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There is the UCC 2-328 as adopted literally by 49 of the 50 states in the United States, and adopted for all practical purposes in Louisiana as well.

This 4-paragraph section of state law is the most paramount law for auctioneers in the United States.

It dictates, among many things, when the bid may be reopened or not, if the seller can bid or not, what types of auctions auctioneers can conduct, and what constitutes a lot in an auction …

I was discussing the UCC 2-328 in a class in Indiana the other day. A question from an attendee came forward as I was explaining the UCC 2-328 (4):

    (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.

It appears the UCC 2-328 (4) intended to address a situation where a buyer was awarded an item at auction, but the seller bid without authority and against that buyer until the buyer ultimately outbid the seller and the item was sold.

For instance, let’s say a seller consigns to an auction house a Vintage Girard Perregaux men’s wristwatch. The auction is a “with reserve” auction, and therefore the seller can bid if that right to bid is reserved (announced to the crowd; disclosed.)

However, in this case, the right for the seller to bid is not reserved.

The auction of this Girard Perregaux watch opens, and there is an opening bid of $200 from a registered bidder. The bidding continues $225, $250, $275 and then the seller bids $300. Bidding continues between the seller and one other bidder (named Robert) $325, $350, $375, $400 and finally $425. Robert is deemed the high bidder and the watch is sold to him for $425.

Later that evening, Robert learns that the seller was bidding against him without that right being reserved, and therefore per the UCC 2-328 (4) he is awarded two options; he may:

  • Avoid the sale altogether.
    or
  • Take this Girard Perregaux watch at “the last good faith bid.”

In this case, the last good faith bid is the last bid made prior to the sellers $300 bid, which was $275. Therefore, Robert may void his purchase, or take the Girard Perregaux watch at $275 — and it’s his choice alone given these circumstances.

Yet, let’s change the story only slightly and see if we get a different answer. The attendee in Indiana asked me, “What if the seller bids without authority, but isn’t the runner-up bidder?”

For example, the auction of this Girard Perregaux watch opens, and there is an opening bid of $200 from a registered bidder. The bidding continues $225, $250, $275 and then the seller bids $300. Bidding continues between the seller and one other bidder (named Robert) $325, $350, $375 and then the seller stops bidding. Another bidder bids $400 and Robert bids $425 and is awarded the watch.

Later that evening, Robert learns that the seller was bidding against him without that right being reserved, and therefore per the UCC 2-328 (4) he is awarded two options; he may:

  • Avoid the sale altogether.
    or
  • Take this Girard Perregaux watch at “the last good faith bid.”

In this case, the last good faith bid is … what?

The seller’s first bid was $300. Does this mean that the last good faith bid was $275? Or, since another legitimate bidder bid after the seller, is the last good faith bid $400?

Robert approaches the auctioneer and demands he be awarded this Girard Perregaux watch for $275. The auctioneer counters that the last good faith bid prior to the completion of the sale is $400.

    Robert argues that since the seller bid $300, all bids following that bid were not in good faith since they were preceded by a “bad faith” bid — and therefore the last good faith bid prior to the completion of the sale is $275.
    The auctioneer argues that since two or more legitimate bidders bid after this “bad faith” bid, the last good faith bid prior to the completion of the sale is $400.

Although there appears to be no case law of any material nature to help decide this situation, there has been considerable discussion in law schools, legal seminars and related legal conferences about this topic.

By the seller bidding at $300, there is a false sense of market value being presented to the other bidders — and therefore maybe a good argument is that the other bids following that bid can’t be considered in good faith if possibly based on bad faith information.

Yet, another bidder bid $400 and was that $400 bid based upon, or made in any regard to the bad faith bid of $300? If the seller hadn’t bid at all, then Robert would have had the bid at $275 rather than $375, so this other bidder would have only had to bid $300 to outbid Robert. Surely this other bidder would have bid up to $400 regardless?

The legal community appears to take Robert’s position, as a matter of course, citing that all bids following a “bad faith” bid are in bad faith. One such source for this opinion was a study published in 1984 by University of Arkansas School of Law.

What amount constitutes “the last good faith bid?” It’s likely a court might rule the last bid made before a seller — lacking authority — started bidding, regardless of bids following.

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, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.