In Hawaii, "thirty day money back guarantee" offered in a competitive bidding sale does not take the sale outside the definition of “Auction”

The Supreme Court of Hawaii in Hawaii Jewelers Asso. v. Fine Arts Gallery, 51 Haw. 502 (Haw. 1970) held that a competitive bidding sale conducted by an Art gallery which gave the purchasers a "thirty day money back guarantee," an option to return the goods purchased at the sale for any or no reason did not prevent the title from passing to the purchaser.  Such a sale constituted an auction and had to meet the requirements of auction laws in Hawaii.  The Court held that an auction is a public sale by competitive bidding where the seller invites and excites competition and disposes property to the highest bidder. 

In this case, Fine Arts Gallery, Inc., (“Defendant”) commenced business in Hawaii.  It advertised its business as "auction" and gave notice of "auction" to the public by bulkmail. Also there were several signs reading "auction" at the premises.  Hawaii Jewelers Association (“Plaintiff”), an unincorporated trade association, filed a suit against the Defendant and Stanton M. Bier, as principal stockholder and "auctioneer," (collectively “Defendants”) to enjoin the Defendants from conducting a public auction.  Plaintiff alleged that Defendants engaged in the business of auction without: a) obtaining a license as required by HRS § 445-7; b) designating a public auction room as required by HRS § 445-29; and c) obtaining a bond as required by HRS § 445-31.

Initially, the trial court found that the Defendants were not conducting an auction within the meaning of HRS §§ 445-21 to 38 but they were conducting a "mock auction," and issued a preliminary injunction. Id. at 503.  Subsequently, after a hearing, the preliminary injunction was made permanent and a final order entered. Id. An appeal followed. Id.

Defendants contended that the 30 day money back guarantee that they offered on every sale took such sale outside auction. Id.  The 30 day rule appeared in newspaper advertisements and also in the seller’s catalogue. Id.  This gave the buyer a right to return any article within 30 days of sale, for any or no reason. Id. Defendants further contended that this rule postpones the transfer to purchasers of title to articles and therefore the operation was not an auction within the provisions of the Uniform Commercial Code, HRS § 490:2-328 (pertinent part of the section states that a sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. . . .). Id. at 504. Based on these facts the Defendants argued that they were not conducting an auction although the sale involved competitive bidding. Id.  

The Supreme Court of Hawaii referred to Territory v. Toyota court’s definition of auction which reads as below:
. . . a sale by competitive bids where the seller invited and excited competition and disposed of the property to the person who made the highest bid. The practice of conducting such sales 'is said to have originated with the Romans who  [**916]  gave it the descriptive name of auctio, an increase, because the offered property was sold to him who would offer the most for it.' Crandall v. State, 28 Oh. St. 479, 481. 'The essential part is the selection of a purchaser from a number of bidders,' says Bouvier after defining an auction as being 'a public sale of property to the highest bidder.

Id.(quoting Territory v. Toyota, 19 Haw. 651, 653 (1909)). 

The Court stated that § 490:2-328 of the Hawaii Revised Statute defines auction. Id.  But the definition does not mean that one cannot enter into a sales contract or an agreement of sale by way of an auction. Id.  Also, it does not preclude a sale where title to the chattel is not transferred upon the fall of the hammer but where all other incidents of an "auction" are present from the definition of auction.  Id.

However, based on the facts of this case, the Court held that in the sale involved here, title to a chattel auctioned was transferred to a successful bidder upon the fall of the hammer.  Id. at 505.  The Court stated that the Defendants and successful bidders intended that title would pass upon the fall of the hammer. Id.  After that, the purchasers could deal with the goods purchased as they pleased.  They could keep it, return it within 30 days, or sell them to third parties. Id. 

The Court found that the "thirty day money back guarantee" was either an option given to a successful bidder to return the goods and get a refund of money paid within 30 days;  or a continuing offer of Defendants to repurchase the products back within 30 days from the date of purchase. Id.  The Court added that the 30 day rule in the bidding at hand was similar to a satisfaction or money back guarantee given purchasers under a "sale or return" contract which gives the buyer an option or right to return the goods. Id. See Sommer Metalcraft Corp. v. Indianapolis Mach. Co., 132 Ind. App. 651, 179 N.E.2d 769 (1962); Concordia Fire Ins. Co. v. McCarty Motor Co., 45 S.W.2d 446 (Tex. 1932).

The Court concluded that the "thirty day money back guarantee" did not prevent or postpone the transfer of the title to chattels upon the fall of the hammer. Id. The Court held that the Defendants were conducting a public auction within the meaning of HRS §§ 445-21 through 38.  But they failed to comply with the requirements of HRS §§ 445-7, 445-29, and 445-31. Id.  Therefore, the trial court properly issued a permanent injunction under the provisions of HRS § 445-32 to enjoin defendants from conducting an auction.  Id.