Opinion ID: 1518197
Heading Depth: 1
Heading Rank: 3

Heading: Was Plaintiff's bid the highest qualified cash offer?

Text: We construe the words highest cash offer to mean the highest good faith cash offer. Laskey's bid was higher than that of the Plaintiff but Plaintiff alleges (and it is undisputed and conclusive for the purposes of our decision) that the bids of both Loew and Laskey were not good faith bids and that, therefore, his bid is the highest good faith cash offer. When the highest bidder for purchase of real estate is not a good faith bidder, is the second highest bidder, if in good faith, entitled to purchase the property? This issue has not been before our Court until the present case and there is little precedent in the country. What precedent there is appears of small assistance. Several other courts, under different circumstances, have declined to extend relief to a bidder who was not the highest bidder. The Single Justice drew from them some analogy to our present situation. In Freeman v. Poole, 37 R.I. 489, 93 A. 786 (1915) the Court found no contract in the second highest bidder at an auction of real estate even though the highest bid was that of the seller who had no right to bid. However, the Rhode Island statute as to auctions of personal property [5] effective at that time provided that until the auctioneer announces the completion of the sale by the fall of the hammer, the goods may be withdrawn from sale unless the auction has been announced to be without reserve. [6] The Rhode Island Court found no necessary difference between auction sales of real or personal property and applied the same principle, holding that the sale to the second highest bidder had not been completed before the property was withdrawn from sale. In Brewer v. Cowan, 220 La. 189, 56 So.2d 149 (1951) the Court declined to grant the second highest bidder's petition that the adjudication of sale of real estate to the highest bidder be revoked and that he be substituted as the highest bidder because of the fact that the highest bidder (the City) had failed to pay the purchase price within the required time. While the Court found that the principle that the property goes to the second highest bidder if the highest bidder's bid is invalid to be an unprecedented approach, its denial of the request seems to be based upon the fact that the Civil Code gave only the seller the right to ask to set aside an adjudicated sale. In Drew v. John Deere Co. of Syracuse, Inc., 19 A.D.2d 308, 241 N.Y.S.2d 267 (1963) the Defendant assignee of a conditional sales contract on a repossessed tractor was the highest bidder at the auction. The Plaintiff was the next highest bidder. The Appellate Division, New York Supreme Court held that an announcement that the sale would be made to the highest bidder is not the equivalent of an announcement that the auction would be without reserve and that in an auction not expressly announced to be without reserve the owner may withdraw the property at any time before it is actually knocked down by the auctioneer. The Court added, as dicta, We thus are brought back to the original point that the plaintiff's case depends upon a showing that the auction was one `without reserve'. It is only in that type of auction that he could claim to be entitled to the purchase of the property at the amount bid by him, if his bid was the highest bona fide bid and was improperly topped by a bid by the owner (Restatement of Contracts, § 27, Illustration No. 4). [7] Drew v. John Deere Co. of Syracuse, Inc., supra, 19 A.D.2d at 312, 241 N.Y.S.2d at 271. In Zuhak v. Rose, 264 Wis. 286, 58 N. W.2d 693 (1953) an auction sale of real estate was announced to be without reserve and the Court held that that had the effect of an agreement that the property would actually go to the bidder offering the highest price. The Court said that the seller could not nullify this purpose by bidding himself or by withdrawing the property from sale if he is not pleased with the bids. This would be the effect of auction sales of personal property under the Uniform Sales Act and the Wisconsin Court found that the same rule should be applied judicially to auction sales of real property. The holdings of the courts which decline to declare the highest good faith bidder to be entitled to the purchase of the property when the seller has made a higher, but bad faith, bid appear to be based upon the rationale that in a sale in which the seller has reserved the right to bid, a fraudulent bid by the seller is only an exercise of his right to withdraw the property from sale or a refusal to accept the bona fide next highest offer. This rationale is inappropriate for application to our own situation because, although Loew and Laskey were entitled to bid, their written and supplemental agreements, as we construe them, denied them the right either to withdraw the property from sale after the sealed bids had been received or to refuse to accept Plaintiff's offer. Although the words without reserve were not used in the public announcements of the sale, the effect of their agreements with each other was to entitle the highest good-faith bidder of $28,834 or in excess thereof to a sale of the property. Although no rule has been declared in Maine as to the right of the highest good-faith bidder at a sale of real estate to take the property when a higher bid is proved not to be a good-faith bid, such a principle has been clearly stated concerning bad-faith bids of the seller at auction sales of personal property. Our Uniform Commercial Code, 11 M.R.S.A. § 2-328(4) reads: (4) If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale. While the present sale was not a sale at auction we do not find the differences significant in a consideration of the rights of a highest good-faith bidder when there has been a higher fraudulent bid. Neither do we see any distinction which would militate against the application of the principle declared by the Uniform Commercial Code to sales of real estate. See Zuhak v. Rose, supra. We believe, as did the Rhode Island Court, [8] that the Uniform Acts represent efforts to embody into legislation accepted principles of judicial decisions, and we consider the principle announced by the Code eminently applicable to protect the rights of the highest good-faith bidder in a sale of real estate by single sealed bids when the property was agreed to be sold to the highest bidder, especially when the higher bids were made by persons who were, when we look behind the corporate facade, the sellers. We believe that the same principles of equity and fairness which the Code recognized as controlling against fraudulent bids in the seller's behalf in auctions of personal property should apply here and that if the Plaintiff can demonstrate that Laskey's higher bid was not bona fide, then Plaintiff is entitled to purchase the property.