Reserve Price and the Auctioneer's Knockdown
North State Equipment Auctions contracts with consignor Rivera to sell a 2021 skid steer. The written contract sets a reserve of $18,000, states 'auctioneer may not sell below reserve without consignor's written approval,' and sets an 8% seller commission. A 10% buyer's premium is disclosed in the ad and at registration. At auction, bidding stalls at $16,500. Auctioneer Tate announces, 'The seller told me to move it,' and knocks down to bidder Nguyen. Rivera refuses to sign the title and says no approval was given. Nguyen tenders $18,150 (the $16,500 bid plus 10% premium) and demands the machine. Tate says a reserve only lets him open bidding and that no contract exists until the seller signs. The contract has no seller-confirmation clause. Tate has already deposited Nguyen's $1,650 deposit in the firm trust account.
1. Did Tate have authority to knock down at $16,500? Analyze the reserve and agency relationship.
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A reserve is a minimum price below which the seller has not authorized a sale. Tate was the seller's agent only for the authority granted in the written contract. The contract expressly barred a sale below $18,000 without Rivera's written approval, and the contract had no seller-confirmation clause. Tate's statement that 'the seller told me to move it' was not true on the facts and could not expand his authority. His belief that a reserve only sets an opening bid is wrong. The $16,500 bid was below the reserve, so Tate lacked actual or apparent authority to knock down. The firm may be liable to Nguyen for breach of warranty of authority or misrepresentation, but Rivera is not bound merely because Tate accepted the bid.
2. What contract rights, if any, does Nguyen have against Rivera and the firm?
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Nguyen's bid was an offer; the fall of the hammer would normally be acceptance, but only within the auctioneer's authority. Because Tate exceeded the reserve authority, no enforceable sale contract arose against Rivera at $16,500. If Rivera later ratifies the sale in writing, the contract can be enforced at $16,500 plus the disclosed 10% premium. Without ratification, Nguyen is entitled to return of the $1,650 deposit and may have a claim against the firm for reliance damages or misrepresentation. Nguyen cannot force Rivera to convey at $16,500 merely because Tate announced a knockdown. The firm should not deliver title or the machine until the authority issue is resolved.
3. How should the trust funds be handled while the dispute is unresolved?
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Nguyen's deposit is client/trust money, not firm operating money. It should remain in the trust account, separately ledgered for Nguyen, pending written resolution. If the sale is rescinded, the firm should return the $1,650 promptly and obtain a signed release. If Rivera ratifies, the deposit should be applied to the purchase price and the balance handled through closing. The firm should not use the deposit to pay its commission or expenses before the dispute is resolved. It should also preserve the bid records and the written contract, and consider notifying its insurer. Because Tate made a false statement about seller approval, the firm should address the buyer's reliance directly rather than claiming no contract after taking the deposit.