Under Alabama law, an Auction Sale is Generally Considered “With Reserve” Unless Goods are Explicitly put up “Without Reserve”

The Supreme Court of Alabama in Sly v. First Nat'l Bank, 387 So. 2d 198, 200 (Ala. 1980) held that, in Alabama, an auction is generally with reserve unless the goods are explicitly put up without reserve.  The Court stated that, in such auctions, the bidder is the offeror.  Therefore, the seller can accept or reject any bid, or withdraw the good from the auction unless he explicitly undertakes the auction to be without reserve. 

In this case, First National Bank of Scottsboro (“Defendant”) posted public notice to sell certain repossessed collateral. The bank advertised that the sale would be "at public outcry to the highest, best and last bidder." Dona Sly (“Plaintiff”) attended the auction and was the highest bidder on a 1973 Chevrolet Monte Carlo.  However, the auctioneer, a bank employee, informed the plaintiff that the bank superior might need to accept and approve the bid.  The Defendant later refused to sell the car.  The Plaintiff brought suit against the First National Bank alleging fraud and breach of contract. 

Interrogatories answered by the defendant bank indicated the bank withdrew the car from the auction. In contrast, testimony at trial revealed the Defendant bank itself bid five dollars higher than the Plaintiff’s bid. According to the testimony, the Defendant bid after the Plaintiff left and the public auction was completed.

According to § 7-2-328(3) of the Alabama Code, all auctions are with reserve unless goods are explicitly put up without reserve. Id. at 200.   The Court stated that this rule reflects the logic that an auctioneer is not the offeror. Id.  Instead, it is presumed that the bidder is the offeror in an auction sale. Id.   The Court noted that a seller is not normally bound by bids unsatisfactory to him. Id.  A bidder cannot impose a contract on the seller. Therefore, the seller may reasonably be expected to withdraw the goods or to accept or reject any bid, unless he explicitly undertakes the auction without reserve. Id. 

Based on the above law, the Court found that because (under § 7-2-328(3)), Plaintiffs' bid was the offer; Defendant was free to accept or reject Plaintiffs' bid. Id.  The Court stated that a contract comes into place only after the Defendant accepts the bid. Id.  There existed no contract until the bid is accepted. Id.  In the case at hand, the Defendant never accepted Plaintiff’s bid. Id.   Therefore, the Court found that there was no breach of contract unless there was previously an offer and acceptance. Id.  The Court affirmed the trial court's judgment in Defendant bank’s favor. Id.