An auction is a process of buying and selling goods or services by offering them up for bid, taking bids,

and then selling the item to the highest bidder.

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Auctions

West's Encyclopedia of American Law | 2005

COPYRIGHT 2005 The Gale Group, Inc.

AUCTIONS

A sale open to the general public and conducted by an auctioneer, a person empowered to conduct such
a sale, at which property is sold to the highest bidder.

A bid is an offer by a bidder, a prospective purchaser, to pay a designated amount for the property on
sale.

A Dutch auction is a method of sale that entails the public offer of the property at a price in excess of its
value, accompanied by a gradual reduction in price until the item is purchased.

According to the uniform commercial code (UCC), a body of law governing commercial transactions that
has been adopted by the states, the auction sale of any item concludes with the fall of the hammer or in
any other customary manner. Such a sale is "with reserve," which denotes that the goods can be
withdrawn at any time, until the auctioneer announces the completion of the sale, unless the goods are
explicitly put up "without reserve," which signifies that the article cannot be withdrawn after the call for
bids unless no bid is made within a reasonable time. In both types of auctions, the bidder can withdraw
a bid prior to the auctioneer's announcement that the sale has been completed.

Regulation

As a legitimate business enterprise, auctions cannot be proscribed. They are not above reasonable
regulation by both state and local authorities. Some states subject auction sales to taxation.

In the absence of statutes, any person can act as an auctioneer, but a license, which usually restricts his
or her authority to a certain region, is often required. Licensing officers can refuse to issue a license, but
only if done reasonably, impartially, and to promote the interest of the community.

Agency of Auctioneer

An auctioneer serves as the agent of the seller who employs him or her, and the auctioneer must act in
good faith, advance the interest of the seller, and conduct the sale in accordance with the seller's
instructions. If real property or goods priced at $500 or more are sold at auction, a written agreement is
necessary to satisfy the statute of frauds, an old english law adopted in the United States that requires
certain contracts to be in writing. The auctioneer is authorized to sign a memorandum of sale on behalf
of both parties, but this authority is limited and expires shortly after the sale has been concluded. Both
the buyer and the seller are bound by the announcement of the auctioneer concerning the identity of
the property and the terms and conditions of the sale.

In the absence of a statutory provision requiring authority to be in writing, an agent, pursuant to oral
authorization, can execute any contract required to be in writing. The statutory provisions vary,
however, in regard to the execution of contracts to purchase real property.

Because of the trust and confidence the seller reposes in an auctioneer, the individual cannot delegate
the power to sell without special authority from the seller. The delegation of insignificant duties, such as
the striking of the hammer and the announcement of the sale, is allowable if conducted pursuant to the
auctioneer's immediate supervision and direction.

An auctioneer's authority normally terminates upon the completion of the sale and the collection of the
purchase price, but the seller can revoke the authority at any time prior to the sale. According to some
authorities, the buyer or seller can end the auctioneer's authority to sign a memorandum on his or her
behalf between the time of the fall of the hammer and the signing of the memorandum, but the
prevailing view deems the auctioneer's authority to be irrevocable. Private sales by an auctioneer are
generally impermissible.

Conduct and Validity of Sale

The owner of the property has the right to control the sale until its conclusion. Unless conditions are
imposed by the seller, the auctioneer is free to conduct the sale in any manner chosen, in order to bar
fraudulent bidders and to earn the confidence of honest purchasers. The auctioneer cannot amend the
printed terms and conditions of the auction, but he or she is empowered to postpone the sale, if that is
the desire. The auctioneer can modify the sale terms of goods advertised in a catalog at any time during
the sale, if announced publicly and all of the bidders present are cognizant of it. The auctioneer may also
retain the right to resell should there be an error or a dispute concerning the sale property. The
description of the property in the catalog must be unambiguous. A significant error in a description
might cause the cancellation of the sale, although trivial discrepancies between the property and the
description are not problematic. The seller can withdraw property until the acceptance of a bid by an
auctioneer.

A bid is an offer to purchase, and no obligations are imposed upon the seller until the bid is accepted. It
can be made in any manner that demonstrates the bidder's willingness to pay a particular price for the
auctioned property, whether orally, in writing, or through bodily movements, such as a wave of the
hand. Secret signals between the bidder and the auctioneer militate against equality in bidding and are
thereby prohibited. The auctioneer accepts a bid by the fall of the hammer or by any other perceptible
method that advises the bidder that the property is his or hers upon tendering the amount of the bid in
accordance with the terms of the sale. An auctioneer can reject a bid on various grounds, such as when
it is combined with terms or conditions other than those of the sale, or is below the minimum price
acceptable to the owner.

As a general rule, any act of the auctioneer, seller, or buyer that prevents an impartial, free, and open
sale or that reduces competition in the bidding is contrary to public policy. An agreement among
prospective buyers not to bid has been held to void the sale to any buyer within this group. A purchase
by a person who has not participated in the illegal agreement remains in effect. A puffer or shill is a
person who has no intention of buying but is hired by the seller to place fictitious bids in order to raise
the bidding of genuine purchasers. In general, if a purchaser at an auction can prove that a puffer was
employed, he or she can void the sale. Some jurisdictions require the buyer to have been financially hurt
by the puffer, but others permit an individual to void a sale even if no harm occurred. Puffing and by-
bidding are synonymous.

A deposit is not a pledge but a partial payment of the purchase price, usually made payable to the
auctioneer who retains it until the completion of the sale.

The property of one person should not be commingled and sold with the property of another by the
auctioneer unless notice is furnished to all interested parties, or it might constitute fraud.

An auctioneer is not entitled to bid on property that he or she has been hired to sell, but the auctioneer
can, however, bid a particular sum for a purchaser without violating any duties to the seller or even to
other prospective bidders.

An auctioneer who does not have the required license but who executes a sale can be

penalized, but the sale remains valid; an auction is void, however, when it is conducted without the
owner's consent.

Rights and Liabilities of Buyer and Seller

In an unconditional sale, title passes to the bidder when the auctioneer's hammer falls. If conditions
exist, title passes upon their fulfillment or through their waiver, the intentional relinquishment of a
known right. The bidder is ordinarily entitled to possession when he or she pays the amount bid.

A person who bids on behalf of another is personally liable for the bid unless the person discloses this
relationship to the auctioneer.

Fraud, or a misrepresentation of a material fact on which the buyer detrimentally relied, or the seller's
failure to provide good title furnishes a basis for setting aside the sale.

The seller has a lien, a security interest, on the property until the price is paid. If the purchaser fails to
comply with the conditions of a sale, the seller can regard the sale as abandoned and sue for damages.
Where a resale occurs, and the price is lower than the contract price, the defaulting buyer in some
jurisdictions is liable to the seller for the difference between what he or she had agreed to pay and what
the seller received on the resale. In general, whether a deposit or a partial payment must be repaid
depends upon which party was responsible for the uncompleted sale. If the buyer is responsible, he or
she cannot recover either the deposit or partial payment.

Compensation

The party employing the auctioneer pays a commission regardless of whether he or she procures a sale,
unless the auctioneer is responsible for the failure of the sale. The auctioneer is entitled to a reasonable
sum unless a statute or contract provision determines the amount.

Liabilities of Auctioneer
An auctioneer is usually liable to the seller for monetary losses attributable to his or her negligence in
failing to follow the seller's instructions. The auctioneer can also be responsible to the buyer for fraud,
conduct in excess of authority, and failure to deliver the goods. Since the auctioneer is a stakeholder, a
third party designated by two or more persons to retain on deposit money or property that is the
subject of a dispute, the auctioneer is liable to the buyer in those instances where the buyer is entitled
to the return of the deposit. An auctioneer who sells property on behalf of one who does not own it and
delivers the proceeds to that person is personally liable to the rightful owner even though the
auctioneer acted in good faith and without knowledge of the absence of title. He or she can recover his
or her losses from the person who received the proceeds in the form of damages that he or she was
ordered to pay to the actual owner.

Online Auctions

With its ability to connect potential buyers and sellers from anywhere in the world, the internet has
become an increasingly important player in auctions. The first online auctions appeared on the Internet
in 1995, and according to the federal trade commission (FTC) these auctions have become "perhaps the
hottest phenomenon on the Web." Large organizations can participate in online auctions but so can
individual sellers and small businesses.

The rules for online auctions are fairly straightforward. For a typical person-to-person site, the sellers
will open an account and are assigned an on-screen name. They must pay a fee whenever they conduct
an auction. The seller can set a time limit on the bidding, as well as a minimum price. If a buyer puts in a
bid that the seller accepts, they complete the transaction, often via email, arranging for payment and
delivery of the goods. Many sites allow buyers to pay by credit card (which protects the buyer in case
merchandise is not delivered); some individual sellers require payment by cashier's check or money
order (to protect against bounced checks). Some buyers and sellers conduct their money transactions
through online payment or online escrow services, which serve as a secure site for sending and receiving
payment information. These payment arrangements are more a matter of caution than lack of trust. In
fact, auction sites usually offer some form of insurance or guarantees to ensure that merchandise is
both paid for and delivered as agreed by the buyer and the seller.

Although online auctions are generally safe for both buyers and sellers, auction fraud does occur. Buyers
who report online auction fraud to the FTC commonly complain that merchandise never arrives or that
it arrives late or that the merchandise that does arrive is not what was advertised. There are other more
problematic types of fraud. In "bid siphoning," a bidder is lured off a legitimate auction site by a phony
seller who promises to sell the same item as that being auctioned for a lower price. The buyer sends
money to this "seller," who offers no guarantees—and usually no merchandise. Fraudulent online
sellers, like their "live" counterparts, may also employ puffers to bid up the price of an item, or they may
engage in "bid shielding," in which extremely high bids are submitted and then retracted so that a
preferred bidder can put in a lower bid and obtain the item.

Both buyers and sellers who engage in online auctions are advised to take common-sense precautions.
First, people should deal with legitimate auction sites whose reputations are established. They should
determine that terms of bidding, payment, and delivery are spelled out ahead of time. Also it is a good
idea to check out online payment or escrow services, particularly if the buyer or seller insists on using a
particular one whose reputation is not known. Buyers and sellers can contact their local branch of the
Better Business Bureau to find out whether complaints have been lodged against a particular service or
site.