We have been discussing “cut bids” (most notably here: https://mikebrandlyauctioneer.wordpress.com/2017/11/21/as-the-auctioneer-do-you-have-to-take-a-cut-bid/) and a few states in the United States have enacted state law which says, essentially, “The auctioneer may establish reasonable bid increments.”
In other words, potentially in a without reserve (absolute) auction an auctioneer could say that with a bid of $25,000 that the next bid must “reasonably” be at least $26,000.
Our question today is more so what is reasonable? For example, would $25,500 be reasonable? $25,250? $25,100?
Famed British Judge Patrick Devlin (November 25, 1905 – August 9, 1992) is legendary for saying:
In one sense the word [reasonable] describes the proper use of the reasoning power, and in another it is no more than a word of assessment. Reasoning does not help much in fixing a reasonable or fair price or a reasonable or moderate length of time, or in estimating the size of a doubt.
We’ve argued that reasonable time, reasonable adherence, reasonable behavior all have a place in the auction business. However since without reserve (absolute) auctions require property be sold to the highest bidder, might a court simply reply to a denial of a small increment — “Wouldn’t it have been reasonable to conduct a with reserve auction in order to allow such a rejection?”
Absolute auctions involve sellers, bidders/buyers and auctioneers. One could argue that everyone in this scenario has a duty to behave reasonably. We would suggest nonetheless if a seller/auctioneer wants to set the bid increments (and not necessarily sell to the highest bidder) that a with reserve auction is a viable option.
In other words, isn’t it reasonable if you promise to sell to the highest bidder that you indeed do so? Further, isn’t it reasonable if you want to reserve the right to not sell to the highest bidder that you conduct a with reserve auction?
Furthering our proposition, we quote from the material Wyoming Supreme Court case known as Pitchfork Ranch Co. v. Bar Tl, 615 P.2d 541 (Wyo. 1980):
… a no-reserves sale contemplates that the offer to sell to the highest bidder is made by the seller when he advertises the property for sale at auction and undertakes to conduct the auction without reserve. All bidders at such sale are bound to the no-reserves condition of the sale. There is no contract of sale until the highest bid is made. The seller’s contract is with the highest bidder. The highest bidder can enforce his rights in damages. Other bidders have no claim for transfer of title against the seller because they have no contract upon which to base a right of action.
As such, the Wyoming Supreme Court tells us that for an absolute auction if a bidder is on at $25,000 and an auctioneer refuses a bid of $25,100 (because he feels that’s not reasonable) and says, “Sold!” to the $25,000 bidder — that this $25,000 bidder has no claim for title.
Even in a state such as Kentucky or Indiana where these states’ laws suggest “reasonable bid increments” may be used, apparently nobody really knows what “reasonable” means specifically. Since the U.S. Mint produces penny coins, it not reasonable for them to be used in commerce? While penny bids are rare, could this argument coupled with not selling to the highest bidder cause confusion in a court of law?
Auctioneers have choices — and to error on the side of compliance is always a good idea. Conducting auctions where a plaintiff and/or court is permitted to unnecessarily question reasonableness appears misguided.
Mike Brandly, Auctioneer, CAI, 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 of Business, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and Faculty at the Certified Auctioneers Institute held at Indiana University.
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