We have written extensively about fraudulent inducement in regard to seller bidding at auction, notably here: https://mikebrandlyauctioneer.wordpress.com/2018/06/21/that-other-bidder-and-fraudulent-inducement/.
Most materially, we noted here that bidding for the seller is generally legal and ethical, but can account for shill bidding or fraudulent inducement if done to portray a genuine bidder is bidding instead of the seller.
State law in nearly every state suggests that seller bidding in a with reserve auction is acceptable with no buyer recourse so long as it is disclosed (reserved.) [https://mikebrandlyauctioneer.wordpress.com/auction-treatise/%c2%a7-2-328-sale-by-auction/].
Beyond the UCC 2-328, here we analyze three distinct circumstances, where bidding for the seller is legal and ethical and when it’s not:
- Bidding for the seller where the auctioneer expressly communicates who the seller is and/or the bid is being placed by the seller — expressed communication.
- Bidding for the seller where the auctioneer uses a consistent number/name and or gestures a particular direction to denote a seller bid — implied communication.
- Bidding for the seller by using a variety of fake names/email addresses and or gesturing in various directions to suggest genuine bidding — misrepresentative (fraudulent) communication.
Expressed communication or implied communication with bidders is legal and ethical; misrepresentation (fraudulent) communication is problematic. We ask here, simply — why not express or imply where the actual seller bid is, rather than registering false names/email addresses and/or gesturing in various directions?
The answer to that question is equally simple: Because if the auctioneer portrays the seller bid as genuine then other bidders are more likely to bid again … thus fraudulent inducement works for the seller’s benefit.
Auctioneers are to advocate for the seller’s position, but within legal and ethical guidelines. Fraudulently inducing bids is not legal nor ethical. In fact, we were quoted in this article about fraudulent inducement:
The subject auctioneer in the Arizona Republic story essentially admitted to fraudulent inducement here:
Prado said telling customers about the minimum price, or advertising that a specific item has a reserve, would undermine the psychology that makes auctions profitable. Customers become competitive as bidding escalates, he said, and if they see others upping the price they are likely to reassess the value of a product.
As we have stated numerous times, the auction business suffers when auctioneers attempt or practice illegal or unethical practices; there are far better ways to attract bidders/buyers to auctions — such as treating them fairly, equitably and legally/ethically.
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, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s 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.