Opinion
(June Term, 1829.)
1. Auction sales, particularly those made by a sheriff, under a fi. fa., are founded upon the idea of a fair competition between the bidders. And as the employment of puffers is a fraud upon the vendee, so an association of bidders, designed to stifle competition, is a fraud upon the vendor. A sale effected by such means is void even at law, and a deed executed in consequence of it conveys no title.
2. But the rule is different when the association has for its object a fair competition, and is formed because one, from the magnitude of the purchase or the like, can not bid on his own account.
EJECTMENT for a tract of land situate in Buncombe, originally commenced in that county, and removed to Rutherford.
The case was argued by Swain for the lessors of the plaintiff, (128) and by Gaston and Badger for the defendant.
FROM RUTHERFORD.
On the trial before DANIEL, J., the lessors of the plaintiff, who were William R. Smith, James M. Smith and Phillip Brittain, produced a judgment and execution thereon against one James Greenlee to the defendant, and impeached it as fraudulent.
The defendant contended that the purchase of the lessors of the plaintiff, at the sheriff's sale, was fraudulent, and relied upon his possession alone, against this defective title. To show the purchase fraudulent, the defendant proved that the land in dispute was more (127) valuable per acre than any other tract in Buncombe County; some persons estimated it at $5,000, others at $8,000, and some were as high as $10,000; that Brittain, one of the lessors of the plaintiff, was the agent of the plaintiff in the execution, and had the control of it; that the two Smiths, also lessors of the plaintiff, were men of considerable wealth, and had the command of money; that when the biddings opened, one of the Smiths bid $200; that the other Smith bid on him, as also did one other person; that then the lessors of the plaintiff went apart to themselves, and agreed that they should not bid against each other, but that one should purchase the land for the joint benefit of the three; that the land should be cried off to them, and a deed given to them for it; that the sheriff was informed of this arrangement, and instructed to consider the bid of any one of the three as the bid of all. Under this arrangement only one of the lessors of the plaintiff bid, and the land was stricken off to them at $400.
His Honor instructed the jury that if the lessors of the plaintiff, after the biddings had commenced, entered into a combination no longer to bid against each other, in consideration of an agreement that one was to make the purchase and let the others have an interest in it as partners — if in consequence of this agreement, the two persons who were to be admitted as partners desisted from bidding, and all this was known to the Sheriff before the sale was closed, and was sanctioned by him — the arrangement would be against the policy of the country and a fraud either upon the person whose property was to be sold, or upon the law regulating sales of property by the sheriff at vendue, and that any deed executed on such sale would be void.
A verdict was returned for the defendant, and the plaintiff appealed.
A sale at auction is a sale to the best bidder, its object a fair price, its means competition. Any agreement, therefore, to stifle competition is a fraud upon the principles on which the sale is founded. It not only vitiates the contract between the parties, so that they can claim nothing from each other, but also any purchase made under it, their claims against the vendor being weaker than those against each other — policy alone forbidding that the last mentioned should be enforced, but both policy and justice uniting to condemn the former. If this be the rule with regard to auctions instituted by private individuals, a fortiori should it be as to those public auctions instituted by law for great public purposes — such as execution sales, where the object is to secure the creditor, if possible, the satisfaction of his debt, and at the same time to obtain for the debtor a fair price for his property. Men may, from the very worst of motives, both towards the creditor and debtor, abstain from bidding, without incurring any legal censure. They have a right to obtain from action — they may act or not, at their pleasure, but if they do act, they must do it fairly. They cannot claim to themselves any benefit from a sale, the first principles of which they have violated, fair competition being the very essence of an auction sale. Puffing or by-bidding is a fraud on the vendee. So, on the other hand, an agreement not to bid, for the purpose of paralyzing competition, is a fraud upon the vendor, and vitiates the sale — at least so far that no party to such agreement can claim any benefit from it. I presume it is good as to those who did not participate in the agreement. I think, also, that the fraud is of such a character that it vitiates the sale at (129) law. There is no part of the transaction which should be preserved, and which, therefore, may render it more proper for the interposition of a court of equity; the transaction being totally void, so much so that even the purchase money paid cannot be recovered back.
But it should be clearly understood that it is not intended to intimate an opinion that persons may not associate together and unite in their biddings from any other cause or motive than that of destroying, stifling or paralyzing competition. Persons may unquestionably unite in their biddings under a great variety of circumstances. As where the whole article, for any reason, does not suit the individuals of the association, as being of more cost than one would wish to purchase, or, where it consists of parts, some suitable to one and some to others of the association; or where the purchase might involve a risk, which they, as individuals, are not willing to encounter, as a disputed title, or the like; or the case of a loss upon a resale, where the profits may be very great, and so may the loss; or if the association acts from motives of humanity and benevolence to some individual whom they intend to benefit, and by a joint bid equalize the burden. But it is much easier to point out cases where the rule operates than where it does not. It is confined, I think, to the cases before mentioned, where the agreement is designed to affect and does not affect fair competition, paralyzing the bidding.
I have but little doubt, from the charge of the Judge, that he entertained the same notions of the law of the case as this Court does. And his charge, as far as it goes, is correct. But I am not quite certain that the jury may not have understood that the sale was vitiated by an association for an object deemed both by the Judge below and by this Court perfectly justifiable. In other words, I fear that the charge was not sufficiently explicit, for it is by implication only that I can make it embrace the principles declared in this opinion. I am not satisfied that the case was left to the jury under the influence of these principles. I think, therefore, that there should be a new trial, (130) and I more readily assent to it because very little injury can result, as the defendant remains in possession.
The case should be left to the jury under the influence of the principles above expressed, with a caution to them to disregard the mere assertion of the parties that they united because of the disputed title, but to ascertain the real motives, if they can; and if it was to destroy or impair competition, to find for the defendant.
PER CURIAM. New Trial.
Cited: Goode v. Hawkins, 17 N.C. 397; Bailey v. Morgan, 44 N.C. 356; Whitaker v. Bond, 63 N.C. 293; Davis v. Keen, 142 N.C. 504; Henderson v. Polk, 149 N.C. 108.