A sale by auction is complete when a property is knocked down to the highest bidder. The successful buyer has to pay and take the property after auction. At the purchaser’s request, the auction property can be held by the seller after sale. The general rule regarding the risk of loss of property after auction is that a seller cannot transfer risk of loss and the risk remains upon the seller until actual physical possession by the buyer. The risk of loss will pass to the buyer on his receipt of the property or on tender of delivery.
According to Article 2 of the Uniform Commercial Code, the ownership or title of goods is irrelevant in determining which party bears the risk of loss. Risk of loss is on the party who has control over the goods and is determined by the manner in which delivery is to be made. A seller who is to make physical delivery at his own place continues to control the goods. The buyer, who has no control over the goods, will not carry insurance on goods not in his possession[i]. Parties to an auction can bring the liability for loss of property by an agreement to that effect[ii]. A buyer and seller can adjust the risk by contract. The general rule is that the party who had control over the handling of the goods at the time of loss should bear the loss[iii].
However, under certain circumstances the risk of loss is shifted. The seller who desires to shift the risk of loss to the buyer before the buyer receives the property must clearly communicate his/her intent to the buyer[iv]. The shifting of risk of loss to the buyer before the buyer receives the property is not common. The seller can shift the risk of loss to the buyer only by clear communication of seller’s intention[v]. A statement in the auction memorandum clarifying the intention of the seller to shift the risk of loss to the buyer is enough to shift responsibility at the time of sale. Unless specifically communicated or agreed to by the parties, the risk of loss will not pass to a buyer until the property is received by the buyer.
[i] Uniform Commercial Code, § 2-509, Comment 3
[ii] Silver v. Wycombe, Meyer & Co., 124 Misc. 2d 717, 718 (N.Y. Civ. Ct. 1984)
[iii] Caudle v. Sherrard Motor Co., 525 S.W.2d 238, 242 (Tex. Civ. App. Dallas 1975)
[iv] Hawkins v. Federated Mut. Ins. Co., 1996 U.S. Dist. LEXIS 21436 (N.D. Miss. Aug. 14, 1996)
[v] Caudle v. Sherrard Motor Co., 525 S.W.2d 238, 240 (Tex. Civ. App. Dallas 1975)