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When if an auction is with reserve, and all auctions are presumed to be with reserve unless they are expressly stated to be without reserve, the seller must exercise his right to withdraw the property from sale before the auctioneer accepts the high bid by letting his hammer fall; immediately after the hammer falls, an irrevocable contract is formed. At the same time, however, the seller has the right to establish any terms and conditions for the sale he wishes, and where the seller explicitly reserves the right to reject any bid made, the contract for sale is not formed until the seller actually accepts the bid. There is a distinction between auctions which are merely conducted with reserve and those in which the seller explicitly reserves the right to approve, confirm or reject the high bid. Where the seller explicitly reserves the right to reject or approve, the auctioneer is without authority to accept for the seller. Thus, the fall of the hammer in such auctions merely ends the bidding, and no contract is formed until the seller actually accepts the high bid.
Defendant auctioneers conducted an auction of real estate for the trust corporation. Plaintiff bidders attended the auction and were the high bidder for a particular parcel. After the bidding was ended by the fall of the auctioneer's hammer, however, the bidders were told that the trust corporation rejected their bid. The bidders sued the auctioneers for damages. The trial court denied the bidders' motion and granted the auctioneers' motion for summary judgment. The bidders appealed, arguing that a contract was formed at the time the auctioneer’s hammer fell, and that defendant auctioneers were liable for the breach of that contract.
Was a contract formed at the time the auctioneer’s hammer fell, thereby making the auctioneers liable for damages when the seller rejected the bidders’ bid?
On appeal, the court affirmed the judgment and held that the trust corporation explicitly reserved the right to reject or approve the high bid in the brochure. The fall of the auctioneer's hammer merely ended the bidding and no enforceable contract was formed. The court found that there was no warranty of authority to sell on the part of the auctioneers; and thus, there could be no breach of such a warranty.