Phippen v. Stickney

Dewey, J. The principal question in the present case — 386 — is, whether the contract entered into by these parties is invalid in law, as contravening established principles of public policy, and injurious, in its tendency and effect, to the interests of those who may be concerned in sales at auction. This subject, in another form, came before the court of King’s Bench in the case of Bexwell v. Christie, Cowp. 395, on which occasion Lord Mansfield expressed his opinion strongly against all secret arrangements calculated to mislead and de- - ceive purchasers, or vendors, and requiring the strict observance of good faith and fair dealing, as essential to the validity of such sales. Upon this principle, the court in that case refused to sustain an action by the owner of property sold, against an auctioneer for selling the same to thé highest bidder, contrary to his instructions from the owner not to sell below a certain fixed price. Similar views were taken in the case of Howard v. Castle, 6 T. R. 642, where the owner of an estate, that was offered for sale at auction, employed puffers to bid at the auction ; and this was held to be a fraud upon the bidders, and as such sufficient to avoid the sale. These doctrines, to the extent to which they were carried by Lord Mansfield in Bexwell v. Christie, and by Lord Kenyon in Howard v. Castle, have been questioned in the cases of Conelly v. Parsons, 3 Ves. 625; Smith v. Clarke, 12 Ves. 477; and in Steele v. Ellmaker, 11 S. & R. 86; so much so, that Chancellor Kent, in his Commentaries, Vol. II. p. 529, (4th ed.) says, it seems to be the conclusion from the later cases, that the employment of a bidder by the owner would or would not be fraud, according to the circumstances of the case, as they tended to show innocence of intention or fraudulent design — suggesting, however, as his own opinion, that the doctrine of the earlier cases was the better one. Mr. Justice Story, in his Commentaries on Equity Jurisprudence, Vol. I. § 293, declares such agreement, especially in cases where the auction is one directed or required by law, to be void ; being unconscientious and against public policy, and having a tendency injuriously to affect the character and value of sales at auction, and to mislead private confidence. There are some more recent English decisions which seem strongly to — 387 — countenance the general doctrine of Bexley v. Christie and Howard v. Castle; as will be seen by a reference to the cases of Crowder v. Austin, 2 Car. & P. 208; Wheeler v. Collier, 1 Mood. & Malk. 123; and Fuller v. Abrahams, 3 Brod. & Bing. 116. S. C. 6 Moore, 316. In the case last cited, it was held that the sale might be avoided, if the purchaser prevails on the persons attending the sale to desist from bidding by reason of suggestions by way of appeal to the sympathy of the company assembled. In the American courts, there has also been some diversity of views upon this subject. The supreme court of New York have, in several reported cases, held that contracts by whicl, one party stipulated not to bid against another at an auction sale, or an agreement by one to bid for the benefit of himself and the other party, could not be enforced in a court of law. The decisions have been usually placed upon two grounds ; 1st. that such a contract was nudum pactum, being without consideration ; 2d.- that it was against public policy and a fraud on the vendor. Jones v. Caswell, 3 Johns. Cas. 29. Doolin v. Ward, 6 Johns. 194. Wilbur v. How, 8 Johns. 444. Thompson v. Davies, 13 Johns. 112. The same doctrine, as to the effect of such contracts, was held in Dudley v. Little, 2 Ham. 505, and in Piatt v. Oliver, 1 McLean, 295. The case of Gulick v. Ward, 5 Halst. 87, strongly supports the general doctrine, that such contracts cannot be enforced, as legal and valid contracts. On the other hand, there are decisions supporting the doctrine that there may be allowed in auction sales the practice of by-bidding, if it be bona fide, and for the sole purpose of preventing a sacrifice of the property offered for sale. Wolfe v. Luyster, 1 Hall, 146. Jenkins v. Hogg, 2 Const. (S. C.) Rep. 821. Chit. Con. (4th Amer. ed.) 238, note. In Smith v. Greenlee, 2 Dev. 126, the court of North Carolina, while they sustain the general doctrine that a sale might be avoided when made to one in behalf of an association of bidders designed to stifle competition, yet concede that this rule would not apply to an association of bidders formed for honest and proper purposes, as in the case of a union of several persons formed on accoun* — 388 — of the magnitude of the sale, or where the quantity offered to a single bidder exceeded the amount which individuals might wish to purchase on their own account. It seems to us, after some consideration of this question, and an examination of the adjudged cases bearing upon it, that we cannot judicially declare that every contract between two or more individuals, in which it may be stipulated that one „s to be the purchaser for the joint benefit of himself and another, and tnat the other is not to interfere with his bidding, shall, when attempted to be enforced for the benefit of the associates, be held void as a fraud upon the rights of the vendor and as against public policy, merely because he who seeks to enforce the contract may have been thereby induced to abstain from bidding. Cases may readily be imagined, and indeed are of frequent occurrence in sales of large magnitude, where two or more per-, sons do thus unite, and are thereby enabled to become purchasers, when neither of them could otherwise have participated in the bidding. By such an association as is just supposed, the interest of the vendor, as well as that of the vendees, would be directly advanced. The extent, to which the doctrine of invalidating such contracts can be safely carried, would rather seem to embrace within the rule all cases of fraudulent acts, and all combinations having for their object to stifle fair competition at the biddings, with the design of becoming the purchasers at a price less than the fair value of the property. Beyond this, the application of the principle contended for may be found productive of mischief and an unwarrantable interference with the course of business in auction sales. We are therefore of opinion, that an agreement between A. and B., that A. will permit B. to become the pur chaser of certain property about to be offered at sale at public auction, and that A. shall participate with B. in the benefits of the px^hase, will or will not be fraudulent, as the circumstances of the case show innocence of intention or a fraudulent purpose in making such agreement ; that where such arrangement is made for the purpose and with the view of preventing fair competition, and by reason of want of bidders to depress the — 389 — price of the article, offered for sale, below the fair market value, it will be illegal, and may be avoided as between the parties, as a fraud upon the rights of the vendor. But, on the other hand, if the arrangement is entered into for no such fraudulent purpose, but for the mutual convenience of the parties, as with the view of enabling them to become purchasers, each being desirous of purchasing a part of the property offered for sale, and not an entire lot, or induced by any other reasonable and honest purpose, such agreement will be valid and binding.* In the case before us, upon the facts stated, we do not feel authorized to set aside this agreement as illegal or fraudulent, upon the principles we have stated. Fraud is not to be pre sumed, where the contract is, on the face of it, consistent with honesty of purpose and fair dealing. If the defendant would avail himself of a defence of that character, it must be upon the finding of a jury, or upon a case stated by the parties clearly disclosing such fraudulent purpose. This contract might have been entered into by these parties, for good and justifiable reasons ; and it is not, therefore, to be deemed fraudulent and void upon the face of it. The only remaining objection is, that the plaintiff is not entitled to recover, because there has been no valid award made, by the three persons agreed upon by the parties, fixing the sum to be paid by the plaintiff to entitle him to a conveyance from the defendant. The objection is, that of the three arbitrators selected by the parties, two only concurred in the award. This would constitute a valid objection to an action on an award founded on a submission at common law, there being no stipulation that a majority should decide. The question arises here, however, under different circumstances ; the plaintiff founding his cause of action on the promise of the defendant to convey to him the land. In a case like the present, if it appears that the plaintiff has done all in his power to procure an award fixing the amount to be paid by him, in pursuance of the terms of the contract, we do not think that the act of any one of the persons thus selected as arbitrators, in refusing to concur with his asso — 390 — ciates in fixing the sum to be paid, should operate to divest the rights of the plaintiff arising under this contract. If the sum to be paid by the plaintiff, before he was entitled to the conveyance, could not be adjusted in the manner contemplated by the parties, and this state of things occurred without the fault of the plaintiff, the effect must be, that he must pay for the land such a sum as was reasonable, and such sum as the arbitrators ought to have awarded. The defendant has refused, on his part, to make the' conveyance to the plaintiff which he stipulated to make, and has therefore rendered himself liable in damages to the plaintiff. Footnotes [*] S. P. Smull v. Jones, 1 Watts & Serg. 128.