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People and businesses use contracts to stay protected. Contracts are legally binding, which means the court can enforce them. The most common types of contracts are written, although contracts can be verbally formed and implied. A common mistake that people make is not realising that an online auction can be a binding contract. This article will explain in what circumstances an online auction is binding and how to identify them.

What Is an Online Auction?

An online auction is a type of auction that you undertake on the internet. They work the same way that a regular auction does. In New Zealand, Trademe is the most popular platform for online auctions. People bid on a particular product, and the highest bid at the end of the auction wins the good. However, an online auction differs from an in-person auction as a registered auctioneer does not have to auction the good in an online auction.

When Is a Contract Binding?

All contracts must meet the elements of a binding contract to be legally enforceable. This is no different for an online auction. The elements of a binding contract are:

Unequivocal Offer

When you make a bid on an item, you are sending the auctioneer an offer. This offer must be clear and has to come from you.

Correct Acceptance

If you are the highest bidder, the auctioneer must then accept your bid. They must carry this acceptance out in the same way agreed in the terms of using the auction site. For example, if the acceptance must be via email and they accept the offer by phone, the acceptance may not be binding. However, there are exceptions, such as the postal acceptance rule. This states that if you are asked to post the acceptance and instead courier it, the acceptance is still valid.

Consideration

Any contract must have consideration from both parties. Consideration is something of value that you give to one party for the promises of the other party. In the case of an auction, the consideration is the money given in exchange for whatever product you were auctioning.

Intention to Bind

There must also be an intention to bind from both parties. This means that if your child accidentally goes on your phone and bids on an item, you are not bound to pay for the item as you did not intend to be bound by auction. 

Certainty in the Terms

The terms of the online auction must also be certain. This means there is no ambiguity in the terms or anything that either party can dispute.

Is an Online Auction Binding in New Zealand?

The short answer is yes. If you have bid on an item with the expectation that you will pay for the item if you win, you will be bound by a contract and, in turn, bound to pay for the good. Therefore, you must think carefully before bidding on anything in an online auction, as you will be bound if you win. This would be the case even if you didn’t believe that you would win.

What Happens if the Product Isn’t Up to Scratch?

The Consumer Guarantees Act will protect you if the product is not up to the quality that you believed it was. However, if you buy something from a private seller, you will have to rely on other means to get your money back. This could be by claiming that the good was misrepresented or errors in the good’s description. Any actions through this must be undertaken in court through private means.

Key Takeaways

Online auctions are quickly becoming the method of choice for sellers when selling their goods on the internet. This is especially true for rare or one-off goods that can fetch a high price. An auction allows hype to build around a product and gives everyone a fair go at competing for the product. It is important to remember that you are entitled to pay for it once you enter a bid for a good if you are the highest bidder. Whether or not you thought you would win is irrelevant.  It is crucial to make sure that you can afford your bid and you are not acting in the heat of the moment. There are remedies available if the product you receive is not the one you were expecting. However, if you are buying from a private seller, these are limited. 

If you need any legal assistance with online auctions, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

How does an online auction differ from an in-person one?

The only difference is that the auction does not have to be run by a registered auctioneer. However, both types are still legally binding.

What happens if I didn’t intend to pay for the item?

Your intention must come from whether you intended to bid for the item. It does not matter if you didn’t intend to pay for it in the end.

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