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murrayoncontractsOnly a few distinguished legal minds have studied auction [bid calling] contracts. Two such people are John Edward Murray Jr. (Murray) and Samuel Williston (Williston.)

Murray was a chancellor and a professor of law at Duquesne University in Pittsburgh, Pennsylvania.

He was a former dean of the University of Pittsburgh School of Law and the Villanova University School of Law, as well as a former president of Duquesne University.

Murray was famous for his treatise on contracts and sales (Murray on Contracts) which is used by law students and practicing attorneys across America; his work has been been cited in opinions by courts in numerous jurisdictions, including the Supreme Court of the United States.

Samuel_WillistonWilliston’s accomplishments included helping to formulate the state constitutions of North Dakota and South Dakota, private secretary to U.S. Supreme Court Justice Horace Gray, and Harvard Law School Professor.

He was a regarded author on contract law and treatise. Among his most known works is “Williston on Contracts,” which is still published today, as edited by Richard A. Lord.

Another noted legal scholar on auction law was Steve Proffitt (Proffitt.) He was known to quote Murray in his discussions on bid-calling contracts. Here is a segment of Proffitt’s writing citing Murray:

In his treatise, Murray On Contracts, Professor John Edward Murray, Jr. of the University of Pittsburgh School of Law does an excellent job of outlining the process of offer and acceptance in an auction. Professor Murray makes it clear that in auctions without reserve, it is the auctioneer who makes the offer to sell, and the bidder who accepts this offer.

Of further note on this important issue is a leading decision which was handed down by the Virginia Supreme Court. In 1983, the high Court in Virginia decided a landmark case on auctions. Holston v. Pennington addressed several key auction issues, and offer and acceptance was one of them. 225 Va. 551, 304 S.E.2d 287 (1983).

The Court explained the process of contract formation in an absolute auction: “[I]n the case of an auction without reserve, the announced terms of sale constitute a continuing offer by the owner, subject to acceptance by the submission of a bid. Each bid is the consummation of a contract, subject only to the receipt of a higher bid.

Thus, when the auctioneer announces the terms of the auction and brings an item to the block to be sold, she’s made “a continuing offer” on behalf of the owner to sell the item under these terms. When the auctioneer starts her chant and asks for bids, she’s asking if anyone will accept her offer to sell the item by making a bid for it. Every bid then made forms a contract, ‘subject only to the receipt of a higher bid.’

We have written extensively about bid-calling contracts. Here’s our view of how these contracts are formed: https://mikebrandlyauctioneer.wordpress.com/2009/11/21/does-bid-calling-form-contracts/. Thus, each lot or item put up for auction involves numerous contracts.

We believe that in both a with reserve and without reserve auction, the offeror is the bidder and the auctioneer/seller is the offeree, and necessarily in a without reserve auction a collateral contract is extended (offered) by the auctioneer to sell to the highest bidder — subject to receiving a bid within a reasonable time — likely what the Virginia Supreme Court was referencing.

We certainly agree with Murray, Proffitt and the Supreme Court of Virginia that bid calling forms contracts, although we submit that Holston v. Pennington is anything but remarkable. Nevertheless, here we noted that bid calling was not just numbers rolling through the air … https://mikebrandlyauctioneer.wordpress.com/2014/08/11/bid-calling-is-just-numbers/

However, does the offeror/offeree structure change commensurate with (or depend upon) the type of auction? On the contrary, as Williston wrote and held, it remains the exactly the same, and as we agree here: https://mikebrandlyauctioneer.wordpress.com/2014/09/23/are-you-offering-or-inviting-offers/.

The additional contract present in a without reserve (absolute) auction is a promise by the auctioneer/seller to sell to the highest bidder; that promise has been deemed as “The genuine intent to transfer to the highest bidder regardless of price.” We detailed that promise here: https://mikebrandlyauctioneer.wordpress.com/2015/11/27/genuine-intent-to-transfer-to-the-highest-bidder-regardless-of-price/

If an auctioneer was to consider the bidders action as acceptance, subject to a higher bid, that acceptance would be potentially valid when it left the accepting party’s “hands.” Yet, if that acceptance wasn’t received by (communicated to) the auctioneer/seller, the property could easily be sold to an ineligible bidder.

Certainly in the “auctioneer/seller is the offeror” theory, such offers could be qualified in that acceptance must be received by the auctioneer for those acceptances to be binding — but keeping the auctioneers/seller as the offeree naturally encompasses the need for notification, just as “offers” commonly require — and thus one less item for your terms & conditions and your attorney’s file.

Further, if the auctioneer/seller is considered the offeror, and has a bid of $5,000 (for example) and is “offering to sell” that lot for $5,500 … how does a bidder offer $5,250? If the bidder wants to offer, then the auctioneer/seller is the offeree, not the offeror — or does the auctioneer/seller note the offer of $5,250 and then offer to sell the lot for that? This is messy and unnecessary at best.

Williston’s proclamations and our own suggest for auctioneers, it is prudent to remember that the bidders are making offers (as offerors) and you as auctioneers are receiving (or not) those offers as the offeree; and, if you’re having an absolute auction, you are to sell that property to the highest offeror via your collateral contract.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.