Bidding at an online auction and shaping the price of the auction item with the participation of offers from other participants
Publication date: February 26, 2024
After all, the auction is about the best market price. The question is whether comparing all price offers in real time is only the privilege of the auction organizer or the right of all participants. Online sales platforms generate prices because virtual reality allows participants to participate in legal transactions online, eliminating the barrier of locality of a specific event. On the other hand, however, the popularity of online activities generates a number of limitations regarding knowledge about auction increments, which have naturally always existed in conventional live auctions.
An auction on an online trading platform for works of art and antique items involves practical obligations of the auction organizer from the perspective of the participant’s right to knowledge about other offers under the Polish Civil Code. This right results from the fact that since an offer submitted during an auction ceases to be binding only when another bidder submits a more advantageous offer (Article 722 § 1 of the Polish Civil Code), the question arises whether and to what extent full knowledge of a specific participant about other offers in the auction in real time affects the correctness of organizing the sale by the auction organizer, and whether the functions of online platforms meet the conditions for the correctness of the auction as a form of concluding a sales contract under the Polish Civil Code. The difference between auctions and ordinary forms of concluding a contract is that the basic element is essentialia negotii (essential terms) of a bilateral sales contract, namely the price, is shaped by this legal structure. Therefore, neither the participant nor the organizer knows what the price of the contract is at the moment the auction begins, because the auction is a legal mechanism for generating the most advantageous price, which is the result of using this legal means to conclude a contract. For the validity of the auction process, the classic legal structure also assumes the knowledge of the participant that his offer is valid.
Legal aspects of the moment of concluding the contract
The moment of concluding the contract, constituting a decisive stage in the creation of legal relations, is regulated in the Act of April 23, 1964, Civil Code (uniform text: Journal of Laws of 2023, item 1610, as amended), hereinafter referred to as the Civil Code. Special regulations can be found in articles 66-72, index 1 of this Act. Issues related to the form of the contract, the content of the declaration of will, as well as the legal and civil consequences of concluding the contract are important for trade and for the parties to the transaction. The legislator allows various forms of concluding a contract, in particular oral, written or in another form specifically provided for by law. Examples of such agreements include, but are not limited to: donation agreements or transfer of ownership of real estate in the form of a notarial deed.
In the context of the moment of concluding the contract, an important aspect is the consistency of the will of the parties. Pursuant to Art. 66 of the Civil Code, a contract is considered concluded when one party makes a declaration of will to the other and the other party immediately accepts it. Declarations of will must agree on the key terms of the contract, which determines the moment of concluding the contract. An offer that is made in the presence of the other party or by means of direct distance communication ceases to be binding if it is not accepted immediately. Additionally, an offer submitted in any other way ceases to be binding upon the passage of time during which the person making the offer could, in the ordinary course of business, receive a response sent without undue delay. According to Article 70 of the Civil Code, in case of doubt, the contract is deemed concluded when the person making the offer receives a declaration of its acceptance.
Auction as a form of concluding a sales contract
Auction as one of the forms of concluding a sales contract is regulated in Article 70 with index 1 and subsequent articles of the Polish Civil Code. The theoretical assumption of this legal form of concluding a contract is that the auction should represent the process of concluding a contract in which the simultaneity of place and time is important. In the case of virtual activities, it is necessary to verify the rules of online auction portals to see whether their functionality is appropriate to this assumption, namely whether the valid conclusion of a contract requires the participant’s knowledge of other offers relevant from the perspective of a specific bid (concluding a contract as a result of betting in a given slot). In the classic auction model, participants and the organizer are present together in one place and at one time, or they communicate via means of direct distance communication. Offers are submitted gradually by participants in the form of the so-called bids, with each bid typically having three chances to make a decision by clearly communicating the current highest bid three times. The final approval of the contract takes place after selecting the offer that is most advantageous in terms of price. The auction is formalized because it is based on pre-established code rules, and the selection of the contractor and agreement on declarations of will take place by eliminating offers from other participants.
An offer submitted by auction ceases to be binding when another bidder submits a more advantageous offer. The conclusion of the sales contract as a result of the auction takes place at the moment of acceptance. If the validity of the contract depends on the fulfillment of specific requirements provided for in the Act, both the auction organizer and the auction participant whose bid was taken over may pursue the conclusion of the contract.
Submitting an offer binds the bidder to the presented offer, which means that if he wins, he must pay the declared price. In the case of the organizer, he is bound by the terms and provisions resulting from the announcement from the moment they are made available. As a rule, an offer submitted by a bidder ceases to be binding upon the submission of a more advantageous offer by another bidder, the so-called puncture. The organizer may decide otherwise in the auction conditions.
The time of concluding a contract in the auction mode, in accordance with Article 70, index 2, paragraph 2 of the Civil Code, is considered to be the moment of confirmation (the auctioneer hits the hammer, while the online service sends a message about the end of the auction along with the data of the other party to the transaction) the bid takes place when a bidder has the highest bid and no other bidder has outbid him. In such a situation, the contract is concluded between the auction organizer and the person who offered the highest price.
Pursuant to Article 70, Index 2, Paragraph 3 of the Civil Code, an appropriate form is necessary to maintain the effectiveness of the auction contract. An example is real estate auctions, which require a notarial deed in accordance with Article 158 of the Civil Code.
Moreover, the contract may be invalidated, e.g. as a result of price collusion. This is the influence of the organizers or participants on the auction result in a way that is contrary to the law or good practices. An example of an action is the collusion of bidders to increase the price of the auctioned item. In such a situation, the organizer or auction bidder may demand the invalidation of the concluded contract.
Rules for concluding a contract and the Regulations of the portal on the example of the OneBid website
The legal aspects of online auctions are highlighted in practice, using the example of one of the popular platforms for auction organizers and participants. OneBid as a website is a service provider of an internet portal as a tool for individual companies offering the sale of items in an online auction regime. According to art. 8 section 2 of the OneBid Regulations (hereinafter referred to as the Regulations), the website provides technical means enabling the participation of users and the Auction House, but does not constitute a party to the sales contract. From the perspective of a sales contract concluded as a result of an organized auction, OneBid is a software tool for the organizer. The portal operator – Service Provider also allows each user of the website to have a maximum of one Account on the Website in accordance with Art. 5 section 2 of the Regulations.
In Article 9(2) of the Regulations, the website service provider indicates the moment of concluding the sales contract between the Auction House and the bidder. This moment is the end of the auction by the auctioneer. In situations where the user cannot participate in the auction on his own, he may place a bidding order with a Limit in accordance with Art. 9 section 5 of the Regulations.
To be able to take advantage of auction house bidding via OneBid, you must register an account as a participant in accordance with the Regulations, and then sign up for each individual auction in which you want to participate as a participant. In practice, the functionality of the portal provides two levels of verification of the portal user: 1/ the first phase is general registration with user data; this stage basically serves to verify the participant for the purposes of financial settlements of the parties; 2/ the second phase is active registration for a specific auction organized by a specific auction house, which requires active consent to sign up for the auction and approval of specific auction regulations. Therefore, from the perspective of civil law, the second phase is crucial for assessing the expression of informed consent to participate in a legal act generating possible consequences of concluding a contract.
Therefore, in addition to the Regulations of the Website, there are regulations of individual Auction Houses (organizers of individual auctions on the Website platform), which must be known to users for proper, safe and lawful participation. For example, one of the art galleries in Krakow, whose auctions appear on the OneBid website , in accordance with the Regulations, introduces additional safeguards against possible violations of the law. Pursuant to Art. 4.4 of the Regulations, the Auction House may make a person’s participation in the auction conditional on verifying his or her identity based on identity documents.
The issue of not knowing the identity of other participants in the online auction
Online auction websites often lack information about bidding participants (bidders), and information about a possible overbid appears through the annotation “Internet” or “overbid”. The lack of a list of users and their data may cause the bidder to have doubts about other “participants” taking part in the auction. If the other bidding participant is not known, there is certainty that the person responsible for the overbidding is not the Auction House itself or another bidder, and there is no price collusion or artificial price inflating.
According to Article 70, index 2 par 1 of the Civil Code, “An offer submitted during the auction ceases to be binding when another auction participant (bidder) has submitted a more advantageous offer, unless the auction conditions stipulate otherwise.” In order for the concluded contract to have legal effect and to be free from defects that could lead to its invalidation, there must be another real participant in the bidding (not the so-called multi-user accounts or an additional account of the Auction House). The user does not have tools to control the “truthfulness” of the accounts and bases his belief only on the presumption of truthfulness. The Website and the Auction House have the ability to control the participants taking part in the auction. In accordance with the Regulations of OneBid, the Website allows the user to create only one account assigned to one person. Moreover, the regulations of auction houses often provide that they have the right to verify the identity of their participants taking part in the auction.
The question about the need to be able to check whether websites or auction houses are not operating via an additional account is absolutely justified in legal terms. Since such an action may increase the price of the good that will be purchased, such an action would constitute an act of unfair competition under Article 3 of the Act of April 16, 1993 on combating unfair competition (uniform text: Journal of Laws of 2022, item 1233). Moreover, such activities meet the requirements of Art. 286 paragraph 1 of the Act of June 6, 1997, Criminal Code (uniform text: Journal of Laws of 2024, item 17). An auction that resulted in the conclusion of a sales contract in violation of the law, in accordance with Art. 70, index 5 of the Civil Code may constitute grounds for invalidating the contract.
Moreover, in a hypothetical situation in which the auction house inflates auction prices and then wins the auctions by offering the highest price, there is a defect in the legal transaction due to the lack of bilaterality in the sales contract. Pursuant to Article 535 of the Civil Code, the parties to the sales contract are the seller and the buyer with an obligation to provide mutual services. From the perspective of the above-mentioned basic provision of the sales contract, it is not possible for the auction organizer to perform a legal act such as a sales contract with himself.
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Regardless of the legal problems mentioned above, there are negative legal consequences of using functional loopholes of the auction portal regarding the participant’s lack of knowledge about the identity of competitors’ offers (the participant simply receives information that his offer is the highest, or the item has no willing participant, or that the participant’s bid was outbid by another participant active in the network (slot status: “Internet”)), any functional deficiencies of the auction programs do not seem to affect the correctness of the transaction in terms of the rules for concluding a contract under the auction regulations. The lack of insight into the current identity of the competitive offer compensates a register of the activity of all participants of a given auction. The participant always receives a full report on all his/her activities on the portal and this data objectively documents:
1/ participant’s participation in a specific auction;
2/ the number of participant’s offers that did not win in a specific auction because they were outbid by competitors’ offers – other participants.
The advantage is, first of all, the special emphasis of the functionality of online platforms (software) such as OneBid on conscious and independent submission of a declaration of will with a specific offer. This goal is to be met by:
1/ the first phase of registration to the software platform portal described above, which verifies the identity of each participant.
To participate in the auction, you must be logged in to your account. Otherwise, it is not possible to click on the bar with the bidding offer during the auction; without logging in, you can only passively follow the auction.
2/ informed consent to participate in a specific auction by completing an electronic form for voluntary participation in a specific auction (so-called “subscription to the auction”).
It is not possible to submit a specific offer without going through the procedure of signing up for the auction; without a subscription to participate in the auction, the bidding bar is inactive.
The above goal is reinforced by additional technical security measures for a given auction, the activation of which requires conscious activity:
1/ items are auctioned ONLY in turn, and each item has its own number; auctioning of item number 20, for example, takes place only after the procedure for all previous 19 items has been carried out; the auction takes place at an undeterminable time; the specified time is only the starting point; Typically, auctions of 500 items last several hours.
2/ for a specific item, the bar: “BID”, which is a button in the interface, when hovered over and clicked, constitutes an offer, it is initially covered with a lock, which must be moved with a mechanical movement of the computer mouse to reveal the bar for bidding – COVER OF THE “BID” BAR IT IS THE LAST SECURITY, because after activating the “I bid” button, clicking on the button practically means a legally binding bid for the item being auctioned; the obligation can only be released by another participant who, during the next 3-stage round, clicks the “bid” button on his/her interface and submits a higher bid;
3/ you do not have to participate in the entire auction to bid on one item; To bid on an item, you generally must be logged in online.
Each auction participant has three separate chances to make a decision:
1/ The first lasting a few seconds at most – GREEN COLOR indicating that there will be two chances to make a decision in the future;
2/ The second 4-second one marked in YELLOW, indicating that this is the penultimate chance to make a decision by clicking the “BID” bar;
3/ Third 3 seconds lasting COLOR RED, which signals that this is the last chance.
The functionality of the portal does not allow submitting an offer with any amount; it is always the amount of the increment (increments of EUR 50); when several participants compete, the participant who outbids his predecessor receives a clear message that his BID IS THE HIGHEST; in turn, other participants who previously submitted lower bids receive a clear RED MESSAGE that the participant’s bid has been outbid and one of the participants has bid higher;
After completing the procedure for a given slot, the participant receives a clear message whether he or she bid for the item or whether his or her bid was lower; regardless of the bids, the final bid always goes through 3 full chances to change the price, and after one of the participants clicks “I bid”, the next price threshold goes through 3 more chances – if there is no higher bid, the auction ends with a high bid and a signal sound.
The above shows that the platform interface functionality has a history of each participant’s movement. However, the use of this data concerns the protection of sensitive data and is beyond the scope of this issue. However, the impact of the functionality of international online platforms on the validity of the concluded sales contract depends primarily on the local substantive law of the auction organizer. Under Polish law, such a solution in which the participant does not see the offers of other specific participants in real time should be assessed as neutral due to the history register of all activities of the auction participants, which allows for the reconstruction of the entire activity and the participation of individual participant accounts in it.
