Auction Process, Bidding, and Contract Formation
Auction Process, Bidding, and Contract Formation tests when a bid becomes a contract and how the auctioneer controls the sale. Kentucky version of UCC 2-328, within KRS Chapter 355, supplies the basic auction rule for goods.
Formation
- A bid is an offer; the contract is complete when the auctioneer announces completion by fall of hammer or other customary manner. Until then, a bidder may be outbid and the auctioneer may reopen bidding if a dispute arises.
- In a reserve auction, the seller may decline bids below the reserve; the auctioneer should not announce sold unless the reserve is met or the seller waives it. In an absolute auction, no reserve exists and the property must go to the highest valid bidder.
- The auctioneer may set bidding increments, reject invalid or collusive bids, and require registration or deposit. Announced terms, including buyer premium, payment, removal, and condition, become part of the contract.
Worked example
A seller sets a $10,000 reserve. The highest bid is $9,500 and the auctioneer says pass. No sale contract forms because the reserve was not met. If the same auction were advertised absolute, the $9,500 bid would generally be the winning bid, and the seller could not later insert a reserve.
Traps
Treating a high bid as acceptance before the auctioneer closes the sale; allowing undisclosed seller bids in an absolute auction; changing terms after bidding begins; failing to document which bid was accepted when a dispute arises.