In Auction Sales where the Seller Expressly Reserves Right To Approve The High Bid, the Fall of Auctioneer's Hammer Merely Ends the Bidding and an Enforceable Contract is not Formed

The Court of Appeal of Georgia held in Cuba v. Hudson & Marshall, 213 Ga. App. 639 (Ga. Ct. App. 1994) that the fall of the auctioneer's hammer merely ends the bidding in an auction where the seller reserves the right to approve high bid.  An enforceable contract is not formed in such cases.  

This case involved an auction sale of real property conducted by the auctioneers on behalf of a Resolution Trust Corporation (“RTC”). Defendant auctioneers, Marshall Inc. (“Defendants”) had prepared an auction brochure that listed and described RTC properties to be sold. Some of these properties were to be sold ‘with reserve’ and some ’without reserve.’ One of the terms in brochure stated “for the property being sold 'With Reserve,' the highest bid is subject to the approval of the seller." At the auction sale, Defendants made introductory remark that all the properties with reserve are actively bid and also pointed out to the audience that the terms of the auction were set forth on the back cover of the brochure. Then Defendants held up a brochure and showed the audience exactly where the terms and conditions were and then said they would abide by those terms. 

CUBA, the Plaintiff (“Plaintiff”) was the highest bidder for Property No. 230.  However RTC rejected the Plaintiff’s bid. Consequently, Plaintiff sued the Defendants for damages.  But the trial court granted Defendants’ motion for summary judgment. This appeal followed.  

Plaintiffs contended that a contract for the sale of Property No. 230 was formed at the time the auctioneer's hammer fell, and Defendant auctioneers are liable for the breach of that contract. Cuba. 213 Ga. App. 639 

The Georgia Court of Appeals observed that, generally, even if an auction is with reserve (and all auctions are presumed to be with reserve unless they are expressly stated to be without reserve), the seller must exercise his right to withdraw the property from sale before the auctioneer accepts the high bid by letting his hammer fall; immediately after the hammer falls, an irrevocable contract is formed. Id. at 639-640. The court pointed out that, at the same time, the seller has the right to establish any terms and conditions for the sale he wishes, and where the seller explicitly reserves the right to reject any bid made, the contract for sale is not formed until the seller actually accepts the bid. Id. (Internal citation omitted)

To reconcile the present case, the Court of Appeals recognized the other courts decision and found that there is a distinction between auctions which are merely conducted with reserve and those, in which the seller explicitly reserves the right to approve, confirm or reject the high bid. Id. Where the seller explicitly reserves the right to reject or approve, the auctioneer is without authority to accept for the seller. Thus, the fall of the hammer in such auctions merely ends the bidding, and no contract is formed until the seller actually accepts the high bid.  Id. (Internal citation omitted).    

The Court observed that in this case, the seller explicitly reserved the right to reject or approve the high bid in the brochure and the Defendants’ “assurance" that all properties would be sold as long as the bidding was active did not modify this reservation since it was immediately followed by the announcement of another speaker who called the bidders' attention to the terms in the brochure and stated that "we will abide by those terms." Accordingly, the fall of the auctioneer's hammer merely ended the bidding and no enforceable contract was formed. Id

The court further noted that even if there were an enforceable contract for the sale of particular parcel of the property, Plaintiffs' remedy would be against RTC because Defendants are mere agents of a disclosed principal, the RTC in this case.  Defendants would not be liable for the principal's breach of contract because it is clear that RTC controlled the disposition of the property and it cannot be disputed that RTC's role was disclosed. Id at 640-641.

The appellate court stated that, an auctioneer is presumed to have authority to accept the high bid on behalf of the seller if the property is not withdrawn before the hammer falls.  However, that presumption may be invalidated if the seller expressly reserves the right to approve the high bid itself. In this case, the written terms and conditions in the brochure (and the post-assurance announcement calling attention to those terms and conditions) rebutted the presumption that the Defendant auctioneer had authority to accept a bid and form a binding contract without the seller's approval. Therefore, the court found that there was no warranty of authority to sell on the part of the Defendant. Therefore, there could be no breach of such a warranty. Id.