Property properly withdrawn from auction with reserve

Where the trial court ruled that appellee was entitled to specific performance, requiring appellant real estate owners to convey 31 acres of property that was offered at auction, this was error because the auction is best understood as being an auction with reserve rather than an absolute auction.

Background

Appellants, Williams and Kendrick, owned a 31.74 acre parcel. They advertised that the property would be sold at an auction. The advertisement included this term: “‘Non-refundable deposit of $5,000 in certified funds due at time of Auction with balance due in 14 days. NO financing contingencies will be allowed.’”

Prospective buyers were to contact Williams for more information. Appellee Janson contacted Williams, who did not respond. On auction day, Janson asked Williams about the auction’s terms. Williams said he would explain the conditions before the auction started. Williams told Janson nothing was in writing but there was an agreement after the sale which would be read aloud.

Janson recorded the proceedings. Before the auction, Williams told the prospective bidders, “‘All right, so we’re going to auction this off. The high bidder today will be required to pay a five thousand dollar deposit due today or at the time of the commencement of the sale. It has to be in cash and certified funds. They have fourteen days to complete the sale. There’s an agreement to be signed at the end of the sale.’

“Williams then proceeded to read the language that was included in the memorandum of sale that the ‘successful bidder’ would be required to sign.”

The auction began. Williams announced he had a $30,000 bid and asked for $40,000. Janson bid $35,000. Williams asked for a $45,000 bid. When he did not get one, he withdrew the property.

Janson confirmed that he was the high bidder at $35,000 and sued Williams and Kendrick for specific performance. The trial court ruled that the auction was an absolute auction and ordered Williams and Kendrick to convey the property to Janson. Williams and Kendrick appealed.

Argument on appeal

“On appeal, Williams and Hendrick argue that the trial court erred in categorizing the Auction as an absolute auction. According to Williams and Hendrick, neither the Advertisement nor the announcements made at the commencement of the Auction explicitly identified the Auction as an absolute auction and, therefore, the Auction remained an auction with reserve.

“Janson concedes that there was never an express statement describing the Auction as an absolute auction or an auction without reserve, but he insists that such an express statement was unnecessary.

“Rather, Janson takes the position that the proper approach is to look at whether the terms and conditions of the Auction would be reasonably understood to create an absolute auction. He contends that, under this approach, the Auction was clearly an absolute auction.

“Specifically, he relies on the fact that, prior to the auction, Williams stated that the high bidder would be required to pay $5,000 and no minimum price was ever stated. Janson also points to the language of the after-the-sale agreement that Williams read prior to the sale.”

Types of auctions

“In an auction with reserve, the owner or auctioneer invites offers from bidders and none of those offers are deemed accepted until the completion of the auction (i.e., the fall of the hammer). … As acceptance of an offer occurs with the fall of the hammer, no contract has been created between the parties until the auction is complete. Therefore, at any time prior to the fall of the hammer, the owner or the auctioneer may withdraw the property for sale. …

“In an absolute auction ‘the real or personal property to be sold will pass to the highest bidder regardless of the amount of the highest and last bid.’ … Unlike an auction with reserve, the announced terms of sale for an absolute auction ‘constitute a continuing offer by the owner, subject to acceptance by the submission of a bid.’ …

“The advertised terms of an auction dictate the type of auction that will be conducted. … By default, an auction is with reserve ‘unless expressly made otherwise.’ … (emphasis added)[.]”

Discussion

“At trial, Janson conceded that the Auction, as advertised, was an auction with reserve because the Advertisement did not state that it would be an absolute auction. He instead focuses on Williams’ announcement prior to the Auction, claiming that Williams’ statements converted the Auction to an absolute auction.

“We note, however, that only a small portion of Williams’ pre-auction announcement actually related to the terms of the Auction; the majority of the announcement involved Williams’ reading of the memorandum of sale, which he clearly indicated only applied to the ‘successful bidder.’ …

“In other words, the memorandum of sale was conditioned upon the completion of the Auction and, therefore, would not ordinarily inform the terms of the Auction itself. Thus, the only portion of Williams’ pre-auction announcement that arguably could relate to the terms of the Auction is Williams’ statement that ‘[t]he high bidder today will be required to pay a five thousand dollar deposit due today’ and his description of the time frame for completing the sale.

“Notably, Williams never explicitly stated that the Auction was absolute or without reserve during his pre-auction announcement; nor did he make any statement that limited his ability to withdraw the property from sale, reject bids or otherwise nullify the auction.

“Moreover, the overwhelming weight of authority holds that a statement indicating that the property will be sold to the high bidder is ‘a mere declaration of intention to hold an auction at which bids will be received.’”

Ruling

“[T]he trial court erred in ruling that the Auction was an absolute auction. As the Auction remained an auction with reserve, Williams was permitted to withdraw the Property at any time prior to the fall of the hammer, which he clearly did by declaring that there would be no sale.

“Therefore, no contract was formed between the parties because Williams’ declaration of no sale amounted to a rejection of Janson’s offer of $35,000 for the Property.”

Reversed and remanded.

Williams, et al. v. Janson, Record No. 210972; (Powell) Oct. 20, 2022. From the Circuit Court of the County of Mecklenburg (Gill Jr.) George A. Michak (James E. Midkiff; Michak Legal, on briefs), for appellants. Bradley D. Foster (Robert E. Hawthorne, Jr.; Derrick P. Fellows; Hawthorne & Hawthorne, on brief), for appellee. VLW 022-6-049, 8 pp.