A Contract for Sale of Real Estate is not Enforceable in Auction Sales where no Memoranda of Sale was Ever Executed with the By-bidder

The Kentucky Court of Appeals in Nicholson v. Clark, 802 S.W.2d 934 (Ky. Ct. App. 1990) held that a contract for sale of real estate is not enforceable if it does not satisfy the statute of fraud requirements.  In this case, the owner of the property filed an action to enforce an auction sale with the by-bidder (the highest bidder in the first auction sale). The Court in this case found that neither the auctioneer nor the by-bidder had signed the memorandum of sale.  Therefore, the sale of land does not satisfy the statute of fraud requirements and hence is not enforceable.   

In Nicholson , James C. Nicholson and Sarah S. Nicholson  are appellants (“Appellants”) and Kennedy H. Clark, Jr. (“By-bidder”), River Realty, Inc. D/B/A River Realty And Auction Company And Harold E. Helm, II, are appellees (collectively referred to as “ Appellees”). Appellants are co-owners of certain real property in Louisville, Kentucky.  Appellants entered into an auction listing agreement with the River Realty, Inc. d/b/a River Realty and Auction Company. River Realty is owned by the Appellee, Harold E. Helm, II, and Robert Haley.  Appellee Helm and Appellee Haley are both licensed auctioneers. Under agreement, Appellee River Realty was to advertise, promote, and auction the Appellant’s property.  A "reserve" price of $ 200,000 was established and a buyer's premium of 10% was to be paid by the buyer. The agreement provided that if the final bid did not reach or exceed the reserve price, Appellee River Realty would have a 30-day exclusive listing. It further provided that when the bidding, plus the buyer's premium, reaches $ 200,000, the auctioneer had the authority to declare that the property was to be sold at absolute auction and that there would be a new owner at the conclusion of the bidding.

At the auction, Appellee Helm’s friend, Clark was asked to attend the auction.  Clark was to place bids on the properties offered if there was no bidding by the audience in order to generate more favorable prices.  Hence Clark  played the role of a "by-bidder" or fictitious bidder who had no real intention to buy.  Appellee Haley, acting as auctioneer started the bidding at the reserve price and the By-bidder was the only bidder at that price. However, because the By-bidder did not show real interest to buy the property, the auctioneer cancelled that sale and restarted bidding. The highest bidder in the second round of bidding bid an amount below the reserve price. The Appellants did not accept the lower bid and contended that the sale to the by-bidder was enforceable.  Subsequently, Appellant filed complaint in Jefferson Circuit Court (Kentucky) against Appellees.  Appellees also filed a motion to dismiss the complaint because a memorandum of sale was not executed by any of the Appellees and no action could be brought due to the statute of Frauds.  The trial court issued an order to dismiss the complaint.  This appeal followed. 

The Appellants contended that the Statute of Frauds is not applicable in this case. Id.  at 937.

The Court in this case observed that Kentucky Revised Statute (KRS) 371.010 states in pertinent part as follows:

No action shall be brought to charge any person:
. . .

(b) Upon any contract for the sale of real estate . . . unless the promise, contract, agreement . . . or some memoranda or note thereof, be in writing by the party to be charged therewith, or by his authorized agent.
Id.

The Court found that the statute of frauds applies to sales of land at an auction and hence is applicable in this case. Id. Thus, a memorandum of sale should have been executed either by the vendors, or the auctioneer. Id. (internal citation omitted).  The Court found that no memorandum of the sale to Appellee By-bidder was ever made in this case.  Therefore any contract of sale is not enforceable. Id.  The Court affirmed the trial court’s judgment.