A Private Auction, in Which Parties Agree to Certain Bidding terms to Select Potential Purchasers, has to be Conducted According to the Terms Agreed between the Parties

The First Judicial Department of the Appellate Division of the New York Supreme Court held in Valeo Engine Cooling v. Guy F. Atkinson Co., 240 A.D.2d 176 (N.Y. App. Div. 1st Dep't 1997) that the conventional method of selling the property to the highest bidder by receiving, competitive oral bids need not be followed when the parties involved in an auction sale agreed to conduct a private auction defining bidding terms to select a potential purchaser who submitted written bids.  In such cases the parties are bound be the agreed bidding terms. 

In this case, Atkinsons ( “Appellee”) prepared documents, which sets forth the bidding terms for the sale of the Appelee company’s subsidiary.  The bidding terms provided that, upon acceptance of an offer, Atkinson and the purchaser "will promptly execute and deliver a definite purchase agreement."  The Appellee rescinded offer of Valeo engine Cooling (“Appellants”) in favor of a higher bid allegedly submitted after the deadline for submitting offers.  Consequently, Appellants filed a complaint asserting breach of contract.  The Supreme Court of New York granted defendant seller's motion to dismiss the complaint for failure to state a cause of action insofar as it alleged breach of contract.  The Appellant challenged this decision.  The Appellee also appealed the trial court's denial of its motion to dismiss the breach of duty to hold a fair auction and unjust enrichment actions. 
The Court found that the rescission of Appellees’ acceptance was clearly inconsistent with their undertaking in the bidding terms.  Although the bidding documents reserved Appellees’ right to accept or reject any offer in its absolute discretion, there was no express reservation of a right to rescind an acceptance. 

The Court found the Appellants’ breach of contract claim viable and reinstated it.  Valeo Engine Cooling, 240 A.D.2d 177.  The Court noted that, while ordinarily an auction entails a "public sale of property to the highest bidder, conducted by receiving, competitive oral bids", once the parties agreed to a private auction to selected potential purchasers who submitted written bids, the auction had to be conducted fairly pursuant to its terms. Id.
The Court also found viable Appellants’ causes of action for breach of the duty to hold a fair auction and unjust enrichment.  The Court stated that the Appellants’ allegation that Appellees induced them into spending approximately $ 300,000 investigating and evaluating the subsidiary, and then unfairly used Appellants' offer as a "foil" to get a higher offer after Appellants' offer had been accepted is sufficient to find that the causes of action are viable.   

Therefore, the court reversed the trial court's grant of dismissal as to the buyer's breach of contract action, and affirmed the denial of the seller's motion to dismiss as to the breach of duty to hold a fair auction and unjust enrichment claims. Id. at 176