An Auction Advertisement Which States That The Goods will be Offered to the Highest Bidder Does not Indicate That the Auction is “Without Reserve”

The Court of Appeals of Texas in Specialty Maintenance & Constr. v. Rosen Sys., 790 S.W.2d 835 (Tex. App. 1990) held that a statement in an auction advertisement which states that the goods will be offered "to the highest bidder," does not mean that the auction that will be conducted would be an auction “without reserve.”  In this case, the Appellant construction company (“Appellant”) brought an action against Appellee corporation alleging deceptive advertising for an auction under Deceptive Trade Practices Act.  The Appellant alleged that the Appellee advertised an auction sale with the intent not to sell the goods as advertised.

The Appellee, Rosen Systems, Inc. conducted an auction of new and used heavy machinery and   mailed an advertisement about the auction to Appellant. The advertisement stated that certain machines have minimum opening bids which are set out in the brochure and all other machinery will be sold without minimum to the highest bidder.  Everything was offered on as-is, where-is basis without warranty or guarantee. Appellant Specialty Maintenance & Construction, Inc. bid on a 84-inch vertical boring mill at the auction. Appellee rejected the bid because it was too low. Appellant sued Appellee alleging that the Appellee violated the Deceptive Trade Practices Act by advertising goods for auction with intent not to sell them as advertised.  The District Court granted in favor of Appellee a take-nothing judgment.  The Plaintiff Appellant’s appeal followed.  

The Court of Appeals referred to the Texas law dealing with sale by auction.  The Court noted that, section 2.328 (c) of the Texas Business and Commerce Code states that an auction sale in Texas is generally considered to be “with reserve” unless the goods are in explicit terms put up as “without reserve.”   The section more specifically reads as below: 

§ 2.328.  Sale by Auction

(c)Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time . . . 

Id. at 837.  Tex. Bus. & Com. Code Ann. § 2.328 (c)(Tex. UCC)(Vernon 1968)

The Court also noted that Comment 2 to this section states:

2. An auction "with reserve" is the normal procedure . . .

Id. TEX. BUS. & CON. CODE ANN. § 2.328(c) comment 2 (Tex. UCC) (Vernon 1968).

The Court stated that, in a "without reserve" sale, the auctioneer must sell to the highest bidder. If the sale is "with reserve," the auctioneer may reject the highest bid and refuse to sell. Id. ( citing Intertex, Inc. v. Cowden, 728 S.W.2d 813, 818 (Tex. App. -- Houston [1st Dist.] 1986, no writ)). The Court noted that, auction advertisements which state that the goods will be offered "to the highest bidder," do not mean that the auction that will be conducted is an auction “without reserve.” Id. See Drew v. John Deere Co. of Syracuse, 19 A.D. 2d 308, 241 N.Y.S.2d 267, 270 [**7] (1963); see also Sly v. First Nat'l Bank of Scottsboro, 387 So.2d 198, 200 (Ala. 1980).  

The Court further stated that such statements are considered only preliminary negotiation. Id.  

They do not create any legal relations between the bidder and seller. Id.   So, sellers may still reject bids, and bidders may still withdraw them. Id.  Drew, 241 N.Y.S. 2d at 270.  

After analyzing the facts of the case and the law in Texas, the Court found that although the Appellee’s advertisement could be very misleading, the jury could have found it was not intended to mislead Appellant. Id. at 838-39. The Court stated that the jury could have reasonably assumed that an experienced auction buyer, like Appellant, would know the law and customs of the trade and thus would assume the auction was with reserve. Id. at 839.   Therefore, the Court concluded that although the brochure was potentially highly misleading, the jury could have found it was not intended to mislead this particular Appellant, given the Appellant’s background in the auction industry.  The Court of Appeals affirmed the judgment of trial court. Id.