In an Auction sale where the owner Reserves the Right to Reject a bid and the Auctioneer has Announced that the sale is Subject to Owner's Confirmation, a binding Contract for Sale is formed only after the Owner Accepts the Bid

The Tennessee Court Of Appeals in Cunningham v. Lester, 138 S.W.3d 877 (Tenn. Ct. App. 2003) held that in auction sales where the auctioneer has announced that the sale is subject to owner’s confirmation, the fall of hammer does not conclude the sale.  The sale is finalized and a binding contract is formed only after the owner accepts the bid and confirms the sale. 
 
This case relates to a dispute arising from the auction sale of a real property.  Terry Lester and Gayla Lester, collectively known as “Lesters” (“Appellees ”) are the owners of the real property in Bedford County.  Appellees contracted with Bob Parks Auction Company (“BPAC”) to conduct an auction sale of several parcels of their land.  During auction (before the commencement of auction proceedings), John Higgins ( Mr. Higgins) , the principal auctioneer , announced that the auction sale is “with reserve “and the final bids are to be confirmed by Appellees.
 
Bobby Cunningham (“Appellant”) was the successful bidder at auction on tracts four and five of the property.  A contract for the sale of these lots was signed by the Appellant, Mr. Lester and Mr. Higgins on behalf of BPAC (“Contract A”).  The Appellant also entered into an agreement with Mr. Neal, the highest bidder on tract three and took over Mr. Neal’s bid.  Later, a contract for tract three was signed by Appellant and Mr. Lester not by Mrs. Lester or Mr. Higgins (“Contract B”).  The Appellant paid the earnest money to Mr. Higgins.  However, the Appellees later refused to close the contract. 
 
The Appellant moved to the court and filed a complaint for specific performance of contract.  the trial court awarded specific performance of Contract A but denied specific performance with respect to Contract B.  This appeal followed. 
 
On appeal, the Appellant contended that the trial court erred by distinguishing between Contract A and Contract B simply on the ground that: Contract A was signed by Mr. Lester and Mr. Higgins, as agent for Mrs. Lester; whereas, Contract B was not signed by Mrs. Lester or her agent. Id. at 880.  The Appellant asserted that the contract between Appellees and BPAC was sufficient to satisfy the statute of frauds. Id.  Also, the Appellant stated that Mrs. Lester orally acknowledged the sale of tract three, and that her refusal to sell is not an exercise of her right to reserve but an attempt to rescind the contract. Id. 

The Court noted that the auctioneer, Mr. Higgins had announced before the start of auction that the property to be sold at auction was offered ‘with reserve,’ and that bids would be subject to confirmation by Appellee. Id. at 881.  Therefore, the Appellant’s bid in this case was simply an offer to purchase subject to Appellees' confirmation or refusal. Id. (citing Moore v. Berry, 40 Tenn. App. 1, 288 S.W.2d 465, 468 (Tenn. Ct. App. 1955)).  In auction sales where the right to reject bids is reserved by the seller, the fall of hammer does not constitute a final sale.  In such cases, the sale is completed only after the seller’s confirmation of the bid. Id.  The conditions announced at an auction sale are binding on the bidder.  In the present case, there was no acceptance of Appellant’s bid until it was confirmed by Appellees or their agent. Id. (Internal citation omitted). 

Appellant also argued that Mrs. Lester orally accepted his offer, and her refusal amounts to an effort to rescind the contract. Court stated this argument must fail under the statute of frauds. Id.  The statute of frauds may be satisfied by a group of writings which, although not all signed by the person to be charged, together express with certainty the essential terms of the contract. Id. The court must be able to determine the essential elements of the contract without the use of parol evidence. Id.

The Court noted that the writings in evidence in this case are mainly the signed contract between Appellee and BPAC and the advertising brochure describing the property and announcing the auction. Id.  These do not reflect any agreement by Mrs. Lester to confirm Appellant’s bid. Thus the court cannot determine acceptance of Appellant’s offer to purchase without resort to parol evidence.  The parol evidence is also ambiguous in this case.  Therefore, the contract for the sale of tract three is unenforceable pursuant to the statute of frauds. Id.

In light of the foregoing, the court affirmed the judgment of the trial court refusing specific performance of the contract (Contract B) for sale of tract three.