irrevocably appoint the Auctioneer as their agent to sign the Contract of Sale on their behalf the Auctioneer should execute the Contract of Sale on behalf of the parties immediately following the closing of the auction if the highest bidder refuses to sign. In the absence of that, given the principles established in Wright v Madden, it would seem that in the absence of that there is simply no recourse for the vendors.
Any potential action against the auctioneer by vendors for a failure to do so is also contingent upon the vendors not obstructing the auctioneer in doing so.