Opinion ID: 891708
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Heading: A Public Auction Defined

Text: {61} An auction is [a] public sale of property to the highest bidder. Black's Law Dictionary 149 (9th ed. 2009). In 1876, the Ohio Supreme Court described the history of the auction: This practice is said to have originated with the Romans, who gave it the descriptive name of auction, an increase, because the offered property was sold to him who would offer the most for it. This method of sale was established by the Romans for the disposal of military spoils, and was conducted sub hasta that is, under the spear; on such occasions the spear was stuck in the ground. This practice has passed away as to the spear, but the method still continues. Crandall v. State, 28 Ohio St. 479, 481 (1876). The court described some modern variations, including the Dutch method and sale by candle, but concluded that all variations have common elements: At auctions the bidders fix by competition the price at which the offered property is sold. This competition is an element of each offer and each bid. Into each of the methods named, competition is a necessary element in the offer, the bid and the act of selling the offered property. Id. Thus, competition is the means by which an auction achieves the primary goal, obtaining the best return for the seller. Around the same time, the U.S. Supreme Court described its understanding of a public auction: When the law requires a sale of property, real or personal, to be made at public auction, after due notice, it is for the purpose of inviting competition among bidders that the highest price may be obtained for what is sold. Porter v. Graves, 104 U.S. 171, 174, 26 L.Ed. 691 (1881). {62} Contemporaneously with the passage of New Mexico's Enabling Act, several state courts discussed the required elements for an auction. The Montana Supreme Court interpreted the requirement that sales of state lands shall be at public auction, to mean a sale to the highest and best bidder with absolute freedom for competitive bidding. State ex rel. Danaher v. Miller, 52 Mont. 562, 160 P. 513, 515 (1916) (internal quotation marks and citation omitted). The court further warned that [a]ny agreement . . . to stifle competition or chill the bidding is a fraud upon the principle upon which the sale is founded. Id. The Supreme Court of the Territory of Hawaii explained that competition. . . is that which distinguishes a sale at auction from other sales where the attempt to sell and to agree on a price is made with but one prospective purchaser at a time. Territory v. Toyota, 19 Haw. 651, 653 (1909). The Idaho Supreme Court adopted Hawaii's perspective: In an auction, competition is a necessary element. . . . Hammond v. Alexander, 31 Idaho 791, 177 P. 400, 401 (1918) (citing Toyota, 19 Haw. at 653). {63} The foregoing opinions, issued around the same time that New Mexico became a state, are some indication of what the framers of the Enabling Act likely meant when they said: Said lands shall not be sold or leased, in whole or in part, except to the highest and best bidder at a public auction. Over time, courts have continued to focus on the element of competition as essential to a public auction. See In re Peoples Cab Co., 89 F.Supp. 577, 580 (W.D.Pa.1950) ([T]he very purpose of an auction . . . is to fetch together all those who may be interested to buy and set them against each other with whatever stimulus that may provide, as opposed to other kinds of sale.); B.H. Stief Jewelry Co. v. Walker, 36 Tenn.App. 427, 256 S.W.2d 392, 397 (1952) (Competitive bidding, up or down, is an essential element of an auction sale. A sale at fixed or flat prices, no higher nor lower, is not an auction sale regardless of the manner in which the merchandise is offered for sale at the fixed price.); State v. Pub. Util. Comm'n of Tex., 246 S.W.3d 324, 343-44 (Tex.App.2008) (explaining the legislature's intent in requiring an auction was to encourage competition); Kolbo v. Blair, 379 S.W.2d 125, 129 (Tex. App.1964) ([A] sale at public auction is a sale to the highest bidderits object, a fair priceits means, competitionits results, a sale, presumed as a matter of law to be fairly conducted.); Mfrs. Hanover Trust Co. v. Koubek, 240 Va. 276, 396 S.E.2d 669, 671-72 (1990) (explaining that a public sale and auction require a competitive environment and that the early policies behind the requirement, protecting financial return, still apply today). We recognize that competition has been an essential element of a public auction since before the time New Mexico adopted the Enabling Act, that it was essential when New Mexico adopted the Enabling Act, and that it is still essential today. {64} Courts have also emphasized that an auction's purpose is distinct from other types of sales. The Hawaii Territorial Court, for example, instructed that [t]he main purpose of auction sales is to obtain the best financial returns for the owners of the property sold. Toyota, 19 Haw. at 652. The public auction, thus, is a mechanism to make sales using an objective basis, the highest financial gain, to discern between offers. This characteristic of an auction made it an attractive tool when states sought to safeguard public land sales against favoritism. The Minnesota Supreme Court explained that the public auction requirement for sales of its state school lands was to foster and conserve the school fund, to prevent school lands from being sold at an inadequate price, and to secure competition therefor, and to guard against favoritism in the disposition thereof. State v. Evans, 99 Minn. 220, 108 N.W. 958, 959 (1906) {65} The U.S. Supreme Court stated that the public auction and notice requirements in the Arizona and New Mexico Enabling Act were . . . intended to guarantee, by preventing particular abuses through the prohibition of specific practices, that the trust received appropriate compensation for trust lands. Lassen, 385 U.S. at 464, 87 S.Ct. 584 (considering Arizona's identical Enabling Act); see also Fain, 790 P.2d at 248 (The purpose of [the auction] provision is to ensure that the trust receives the most benefit possible from sale or other use of the trust lands. Without sale at public auction, the trust is not guaranteed the additional profit that might result from competitive bidding. (internal citation omitted)). As previously explained, the particular abuses that Congress sought to prevent were the repeated violations of a similar grant made to New Mexico in 1898 . . . [that] allegedly consisted of private sales at unreasonably low prices, and the [Senate Committee on the Territories] evidently hoped to prevent such depredations here by requiring public notice and sale. Lassen, 385 U.S. at 464, 87 S.Ct. 584 (footnote omitted). {66} Finally, courts recognize that for a valid auction to occur it must be fair and open. See, e.g., Springer v. Kleinsorge, 83 Mo. 152, 163 (1884) (The offer of property at public auction is itself a proclamation by the seller that the highest bidder, in a fair and open competition, is to obtain the property.). Open competition furthers the purpose of using an auction as a sale mechanism because it dissuades favoritism and encourages objectivity. This raises the question as to what open means. Case law and our own Enabling Act's history demonstrate that an auction remains open even if general parameters are established for the purpose of ensuring that the highest bid also results in the highest financial delivery. In other words, limiting bids to those parties whose credit is secured or parties who have other indicia of reliability in order to guarantee the best financial returns, is acceptable. Some measure of discretion is vested in auctioneers as to the precise methods to be pursued in attaining [the best financial returns], for example, bids need not be accepted from minors or from persons irresponsible either financially or mentally or from drunken persons or from one offering in bad faith or even from one making but a slight raise in his bid over the bid last announced. Toyota, 19 Haw. at 653. {67} Section 10 of the Enabling Act incorporates the idea that an open auction can be limited to pursue the best financial return as well. S.Rep. No. 61-454, at 18. Significantly, a prior version Section 10 of the New Mexico Enabling Act did not provide for an auction to the highest and best bidder, but rather only the highest bidder, S.Rep. No. 61-454, at 18. That earlier version also prohibited land sales on credit, unless accompanied by security, id., the credit sales provision was later removed, and the term and best was added, requiring that the winning bidder be the highest and best, Enabling Act § 10. The initially proposed limitation on credit sales is precisely the type of limitation contemplated by the requirement that the highest bid also be the best bid. Requiring sale to the highest and best bidder therefore provides for objective selection of the winning bid at a public auction, while ensuring that the sale remain open to competitive bidding. {68} Thus, the Enabling Act's mandate that sales be only to the highest and best bidder at a public auction requires more than just a minimum floor price. It means that the trust beneficiaries have, at least, an opportunity by way of a sale driven by open competition among bidders for the best price. The inclusion of the term best does not, however, provide discretion in selecting the winning bidder. Just as other courts have done before us, we recognize that the purpose of an auction is to obtain the highest financial return. Further, we recognize that Congress selected a public auction as the mechanism for selling public lands in New Mexico to allow an objective means for buyer selection, thus eliminating the risk of favoritism that was pervasive in public land sales, particularly in the New Mexico Territory before the Enabling Act.