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Effect and Operation of Sale

The Uniform Commercial Code governs the sale of goods by auction[i]  According to U.C.C. § 2-403, subsection (2) “any entrusting of goods to a merchant that deals in goods of that kind gives the merchant power to transfer all of the entruster’s rights to the goods and to transfer the goods free of any interest of the entruster to a buyer in ordinary course of business.”  A purchaser at a public auction is a bonafide purchaser[ii].  Therefore an agent who has the authority to transfer title was estopped from denying such authority as against the purchaser acting in good faith.  Further, official comment 2 to the U.C.C. § 2-403 provides that even a bailee, who has no authority whatever to make a sale, can confer good title to goods on a third party, if such bailee is a merchant who regularly sells the same kind of goods[iii].

In the event of the sale not closing because of the vendor’s default, the vendee is entitled to the return of his or her deposit.  In Teaffe v. Simmons, 93 Mass. 342, 343-344 (Mass. 1865), it was held that if a seller violates the agreement either by failing to show a good title in due time or by refusing to execute the conveyance, the vendee may maintain an action against auctioneer to recover the deposit but not expenses or interest or vendee can maintain an action against the vendor to recover the deposit and interest.  The vendor is generally responsible, not only for the deposit, but for the accrued interest.  However, in Chateau D’If Corp. v. City of New York, 219 A.D.2d 205, 208 (N.Y. App. Div. 1st Dep’t 1996), the court held that a vendee who defaults on a real estate contract without a legal excuse, cannot recover the down payment.  Also, a vendor is entitled to his/her down payment if the default is due to vendee’s actions[v].   The purchaser is not entitled to recover the money, if he/she purchased the property with full knowledge of the facts and also had enough opportunity to examine and assess the property.

Generally, a bidder in an auction is duty bound to pay the bid price  in order to fulfill his/her promise and the auction sale will be complete only after the making of such payment[vi].  An auction sale can also be subject to an express condition.  In such case the title does not pass to the buyer until that condition is fulfilled[vii].  This is an exception to the rule that an auction is complete when the auctioneer so announces by the fall of gavel.  The UCC is silent about the transfer of risk of loss at an auction sale.  Generally, the ownership of goods is irrelevant in determining which party bears the risk of loss. The essential element is the identity of the party who has control over the goods.  The vendee is entitled to have the property delivered to him/her, once he/she has fulfilled the terms of the sale.  At this point, refusal of delivery will be considered a breach of contract.  Moreover, since the sale by auction is governed by the Uniform Commercial Code, the express and implied warranty provisions of the UCC are applicable to and govern auction sale.

[i] Bassford v. Trico Mortgage Co., 273 N.J. Super. 379, 384 (Law Div. 1993)

[ii] http://chestofbooks.com/society/law/Popular-Law-5/Section-55-Who-Are-Bona-Fide-Purchasers.html

[iii] U.C.C. § 2-403

[iv] United States v. Anthony Grace & Sons, Inc., 384 U.S. 424, 425 (U.S. 1966)

[v] Chateau D’If Corp. v. City of New York, 219 A.D.2d 205, 208 (N.Y. App. Div. 1st Dep’t 1996)

[vi] Bassford v. Trico Mortgage Co., 273 N.J. Super. 379, 384 (Law Div. 1993)

[vii] Atl. Orient Corp. v. AOC Energy LLC (In re Atl. Orient Corp.), 2003 BNH 5 (Bankr. D.N.H. 2003)

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