An interesting phone call came in to us the other day and we’re free to share our thoughts regarding. The issue was the last paragraph (4) of the
UCC 2-328. Here are those last two sentences:
(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.
The specific question regarded the seller bidding without disclosure in a with reserve non-forced-sale auction. Without such disclosure the buyer can take the goods [property] at the last good faith bid or void the sale altogether. However, does the seller bidding openly and patently constitute disclosure?
Further, does the UCC 2-328 (4) require disclosure prior to the bid actually being made? This law suggests that it’s essentially “if the seller makes or procures” a bid — so the question then is can the very first bid (offer) be considered both the notice and the offer?
I would tend to think that the disclosure and the bid could be concurrent but that’s not the entire matter; the buyer would also have to know that this was the seller. It appears the UCC 2-328 (4) suggests actual notice, but could a buyer be noticed constructively?
This particular buyer noted that he knew this was the seller before his (the seller’s) first bid was placed. This buyer also watched as the seller placed a bid. It would appear then that the disclosure and the bid both occurred simultaneously. Does that satisfy the UCC 2-328 (4)?
Certainly the seller bid and certainly the other bidder (eventual buyer) knew it was the seller. It would seem then that “liberty for such bidding is (was) reserved” — as it was exercised in plain sight. However, if the buyer didn’t know this was the seller and no other such announcements or disclosures were made in this regard, the buyer would have the standard recourse concerning his purchase.
Additionally, strictly speaking — offers only become effective when they are received by the offeree/auctioneer. By the time an auction offer is received, it is past the time at which the seller could be known by actual or constructive notice.
Does disclosure have to be made to everyone, or just the buyer? The only recourse is reserved for the buyer and no one else, so even if other bidders were not noticed, it would seem not to matter. An under-bidder — or for that matter anyone else — could claim no disclosure was made, but would have no right to void or take at the last good faith bid …
Nevertheless I believe the intent of the UCC 2-328 (4) requires “prior disclosure” of this reservation of a right to bid, and I would hold that when the seller is clearly known and bids, that such disclosure is likely inherent with that first bid.
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 of Business, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and Texas 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.
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