In an Auction Sale, if the Seller Reserves the Right to Approve the high bid, a Contract is Formed only after the Seller Approves the Bid

The Court of Appeals of Kansas in Money v. Fort Hays State Univ. Endowment Ass'n, 31 Kan. App. 2d 322 (2003) held that, if the seller in an auction sale reserves the right to reject or approve the high bid, an auction sale is not consummated until the seller approves/accepts the bid.  When there is no approval on seller’s part, no contract is formed.  The Court further held that the seller has the right to prescribe, within reasonable limits, the terms and conditions of an auction sale.  Bidders/purchasers are bound by the terms and conditions announced by an auctioneer, irrespective of whether they heard it or not.  They are deemed to be bound by the terms even if they were not present at the time of announcement.

This case involved an auction of real property in which the highest successful bidder sued the owners for specific performance.  Fort Hays State University Endowment Association (“Seller”) advertised an auction for the sale of two tracts of real property that it owned.  The auction advertisement included a written statement which contained the following note: "Announcements made day of sale shall take precedence over printed material." Additionally, Schedule B of the title insurance commitment issued for the auction provided in pertinent part that at a meeting organized in relation to the auction sale, the majority of members shall instruct the trustees/directors to convey the property (describing the property) and to execute related papers.  Mike and Douglas Money (“Buyers”), the bidders, reviewed the advertisement and the Schedule prior to the auction.  They were the highest successful bidders on the tracts of land and each executed an agreement for warranty deed provided by the Seller.  However, the agreement for warranty deed did not contain any provision which stated that the sales were subject to approval by the Executive Committee of the governing board of the seller.  The Buyers were prepared to proceed with the sales but the Seller’s Executive
Committee did not approve the transactions.  Consequently, Buyers sought specific performance of the relevant sales agreement arguing that agreements were unambiguous and enforceable as written.

Sellers in response argued that the failure to include the condition of Executive Committee approval meant the agreements were not integrated.  Therefore, the delivery was conditional and the Executive Committee’s rejection made the agreement unenforceable.  They further contended that the auctioneer announced, both before and during the auction that the sale of the real estate was subject to Executive Committee’s approval.   The trial court found that the agreements were clear and unambiguous and granted summary judgment in favor of Sellers. Buyers appealed. 

The Kansas Court of Appeals stated that the general rule regarding terms and conditions of sale is that the owner of property sold at auction "has the right to prescribe, within reasonable limits, the manner, conditions, and terms of sale. Usually the auctioneer, at the time and place appointed for the auction, announces these terms and conditions which, when so announced, are generally deemed to supersede all others and to bind the purchaser even though he or she did not hear or understand the announcement, or was not present at the time of the announcement and such terms were not brought to his or her actual attention." Id. at 327 ( quoting 7 Am. Jur. 2d, Auctions and Auctioneers § 17, p. 372.)

This Court referred to the case, Johnson v. Haynes, 532 S.W.2d 561, 565 (Tenn. App. 1975) in which the court held that, if the announced terms of an auction sale include owner's right to reject bids, that condition is binding on all bidders irrespective of whether they hear it or not. Id. Another case that the Court referred to was, Cuba v. Hudson & Marshall, 213 Ga. App. 639, 640, 445 S.E.2d 386 (1994) in which the court held that the seller has right to establish any terms or conditions for sale.  In cases where seller reserves the right to reject or approve any bid, an auction sale contract is not formed until seller actually accepts high bid, despite fall of hammer. Id.

The Court observed that, in this case, the brochure note which stated that the auction day announcements would take precedence over any printed material was consistent with the general rule. Id. The Court added that the auction day announcements put the Buyers at least on constructive notice of the condition of Executive Committee approval, and the title commitment confirmed that requirement for a final sale. Id. Based on the facts, the Court found that the sale was clearly subject to approval. Id.  Because the Seller’s Executive Committee did not approve the bid, there was no sale and hence the Seller was entitled to judgment as a matter of law in both cases. Id. See East v. Brown, 1999 OK CIV APP 68, 986 P.2d 523, 525 (Okla. App. 1999), cert. denied June 15, 1999 (affirming trial court finding that sale never consummated; seller rejected bid in accordance with announcement that sale subject to seller's approval). Id.

The Court affirmed the trial court’s judgment.  Id.