Bidding on His Own Lots
Dale runs a weekly consignment auction. He is also a licensed auctioneer and a part-time dealer. At a Saturday sale, a ringman tells Dale that bidding on a tractor is stalling at $14,000. Dale, who privately wants the tractor for his own lot, nods at the ringman and the ringman calls a $15,000 bid. There is no bidder at $15,000 - Dale intends to buy it himself at that price if no one else bids. A bidder in the crowd raises to $15,500 and wins. Later, Dale tells a friend, "I was bidding against the house to protect my margin." A consignor whose items were in the same sale hears the story and asks whether the sale was fair.
1. Evaluate Dale's nod-and-bid conduct. What is the problem, and does it matter that he never actually bought the tractor?
Read the worked answer
The problem is fictitious or collusive bidding - a bid called by the auctioneer or his agent when no genuine competing bidder exists, used to push the price up. Dale's nod was an instruction to call a bid that was not from an independent bidder; his willingness to buy at that price does not make the $15,000 a real competitive bid, because he controlled the call and the ringman acted on his signal.
It does not matter that he did not end up owning the tractor. The harm occurred when the $15,000 was called and the crowd bidder was induced to pay $15,500 based on a bid that was not genuine. The test is whether the bid reflected real competition, not whether the auctioneer personally ended up with the item. Dale's own statement - that he was "bidding against the house to protect my margin" - is an admission that the bid was not a real buyer bid.
Auctioneers may generally buy, but only under rules that require disclosure and that keep the auctioneer from both calling the bid and being the hidden buyer. Secretly running up a lot for personal gain is the violation.
2. The consignor asks what Dale should have done if he genuinely wanted the tractor. Give the compliant path and the disclosures involved.
Read the worked answer
If Dale wanted the tractor, he should have separated his roles. Options:
- Recuse: have another auctioneer or a designated caller conduct that lot, with Dale bidding openly as a member of the public.
- Disclose in advance: announce to the crowd and to the consignor, in writing where possible, that the auctioneer or a related party may bid on specified lots, so no bidder is misled about who is competing.
- Set a reserve with the consignor: if the goal is protecting a minimum, agree on a reserve price in the consignment contract and have the auctioneer announce that the lot is subject to a reserve - not call phantom bids to get there.
The key disclosures: (a) that the auctioneer or an affiliate has an interest in the lot, (b) whether the lot is subject to a reserve or absolute, and (c) who is calling the bid if the interested party is bidding. Silent self-dealing through a ringman satisfies none of these.