Opinion ID: 2055963
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Heading: The Validity of a Sharp Bid

Text: An early Illinois case, Webster v. French, 11 Ill. 254 (1849), designates a bid in the form X dollars more than the highest bid (X dollars less than the lowest bid would also qualify) as a sharp practice and holds it is contrary to public policy and void. Such a bid, said the Webster court, is inherently unfair to other bidders in a sealed bidding procedure, allowing the sharp bidder to appropriate the judgment of the other bidders; it may also be unfair to the seller and, if allowed, would discourage and drive off specific-sum bidders. Only a handful of cases have dealt with a sharp bid since, and they all adopt the rationale of Webster. The rule in Arkansas appears to be that a sharp bid is no bid at all, being both unfair and incomplete. Casey v. Independence County, 109 Ark. 11, 15, 159 S.W. 24, 25 (1913). See also Rogers v. Union National Bank of Little Rock, 240 Ark. 261, 398 S.W.2d 904 (1966), and Bank of Eastern Arkansas v. Bank of Forrest City, 94 Ark. 311, 126 S.W. 837 (1910) (where, however, the contract was awarded to the sharp bidder, but only because the statute under which the public bidding was conducted permitted the county to reject all bids and to negotiate with the unsuccessful bidders without rebidding). Two federal cases deal with sharp bids, Holliday v. Higbee, 172 F.2d 316 (10th Cir. 1949), and Trump v. Mason, 190 F.Supp. 887 (D.C. Cir. 1961). In Holliday the court stated the sharp bid is neither a bona fide bid nor a fair bid, adding the Government was not required to give it consideration, especially under a bidding invitation in which the right was reserved to accept or reject any or all bids. 172 F.2d at 318. In Trump the court also condemns the sharp bid, both as destroying the integrity of the bidding system and as not a firm bid, but then, instead of saying the bid is void, holds only the government acted within its discretion in refusing to accept it. 190 F.Supp. at 889. Sharp bidding can defraud both seller and sum-certain bidders in a sealed bidding procedure. The fraud on other bidders arises from the sharp bidder's concealment of the nature of his bid. The concealment induces the sum-certain bidders to submit bids which are necessarily ineffective and which guarantee the sharp bidder's supremacy. Were the nature of the bid revealed, other bidders could submit their own sharp bids and eliminate his advantage. [6] Also, a sharp bid may work a fraud on the seller. It is argued in Webster that because a sharp bid gives the bidder a guaranteed high bid, he gets the property for less than he would have offered in a sum-certain bid. The seller is further injured if, as asserted in Webster, the prospect of a sharp bid frightens away potential sum-certain bidders, thus chilling competition. For these reasons we hold concealed sharp bidding is a fraudulent practice. Having said this, there still remains the question of whether the fraud voids a contract made pursuant to the sharp bid or only makes the contract voidable. The line between the void and the voidable is not easily defined; indeed, a spectrum of illegality is recognized with a concomitant range of attendant consequences. See 12 Williston, Contracts §§ 1486-88 (3d ed. 1970). Certain categories of agreements-for example, those relating to sexual favors, criminal activity or obstruction of justice  are always void. The nature of these and similar subjects leads courts to abstain from entertaining suits upon such agreements to shield their own integrity. At the other extremes are those contracts to which one party possesses a power of avoidance  for example, due to infancy, duress or fraud  which must affirmatively and seasonably be exercised to prevent enforcement. Agreements for which no case law precedents exist are adjudged either void or voidable depending upon, among other factors, the public or private nature of the contract and the origin and effect of the infirmity. According sharp bidding its proper place in this spectrum requires examining these factors. If this were a public sale, a bid tainted with fraud, such as the sharp bid here, would be void from its inception. Regan v. Babcock, 188 Minn. 192, 247 N.W. 12 (1933). Regan involved collusive bidding for a state highway contract and the court, after observing that this differed from the ordinary fraud case where the rights of individuals are involved and where such contracts are commonly regarded as voidable, not void, went on to say, but the law protects the public with greater safeguards and from public policy views contracts obtained as these are alleged to have been as wholly void. Id. at 200, 247 N.W.2d at 16. All the cited cases from other jurisdictions declaring sharp bids illegal per se involved sales that were either public, controlled by statute, or conducted under court supervision. Since the sale at issue here is private in nature, no reason appears to declare Short's bid void on this basis. The infirmity of a sharp bid, as said above, lies in the concealment of its nature. If there is no concealment, then bidders may be frustrated but they are not defrauded. Even when bidders are defrauded, any assertion of injury to the seller is speculative. By submitting a sharp bid, a bidder does not necessarily pick a price lower than he would otherwise offer in a sum-certain bid. Rather, he gambles that sum-certain bids submitted by others will be lower than the maximum he wants to pay. If they indeed are lower, the seller is injured by the sharp bid; if higher, then the seller's profits are increased by the bidder's choice to offer a sharp bid. As for an alleged chilling effect, sharp bidding may well impair competition, but if the practice is known to be allowed, the fraud by concealment is gone and the question is one of business practicability, not fraud. If unconcealed, sharp bidding either would then be abandoned as unworkable or sellers and bidders would adopt protective ground rules to make it workable. [7] The practice is not necessarily destructive of sealed bidding generally. For these reasons, concealed sharp bidding, while unfair, is not so fundamentally pernicious that it should be found void as contrary to public policy. [8] The nature of the fraud perpetrated by a sharp bidder appears little different in degree than other common law frauds. It violates no statute or clear public policy. See Equitable Holding Co. v. Equitable Building & Loan Association, 202 Minn. 529, 536, 279 N.W. 736, 741 (1938). We hold, therefore, that while concealed sharp bidding in a private context taints a resulting contract with fraud, the contract is not void but rather voidable at the timely election of the defrauded party. Restatement of Contracts § 476 (1932). Ordinarily, the defrauded parties would be the seller and the highest sum-certain bidder. Thus in cases where a bidder sues the seller for accepting a bid submitted in response to a binding offer and demands specific performance, a contract resulting from receipt of a sharp bid would be voidable at the election of the seller or the highest conforming sum-certain bidder. In this case, no other bidders but Andersen have challenged Short's bid. Andersen has yet to prove he received the same offer as Short and responded with a conforming bid. [9] Until he does, he cannot avoid Short's bid. If none of the bidders can avoid Short's bid, then neither, apparently, can the seller, Sun, since Sun was perfectly aware of the form of Short's bid. A trier of fact could find that Sun, by its officer and agents, invited Short, even urged him, to submit his sharp bid, saying it would be acceptable, and, after the bids were opened, actually gave an opinion it was the high conforming bid. If such inducements to bid were made and Short relied on them, Sun would not then be in a position to disaffirm the solicited sharp bid. Restatement of Contracts § 484 (1932); accord, Albachten v. Bradley, 212 Minn. 359, 3 N.W.2d 783 (1942). Nor can it be said at this stage that the Star and Tribune has any independent power to avoid the sharp bid, as it may be bound by Sun's actions under their contractual arrangements. Viewing the facts in the light most favorable to Short, it seems to us this raises questions of fact as to whether a contract resulted between Sun and Short and, if so, whether it could be and was avoided. Since the property has already been sold (Short, at Sun's request, did not oppose the sale to Andersen before closing), specific performance would not lie, but an action for breach of contract may. Plaintiff's claims for wrongful interference with a contract (dismissed by the trial court because it found no contract) remain also for trial. At trial, the legal theories and issues may develop differently. Whether a party is likely to prevail at trial is not a consideration here. Lowry Hill Properties, Inc. v. Ashbach Construction Co., 291 Minn. 429, 439, 194 N.W.2d 767, 774 (1972). We only say these issues cannot here be decided summarily as matters of law. Reversed and remanded for proceedings consistent with this opinion. OTIS, J., took no part in the consideration or decision of this case.