In an Auction Sale, Satisfaction of a Starting bid does not Change a “With Reserve” Auction to one “Without Reserve”

The Court of Civil Appeals of Oklahoma, Third Division in Mabry v. Like, 76 P.3d 96 (Okla. Ct. App. 2003)  held that in an auction where there is a minimum starting bid, the satisfaction of the starting bid does not change an auction with reserve to one without reserve.  The starting bid is only a platform at which the bids must start, the minimum for starting bids.  Starting bids do not bind a seller to accept the highest bid above the minimum.  

In Mabry, a property was advertised for public auction with a minimum bid of $ 100,000.  The advertisement, however, did not state if the auction was one with or without reserve.  Before the bidding began, the auctioneer stated that the sale was subject to the Trustees’ confirmation, who were also present at the auction.  They also denoted that the highest and best bidder would be the one whose name went on the contract.  Kevin Like (“Like”) was high bidder at $ 136,000. When no more bids were forthcoming, the auctioneer told that the bidding was closed.  However, he did not "drop the hammer" at the close of bidding.  

Trustees had previously informed the auctioneer that the minimum they would accept for the property was $ 175,000. The auctioneer conferred with the Trustees who declined to accept the bid, and the auctioneer informed Like.  Trustees filed an action for quiet title against Like who had claimed an interest in the property.  The trial court granted summary judgment in Trsutees’ favor.  Consequently, Like sought for review before Court of Civil Appeals of Oklahoma.   

The Court observed that ‘“If an auction is with reserve, then the seller "reserves the right to approve or reject the high bid at a later time.’” Id. at 98 (quoting East v. Brown, 1999 OK CIV APP 68).  An auction is generally considered to be conducted “with reserve” unless there is an express announcement or advertisement prior to the auction that the auction sale is “without reserve.” Id. (citing Marten v. Staab, 4 Neb. App. 19).   The Court observed that, ‘“[t]here is no meeting of the minds in an auction sale until the offer of the bidder is accepted in an auction with reserves or until the high bid is made in an auction without reserves”(quoting Dry Creek Cattle Company v. Harriet Bros. Limited Partnership, 908 P.2d 399’. ) Id.  

After analyzing the facts, the Court stated that the facts show that the auction was with reserve.  Because the sellers in this case did not confirm the highest bid, no contract was formed. Id.  

The Court found that a starting bid is a floor at which bids must start. Starting bids do not bind a seller to accept the highest bid above the minimum. Id.  Also, the auctioneer’s statement that the “highest and best bidder will be the one that goes--name that goes on the contract" is insufficient to transform the auction into one without reserve. Id.  

The Court stated that, when an auctioneer presents an article for sale, he ordinarily is not making an operative offer and such an auction is with reserve. Id.  An auctioneer’s statement that the article will be sold to the highest bidder are usually 'merely preliminary negotiation, not intended and not reasonably understood to be intended to affect legal relations.' Id. 

The Court observed that, “where the auction has not been announced to be without reserve, the sale contract is consummated by the offer of the bidder to buy and the acceptance of the bid by the seller.” Id. (quoting Pitchfork Ranch Company v. The Bar TL).  

The Court concluded that the fact that the bidder in question was the high bidder above the starting bid and his willingness to have his offer, did not force an acceptance on the seller’s part in with reserve auctions. Id.  No contract was formed in this case because the seller did not accept the bid. Id. Where the auction had not been announced to be without reserve, the sale contract was consummated by the offer of the bidder to buy and the acceptance of the bid by the seller. Id.  The appellate court affirmed the trial court’s judgment. Id.