, , , , , , , , ,


I’ve been to Kansas; in fact, several times. It appeared to me at those times, I was in the United States, but maybe I wasn’t?

Possibly I wasn’t in Kansas after all … but somewhere else?

Actually [Toto] it was Kansas; it’s only in the Court of Appeals of the State of Kansas where it seems like we’re in a different land.

In the case known as Young v. Hefton, this Court stared directly at the UCC 2-328 (K.S.A. 84-2-328) in December, 2007 — which states without a shred of doubt that there are only two types of auctions — and concluded that there were (are) three

Here’s the actual text from the Court’s conclusions:

There are generally three types of auctions: (i) with reserve; (ii) without reserve; and (iii) conditional.

i. In an auction with reserve, the placing of the property for sale is an invitation for bids, not an offer to sell. Bids are accepted on the seller’s behalf and a contract is formed when the auctioneer closes the bidding, typically by the fall of the hammer or other method that notifies the high bidder that the bid has been accepted. The seller does not have any right to accept or reject bids after the close of bidding.

ii. In an auction without reserve or absolute auction, placing of property for sale constitutes an offer to sell and each bid represents a conditional acceptance, subject to receipt of a higher bid. Thus, in an auction without reserve, the seller may not withdraw or refuse to sell the property once the bidding has been opened on that property unless no bid is made within a reasonable time.

iii. In a conditional auction, the seller reserves the right to accept or reject bids after the close of the bidding. In order for an auction to be considered a conditional auction, the conditions must be effectively communicated to prospective bidders. The key distinction between an auction with reserve and a conditional auction is that property can only be withdrawn before the close of bidding in the former, but it can be withdrawn after the close of bidding in the latter.

Here (ii) is a without reserve auction — absolute — one of the two types and (i) and (iii) are with reserve — the other type.

An auction which reserves the right of the seller to nullify the sale before the close of bidding is the same type of auction which reserves the right of the seller to nullify the bidding after the close of bidding: a with reserve auction.

The only difference in these two variations of a with reserve auction concerns the “close of bidding.” To maintain the right of withdrawal after the close of bidding, the auctioneer must express that conclusion with something other than his customary closing.

For instance, if an auctioneer normally and customarily says, “Sold!” to signal property is indeed sold, then saying, “We’re going to stop here and hold your bid subject to the seller’s acceptance,” would signal the seller is reserving the right to accept/reject this final offer.

But everywhere in the United States (and the Land of Oz) once the auctioneer concludes the auction customarily, the property is sold; if not, the property remains unsold. As well, in either case if the auctioneer does not conclude the auction customarily, the high bidder may retract his bid and further higher bids may be accepted.

The famous case known as Drew v. John Deere (Drew v. John Deere Company of Syracuse, Inc., 19 A.D.2d 234, 241 N.Y.S.2d 267, 269-270 (1963)) noted that auctions (in the United States) are binary in that there are only two types. Exactly.

This 2007 case in Kansas is at best an aberration. While the rest of the courts in the United States continue to rule in auction cases in a consistent manner, based upon an understanding of the UCC 2-328 and ample precedence, this Court seems to have thought it needed to invent new rules to deal with what was (supposed to be) a fairly elementary circumstance — and I’m not convinced their overall finding and/or affirmation was correct either.

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, Real Estate Showcase and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.