Terms Present in the Solicitations for Bids Published in Advertisement or Legal Notice Prior to the Auction, and/or the Terms Modified by the Auctioneer Before Bids Are Submitted Govern Terms of a Real Estate Auction Sale Contract

In Ley Industries, Inc. v. Charleston Auctioneers, 77 Ohio App. 3d 727 (Ohio Ct. App., Van Wert County 1991), the Ohio Court of Appeals of the Third District held that, in an auction sale of real estate, the general rules of auction sales apply.  So, the auction buyer's bid, and the auctioneer's "fall of the hammer" represent the “offer" and "acceptance" that constitute essential elements of a valid contract.  And the terms presented in the solicitations for bids published in advertisement or legal notice prior to the auction, and/or the terms modified by the auctioneer before bids are submitted are considered terms attached to an auction sale contract  The Court stated that a contract is formed at the time the auctioneer accepts a bid as Seller’s Agent. 

In Ley Industries, Inc., appellee Ley Industries, Inc. (“Seller”) sold its business property at a public auction organized and conducted by appellee Charleston Auctioneers (“Auctioneer”), with appellee ERA Cagnet Will Sell, Inc. ("ERA Cagnet") serving as the real estate broker for the sale.  The Appellant was the highest successful bidder.  The Auctioneer accepted the Appellant’s bid on behalf of the seller and the parties executed a real estate purchase agreement, following which the Appellant deposited earnest money with the Auctioneer.  However, the Appellant refused to close on account of an alleged environmental report which disclosed certain problems related to the property.  The Appellant claimed that a favorable report was a condition precedent to his performance. 

Shortly, the seller filed suit against the auctioneer and broker for the deposit money.  The Auctioneer in turn filed a cross-claim against the Appellant.  Subsequently, the Appellant filed a cross-claim and a counterclaim alleging his right to void the contract due to the failed condition and seeking a return of the earnest money.  The trial court granted a summary judgment against the Appellant.  This appeal followed. 

The Court of Appeals affirmed the order granting summary judgment against the Appellant. Id. at 732.  The Court held that the general rules of auction apply to real estate auctions.  A contract between the buyer and seller is formed when an auctioneer, on seller’s behalf, accepts buyer’s bid. Id. at 731.  The Court noted that the “offer" and "acceptance" that constitute essential elements of a valid contract are represented by the auction buyer's bid, and the auctioneer's "fall of the hammer.” Id.  And the terms that govern the sale contract are the terms that are advertised in the solicitation for bids or legal notice prior to the auction. Id.  Any modification in terms made by the auctioneer before the bid is accepted also form part of the terms. Id.

The Appellant in this case, made his offer to contract on the terms that were set forth in the advertisement he received. Id. Restatement of the Law 2d, Contracts (1981), Section 28(2).  When the auctioneer accepts a bid as an agent of the seller, the contract is at that time formed. Id. See Hadley v. Clinton Cty. Importing Co. (1862), 13 Ohio St. 502, 505.

In light of the above discussion, the Court concluded that Appellant was or should have been aware of the terms when be bid and made an "offer" to contract. Id. at 732.  The Court also stated that the Appellant had sufficient opportunity to inspect and evaluate the sale property prior to the auction.  Id. The Court further stated that the Appellant’s failure to perform the contract on account of "failure of condition," is invalid because the condition relating to an EPA inspection never became part of the contract, since there was no consideration for such modification. Id.   The Court concluded that the Appellant's breach of the contract without a valid defense for repudiation warrants his loss of the earnest money deposit. Id.
 
 
,