In an Auction “With Reserve,” the Seller and Each Bidder can Withdraw only until the Seller Signifies Acceptance of a Bid

The Appeals Court of Massachusetts in Hunt v. Rice, 25 Mass. App. Ct. 622 (Mass. App. Ct. 1988) held that in an auction with reserve, a seller or any bidder may withdraw his/her/its bid only until the seller signifies the acceptance of bid.  Acceptance may be shown by conduct, words, or a combination of the two which are reasonable in the circumstances.  This case involved an auction sale in which the sellers refused to convey estate property to highest bidders after they had accepted the buyer’s bid. 

In the instant case, the executors of Amelia Peabody (“Defendants”) decided to sell certain property that she owned by conducting an auction.  The property was to be sold by inviting sealed bids from interested parties whom the executors had previously approved. Robert B. and Katherine L. Hunt (“Plaintiffs”) submitted the highest sealed bid and were told at the bid opening that they had bought the property.  The Defendants also returned to the respective bidders their paperwork and deposits made in connection with the auction.  Also, the Defendants signed a contract that was to be sent to the Plaintiff.  However, before the contract was sent, Defendants received a higher offer and attempted to reject Plaintiff's bid.  The Plaintiffs filed an action for declaratory relief and specific performance.  The trial court found that the Defendants are legally bound to convey the said property to the Plaintiffs.  This appeal followed. 

The court affirmed the decision of the lower court, which found for plaintiffs. The court held that plaintiff's bid, which strictly followed the terms of the reserve auction, was an offer, and defendants manifested acceptance of that offer by their statement to plaintiffs at the bid opening, their discussion with plaintiffs of equipment plaintiffs might need to purchase for the property, their return of bid documents to the unsuccessful bidders, and their signatures on the written contract. The court held that delivery of the written contract was a formality rather than a condition precedent to the formation of a contract and that the statute of frauds was satisfied although the contract had not been delivered to plaintiffs.

A seller may conduct an auction "without reserve" or “with reserve.”  In an auction without reserve, the property up for sale shall go to the highest bidder. Id. at 627.  In such cases, the sale terms will be published and the only variable for the seller to consider would be the bid amount. Id. (internal citations omitted).  The Court found that the executors in this case did not chose the without reserve method.  The executor elected to invite bids, and each bid constituted an offer which the executors, as sellers, were at liberty to accept or reject. Id. ( citing Weinstein v. Green, 347 Mass. at 582). Restatement (Second) of Contracts § 28(1)(a) (1979). See 1 Corbin, Contracts § 24 (1963).  Thus, by reserving the right to reject any and all offers, the executors were conducting an auction "with reserve." Id. See Restatement (Second) of Contracts § 28 comment b (1979).

The Court stated that each bidder and the seller involved in the auction sale could withdraw until the seller signified acceptance of a bid. Id.(internal citations omitted).  The Court held that the trial court was correct in concluding that the executors manifested their acceptance of the Plaintiffs’ offer at the bid opening and reinforced their manifestations of acceptance thereafter.  The Court stated that an acceptance of an offer may be made by conduct or words, or a combination of the two, provided it is reasonable in those circumstances. Id.  Further the Court stated that, “ the content of the conduct or words should include: (1) an expression of commitment; (2) which is unconditional, i.e., does not vary the terms of the offer; and (3) which is not conditioned on a further step.” Id.  (Internal citations omitted).

The Court stated that, in this case, there was no absence of expression of commitment. Id. at 628.  By the terms of their invitation for bids, the executors had declared that offers would be considered at the time of the opening and they did so. Id.   Further, on perusing the bids, the sellers did not announce that they would further consider the bids or that the executors would negotiate with one of the offerors. Id.  Rather the executors pronounced the Plaintiffs as the winners, "Congratulations, you've bought the farm." Id.   Additionally, the Defendants banked Hunts' deposit, suggested to Mrs. Hunt that she might want to buy equipment and furnishings.  And returned to the other bidders their papers and deposit checks. Id.

The Court held that the Defendant executors manifested acceptance of the Plaintiffs’ offer by their statement to Plaintiffs at the bid opening, their discussion with Plaintiffs of equipment Plaintiffs might need to purchase for the property, their return of bid documents to the unsuccessful bidders, and their signatures on the written contract. Id.

The Court affirmed the trial court’s decision in favor of Plaintiff high bidders because once Defendant executors had by speech and conduct manifested their acceptance of Plaintiffs' offer, they did not have a choice to reject or withdraw their acceptance.  Id. The Plaintiffs could not withdraw their offer as well. Id.