The answer is… YES… er, NO… well, It Depends!
Since this type of question arises quite often from both sides of the aisle (bidders and sellers), it warrants being posted here. Below is one of the more recent responses I replied to and hopefully it will help everyone to understand this often misunderstood part of the law.
February 4, 2011 at 9:02 pm
In an earlier response, you said, in reference to an auctioneer bidding on its own behalf, that “the MAJORITY of states allow an auctioneer to do so, IF it is DISCLOSED to the buyers that the auctioneer reserves the right to bid, whether it is on behalf of any minimums, reserves or for their own personal purchase.
If such bidding has not been disclosed, then it is illegal.” I’m not disagreeing. I just want to know what the basis is for your statement that disclosure is required.
While I’ve responded to similar questions in this blog on numerous occasions, I’ll give it another shot. I’m making a guess that you may have read the post Auction House Bidding & Selling which led to your question.
First, I’ll clarify the statement “the MAJORITY of states“:
I used this phrase as a sort of “disclaimer” because I know of one particular state (off the top of my head) that does not allow an auctioneer to bid for any reason. That state is Pennsylvania, although there could be another one or two that I’m not currently aware of, so it’s possible there could be others.
Second, I must also clarify another of my previous statements to insure it’s not misinterpreted.
An auctioneer may bid on behalf of the seller (i.e. to protect a minimum reserve) if such bidding is disclosed to the bidders.
There is no such requirement of disclosure (in most states that I’m aware of and with the exception of PA, of course), if the auctioneer is only bidding for his/her own personal purchase. In such cases, they are just another bidder for the merchandise. [However, it’s just a good idea to include/disclose such things in your terms, just to help the bidders understand and keep the questioning to a minimum, whether the auctioneer is required to do so or not.]
NOW to answer the question… “the basis for my statement that disclosure is required.”
The statement is based on the fact that almost all of the 50 states, incorporated all or most of the Uniform Commercial Code (U.C.C.) Section 2-328 into their own Business and Commerce codes/laws. You can view that section of the U.C.C. at U.C.C. § 2-328. Sale by Auction
You will note that (the first part of) Paragraph 4 states:
(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,
Now, keep in mind… you have to think like a lawyer! In other words, you have to read that statement very carefully to determine what it is stating, as it’s written in sort of a “reverse logic“.
The KEY STATEMENT is “and notice has not been given that liberty for such bidding is reserved“.
Therefore, to reverse this statement into layman’s terms, it is stating that if an auctioneer receives a bid on the seller’s behalf, then they must first give notice that such liberty of bidding is being reserved to do so.
OR more simply… Such bidding must be DISCLOSED (i.e. give notice) to the bidders, prior to doing so.
Now, to take this one step further… there is no requirement for an auctioneer to disclose each individual bid being made on behalf of the seller (i.e. the actual act of such bidding at the time it is being done).
There is also no requirement for the auctioneer to disclose whether or not a particular item has a minimum reserve.
The only requirement is that the auctioneer must disclose that such bidding may take place during the course of the auction. This disclosure may be made during the opening announcements or it may be in the form of a written Terms & Conditions. So, bidders should read the Terms & Conditions and pay close attention to the opening statements. Bidders should also keep in mind, even if you were not present during the opening statements, when you bid at an auction, you have agreed to be bound by those terms even if you didn’t actually hear them spoken. So, it’s always a good idea to arrive early and listen closely.
OH! One more thing… as I stated that most of the 50 states incorporated the U.C.C. into their laws, Louisiana did not incorporate the U.C.C. as written (they just used parts of it) and a few others have also modified the code to some extent. Since other states may have added additional requirements or modified their auction laws, check the laws of your own state and if you’re an auctioneer, you should already know what those laws are to begin with. In any case, if in doubt… Don’t bid or allow the seller to bid on their items and you’ll have nothing to worry about.