What if the seller bids first in an absolute auction?
We previously wrote about the somewhat perplexing situation where the seller is bidding first in regard to the “last good faith bid.” That article is here:https://mikebrandlyauctioneer.wordpress.com/2015/05/12/what-if-the-seller-bids-first/
Our analysis today regards the seller bidding in an absolute auction — and in particular if the seller bids first. Within the few legal theorists around the country who analyze auction law and customary practice, the consensus seems to be that the UCC 2-328 prohibits the seller from bidding in an absolute auction as such would be a “reserve,” and more specifically that once an absolute auction is opened, and a bid is received, the property cannot be withdrawn.
More generally, let’s say a John Deere 8345R 4WD Tractor is put up for auction selling absolute. The bid is opened at $150,000 and other bidders bid resulting in a bid of $250,000 within a few minutes. Then, the seller places a bid for $255,000. This bid of $255,000 would constitute a withdrawal as the seller would be retaining the tractor at that price; such would be prohibited.
Our question today is what if this same tractor is selling absolute and the seller bids $250,000 first. Is the tractor withdrawn at that moment? If no other bids were placed, the tractor would not be selling but rather maintained by the seller. Certainly this seller bid of $250,000 would not be in concert with our definition of absolute: “the genuine intent to transfer to the highest bidder regardless of price.”
Some would say that any seller bidding in an absolute auction (outside of a forced sale) would constitute a bid in bad faith and more troubling a fictitious bid. Yet, it remains that if this is the very first bid placed, is the property even up for sale any further? Additionally could this bid even be placed in an absolute auction?
For any other bidder to take action here to secure this tractor, he would almost have to be the high bidder [buyer.] Yet, here the seller is the highest (and only) bidder. Possibly a claim of false advertising could be made by other interested parties — and a court might order the tractor sold (again) to resolve this unauthorized seller bid?
An attorney who called us is in a similar situation and her query regarded if her client could take the “tractor” for the last good faith bid or what — if any — claim might be other than bidding at a subsequent auction? I told her that it appeared to me this absolute lot in question was likely withdrawn as soon as the seller bid. She countered, “Can a bid that cannot be made be accepted? Once a bid is made, this lot cannot be withdrawn, right? Is this bid itself a withdrawal?”
I answered, “It would appear a seller’s bid in this case (which is prohibited) to withdraw the property may be a bid which would bind the seller to sell and prohibit withdrawal …” A long pause was followed by her telling me, “Yes, that’s what we’re pursuing.” We’ll update everyone on this case as we’re able, but this seller bidding first in an absolute auction seems to provide some interesting questions for a court to consider.
This article has been published with permission from the author.
The original article and image can be found here.
Mike Brandly, Auctioneer, CAI, CAS, 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, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.