Since the rise of eBay and similar platforms, participation in online auctions has increased exponentially. In 2017, eBay’s annual revenue was USD$9.6 billion. Consequently, the legal system faces questions surrounding the rights and responsibilities of parties who participate in online auctions. This article explains whether a buyer and seller form a contract when engaging in an online auction.

Offer and Acceptance

In most cases, bids made in online auctions are binding upon the buyer and the seller. When the time of the online auction runs out, the seller and the highest bidder form a contract, provided the highest bidder is above the reserve price. The terms and conditions of the auction platform govern the contract and it is legally binding. Therefore, you should carefully consider the reserve price you set on items you are selling and the bids you place on items in online auctions.

For example, Sally lists a laptop on eBay with a reserve price of $1,000 and an auction duration of eight days. At the end of the eight days, Ben is the highest bidder with a bid of $1,050. Considering the bid is above the reserve price, Ben and Sally have created a binding contract. Sally must sell the laptop for $1,050, and Ben must pay the agreed price.

Smythe v Thomas

In the landmark case, Smythe v Thomas, the Supreme Court of New South Wales clarified the legal uncertainty surrounding online auctions. It is the first Australian case to consider whether bids made through eBay are binding on the parties.

What Happened in the Case?

Vin Thomas and Peter Smythe were war plane enthusiasts. Vin Thomas listed his 1946 World War II Wirraway Plane for auction on eBay. The plane was one of only five in the world still flying. Thomas set a minimum sales price of $150,000 and an auction duration of 10 days.

Smythe placed the only bid for $150,000 and effectively ‘won’ the auction. However, Thomas had already arranged to sell the plane for $250,000 to another buyer, and he refused to sell the aircraft to Smythe for $150,000. Thomas argued that no binding contract had been created between the parties and he was not obliged to sell the plane to Smythe.

Smythe, on the other hand, argued that they had formed a contract and Thomas had a contractual obligation to sell the plane for the agreed price.

What Did the Supreme Court of NSW Say?

The NSW Supreme Court ruled that a binding contract had been created between the parties. Specifically, it examined eBay’s terms and conditions which state that sellers must sell the listed item to the highest bidder at the end of the auction.

Therefore, Thomas had a contractual obligation to sell the plane for $150,000 to Smythe. The Supreme Court also concluded that a listing on eBay amounted to an offer to sell the aircraft for at least $150,000 to the highest bidder in the specified time frame of the auction. Accordingly, Thomas and Smythe had formed a binding contract when the auction time had expired.

Tips

Bids placed online are likely to have legal ramifications, so it is important to consider them carefully. To avoid disputes, it is prudent to:

  • read and understand the terms and conditions of the auction platform before making any bid;
  • assess the seller’s reputation through reliable reviews and ratings;
  • ensure you are sufficiently informed about the product you are buying; and
  • think carefully about both the bids that you place and items you list.

Key Takeaways

Through the creation of online sales platforms, the frequency of online bidding is increasing. For example, eBay alone has a total of 171 million active buyers. As this market grows, courts will continue to face complex and new legal questions.

In Smythe v Thomas, the NSW Supreme Court examined whether bids made on eBay are legally binding. Here, it found that parties create a binding contract for the sale of the listed item when a party places the highest bid within a set time period. Therefore, the parties must commit to selling or buying the product for the agreed upon price. If you have any questions, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Eugenia Munoz
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