Pyles v. Goller

FISCHER, Judge. Mr. Norris Pyles and Mr. Charles Dudley Reed (Pyles and Reed collectively) appeal from an order of the Circuit Court for St. Mary’s County (Briscoe, J.) that directed Pyles and Reed to convey a plot of land to Dr. Herbert Goller (Goller). Goller sued Pyles and Reed for specific performance and damages for fraud relating to an auction of real estate owned by Pyles and Reed. Upon a motion by Goller, the circuit court severed the two claims and conducted a bench trial on the specific performance count.

After the circuit court ordered specific performance for Goller, it granted Goller’s motion to dismiss the remaining fraud count. 1 Pyles and Reed present the following issue for our review, which has been reworded, clarified, and condensed: ⁷⁵ I. Did the circuit court err by granting Goller’s claim for specific performance for the sale of land between Goller and Pyles and Reed? FACTS Pyles and Reed owned a plot of land in St. Mary’s County, known as Parlett Farm West (Parlett), as tenants in common. In 1990, they contracted with William Fitzgerald (Fitzgerald), of W.J. Fitzgerald Auctioneers & Co., to sell eleven lots of the Parlett property at public auction. 2 ⁷⁶ Fitzgerald advertised the auction in the Washington Post. The advertisement: (1) stated that the auction would be an “Absolute Auction” and there would be “No Mínimums;” (2) stated that the auction would be held on October 27,1990; and (3) contained a description of the property and the terms of the sale.

An advertisement in an issue of “Homes and Land of Southern Maryland” contained much of the same information as the Washington Post advertisement, except that it included that only two of the lots would be sold “without reserve.” A pamphlet prepared by Fitzgerald, and sent to Goller, announced that the action would be held by the “High Bidder’s Choice Method.” The pamphlet stated that: [A] High Bidder Choice Method means the successful bidder has there [sic] choice of any one of the properties being offered. That Parcel is set aside and the properties that are remaining will be the one offered in the same manner until no properties are left. The pamphlet also included the following terms and procedures with respect to the auction: A cashier’s check or certified check in the amount of $5,000 will be required in order to bid for each lot you intend to buy. Term of Sale: At time and place of sale, the purchaser will be required to make a deposit of $5,000 for each lot purchased, payable in cash or certified check---- Two Lots to be determined at the time and place of auction will be sold absolute to the highest bidder, regardless of price.

No mínimums, no reserves. ⁷⁷ The final high bid on all remaining lots will be irrevocable by the buyer and subject to confirmation by the seller within 48 hours.... It is unclear from the record how strictly Fitzgerald adhered to the registration procedures for the auction. The printed materials required a $5,000 deposit in order to bid on a lot. Under this procedure, once the $5,000 check was filed with or verified by Fitzgerald, he would give the bidder a bidder’s card, which would enable a person to bid at the auction.

During direct examination, however, Fitzgerald testified that the $5,000 check was not a requirement to get on the buyer’s registration list. On October 27, 1990, the day of the auction, only two people registered for the auction; Goller and an unknown bidder. Prior to the start of the auction, Pyles and Reed told Fitzgerald that they were considering bidding on the lots. Fitzgerald testified that he had reservations about letting Pyles and Reed bid on the property, because it was his understanding that “[at] an absolute auction, the owner does not have the ability to bid on his own property.” Fitzgerald testified that he relayed this information to Goller during a private conversation.

Goller, in turn, testified that Fitzgerald told him “that I think that the owners are going to bid on it [the property].” Before starting the auction, Fitzgerald made, in part, the following announcement to the participants: We will have high bidder’s choice today. That is where the high bidder wins the right to choose a lot. After the high bidder picks, the lot is set aside and a second round of bidding starts with a high bidder in this round choosing a lot. This is then set aside and so on until all lots are sold.

The owner will then choose, within 48 hours, the lot to be sold absolute---- At no time did Fitzgerald announce that Pyles and Reed were going to bid on the Parlett lots. ⁷⁸ Fitzgerald started the auction and Goller was the highest and only bidder during the first round. He bid $25,000 and selected lot No. 7. Mr. Pyles was the highest bidder in the second round with a bid of $26,000, and selected lot No. 9. Mr. Reed was the highest bidder in the third round, with a sum of $26,000.

He selected lot No. 12. Both Pyles and Reed bid even though they did not present a $5,000 cashier’s check to Fitzgerald. The unknown party was the highest bidder in the fourth round with a bid of $25,000, and he selected lot No. 4. The auction ended after the fourth round. 3 At the conclusion of the auction, Pyles and Reed informed Fitzgerald that they were going to accept their two bids on lots No. 9 and No. 12.

They rejected Goller’s bid on lot No. 7. At trial, Mr. Pyles testified that one of the reasons Pyles and Reed did not accept Goller’s bid was that the bid did not equal what Pyles and Reed owed on the lot. After Fitzgerald informed Goller that his bid was rejected, Goller asked the identity of the “new” owners of the two lots. Fitzgerald informed Goller that Pyles and Reed bought the two lots.

Goller became very upset because he was under the impression that the owners were not allowed to bid. After Goller left, Pyles and Reed paid their $5,000 deposit, and eventually executed their contracts of sale, went to settlement, and paid Fitzgerald his commission. 4 ⁷⁹ Following his rebuff at the auction, Goller filed suit in the circuit court for specific performance and damages for fraud relating to the auction. After a motion for a jury trial, the circuit court severed the two claims. The specific performance claim, because it was based in equity, was tried before the trial judge.

After the testimony, the circuit court ordered Pyles and Reed to convey lot No. 7 to Goller. Following the order for specific performance, the trial judge granted Goller’s motion to dismiss the fraud claim. Pyles and Reed filed this timely appeal to contest the order for specific performance. DISCUSSION This case requires us to examine several aspects of contract law, previously not clarified by this Court or the Court of Appeals.

The law related to sale of property at an auction is a legal anomaly. Various treatises describe the controlling legal principles at length and are, for the most part, in harmony. Little of this law, however, has made its way into the case law. Many state and federal courts, therefore, have relied on the treatises’ persuasive authority for auction questions.

E.g., Nicholson v. Clark, 802 S.W.2d 934 (Ky.Ct.App.1990), cert. denied, 802 S.W.2d 934 (Ky.1991) (relying on Restatement (Second) Contracts, Corbin on Contracts, and 7 Am.Jur.2d Auction and Auctioneers for authority on the procedures and rules of an auction); Golfinopoulos v. Padula, 218 N.J.Super. 38 , 526 A.2d 1107 (App.Div.), cert. denied, 109 N.J. 45 , 46, 532 A.2d 1112 (1987) (relying on Restatement (Second) Contracts and Corbin on Contracts because there was no case law detailing the terms and procedures of a “without reserve” auction); S.S.I. Investors Ltd. v. Korea Tungsten Mining Co., 80 A.D.2d 155 , 438 N.Y.S.2d 96 (1981), aff'g, 55 N.Y.2d 934 , 449 N.Y.S.2d 173 , 434 N.E.2d 242 (1982) (relying on Corbin on Contracts to establish when an offer and acceptance occur at ⁸⁰ an auction). 5 Treatises serve as important tools for outlining established principles, especially in contract law. This Court and the Court of Appeals frequently cite to treatises for persuasive authority on contract issues. E.g., Chernick v. Chernick, 327 Md. 470, 479 , 610 A.2d 770 (1992) (quoting Restatement (Second) § 224 to define “consideration”); Ferrero Constr. v. Dennis Rourke Corp., 311 Md. 560 , 536 A.2d 1137 (1988) (citing, inter alia, Restatement (Second) § 26 to establish when a valid “offer” occurs); Maryland Supreme Corp. v. Blake Co., 279 Md. 531 , 369 A.2d 1017 (1977) (quoting 17 Am.Jur.2d Contracts § 34 (1964) to define an “offer” because the UCC does not define the term itself); Rofra, Inc. v. Bd. of Educ., 28 Md.App. 538, 540 , 346 A.2d 458 (1975), affirmed, 278 Md. 102 , 358 A.2d 562 (1976) (quoting Williston on Contracts § 31 (3rd ed. 1959) to establish when a bid constitutes an offer). Our central consideration in this case focuses on whether Pyles and Reed, as co-owners of Parlett as tenants in common, had the legal authority to bid on the property.

This issue breaks down into two distinct components: (1) whether an owner of land as a tenant in common can bid on property sold at an auction held “without reserve;” and (2) whether there was sufficient notice to constitute a modification of the auction’s terms as described in the advertisement and pamphlet. The final issue involves whether the statute of frauds bars Goller’s recovery in this case: I. Pyles and Reed argue that if the auction was held “without reserve,” they were still allowed to bid as individuals because they were partners and owned Parlett as tenants in common. Goller counters that owners, including joint owners, are pro ⁸¹ hibited from bidding on their own property at an auction held “without reserve.” A. A contract is a promise enforceable at law. E.g., Restatement (Second) Contracts § 1 (1981).

The requirements for a valid contract include, inter alia, an offer and an acceptance of that offer. Klein v. Weiss, 284 Md. 36, 63 , 395 A.2d 126 (1978). The offer and acceptance are collectively referred to as mutual assent. Id.

In an auction setting, the point at which mutual assent is achieved depends on the type of auction being held. There are generally two methods to sell property at an auction; either “with reserve” or “without reserve.” 1 Arthur L. Corbin, Corbin on Contracts § 4.14 (Rev. ed. 1993); 7 Am.Jur.2d Auction and Auctioneers § 17 (1980). The presumption in contract law is that auctions are held “with reserve” unless otherwise specified. 1 Corbin § 4.14; 7 Am. Jur.2d § 17; Md.Code (1957,1992 Repl.Vol), § 2-328(3) of the Com.Law Art (CL). 6 In an auction held “with reserve,” an ⁸² auctioneer’s bringing a piece of property up for bid is an invitation to make a contract, and is not an offer to contract. 7 Am.Jur.2d § 17; see Ferrero Constr. v. Dennis Rourke Corp., 311 Md. 560, 578 , 536 A.2d 1137 (1988) (stating that in contract law an invitation to submit an offer is not itself an offer).

One of the distinguishing features of an auction held “with reserve” is that the owner reserves the right not to sell the property, and can withdraw the property from the auction before the acceptance of the highest bid. 1 Corbin § 4.14, at 638; 7 Am.Jur.2d § 17. Conversely, in an auction held “without reserve,” the opening of bids by the auctioneer constitutes a firm offer, as opposed to an invitation to make an offer. 7 Am.Jur.2d § 17. In this type of auction the seller promises to sell the goods to the highest bidder. 1 Corbin § 4.14, at 642; 7 Am.Jur.2d § 17. The Restatement (Second) describes an auction “without reserve” as: [W]hen goods are put up without reserve, the auctioneer makes an offer to sell at any price bid by the highest bidder, and after the auctioneer calls for bids the goods cannot be withdrawn unless no bid is made within a reasonable time....

Restatement (Second) § 28(l)(b), at 79-80 (1979). Therefore, in an absolute auction, or an auction held without reserve, mutual contingent assent is achieved when an offer is made. Each bid made is a mutual assent between the seller and the respective bidder, contingent only on no higher bid being received. As each high bid is made, the previous contract is extinguished and a new contract based on mutual contingent assent comes into being.

At the point when no further bids are made, the contingency in the last bid made is extinguished and a final contract in the series of contingent contracts is established. ⁸³ An additional characteristic of an auction held “without reserve” is that the seller of a piece of property cannot bid on that piece of property when it is subject to sale. 7 Am.Jur.2d § 19; see Md.Code, CL § 2-328(4). This rule helps ensure that the mutual assent that is necessary for a contractual relationship at an auction remains unaltered. At an auction held “without reserve,” if a seller were allowed to bid on the property, the auctioneer’s request for bids would no longer constitute a bona fide offer. For example, the owner could choose to out-bid a competitor, thus, in effect, rejecting the “highest bidder’s” acceptance, An owner bidding on his own property would thereby transform an auction held “without reserve” into one held “with reserve.” As discussed, infra, this transformation can only be done with sufficient notice to the participants.

In the case sub judice, the distinction between an auction held “with reserve” and “without reserve” is a bit obscured. The lots were sold pursuant to the Bidder’s Choice method, with the caveat that two lots were sold “absolute,” and that it was left to Pyles and Reed’s discretion to choose which two bids they had to accept. The other nine lots were sold “with reserve.” In order to comply with the terms of the auction contained in the advertisement, Pyles and Reed had to follow the rules governing an auction held “without reserve.” B. Pyles and Reed’s joint ownership argument is an end run around the prohibition of owners bidding in a “without reserve” auction. The rule preventing owners from bidding at an auction held “without reserve,” contrary to Pyles’s and Reed’s insistence, extends to joint owners of property and owners of property as tenants in common.

There is no established ease law or authority that supports Pyles’s and Reed’s position. 7 Am.Jur.2d § 19 (stating that the main consideration with “joint owner bidding” is who is in control of the auction); see Md.Code, CL § 2-328 (not excepting joint owners from the rule against owners bidding on their ⁸⁴ own property at an auction held “without reserve”). This lack of case law exists for a good reason; joint ownership lacks any distinguishing characteristic that would require the rules of an auction to differentiate between the analogous ownership interests of owners and joint owners. The definitions of these two terms illustrates their comparable features. An owner is defined as, inter alia, “[t]he person in whom is vested the ... title of property.” Black’s Law Dictionary 1105 (6th ed. 1990).

A joint owner, which includes owners as tenants in common, is defined as, inter alia, “[t]wo or more persons who jointly own and hold title to property____” Id. at 1106. A joint owner, even if bidding as an individual, still has an ownership interest in the property. Pyles or Reed could have sold their interest in Parlett and could have used their interest in Parlett as collateral for a loan. Joint owners bidding in a “without reserve auction” would thereby have the