Typically, and historically, title, possession, and risk of loss for personal property pass from the seller to the buyer with the fall of the hammer at auction. That is provided under the default provisions of the Uniform Commercial Code. In this regard, UCC Section 2-328 provides that "[a] sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner." Under UCC Section 2-106, a "sale" is defined as "the passing of title from the seller to the buyer for a price." So there you have it, title passes with the fall of the hammer. While the seller, through the auctioneer, may maintain a possessory lien against the property until payment is made, that doesn’t affect the passage of title, and – more often than not – possession, along with the risk of loss, is immediately transferred to the buyer. As simple as it sounds, I’m actually in the process of litigating one of these cases. The buyer – who was on site at the auction – claims that property went missing after the fall of the hammer and before the buyer’s contractor delivered all of the equipment to the buyer’s business location. As I’ve explained to the buyer’s lawyer, even if the buyer’s claim about property going missing can be believed (and we’re not ready to concede that), it doesn’t alter the legal reality of the situation – title passed to the buyer with the fall of the hammer and he took possession (and assumed the risk of loss) at the auction site, where both he and his contractor were present.
While the foregoing case may be a fairly typical auction scenario, it doesn’t exhaust all of the potential issues regarding title, possession, and risk of loss. Because auctioneers deal more and more with remote buyers, while title may pass with the fall of the hammer, possession and risk of loss will not typically pass to a remote buyer until delivery is made – and that will be either when the auctioneer delivers possession to an agent of the buyer at the auction site, or when the auctioneer delivers possession of the property to a common carrier or delivery company, or at the buyer’s location. Passage of the risk of loss is addressed in Section 2-509 of the UCC, but should really be driven by shipping and delivery terms set forth in the auctioneer’ bidder terms and conditions.
Now, an even more interesting question – Must title to personal property pass with the fall of the hammer? In other words – Can you treat personal property like real estate and form a binding contract for the purchase of the property with the fall of the hammer pursuant to which the seller retains title (and possibly possession as well) until a later date when payment is made? The answer to this question starts with a look at the UCC. I opened this discussion with a reference to the default provisions of the UCC. This is because the rules established by the UCC apply unless otherwise agreed – in other words, by default. In this regard, UCC Section 1-302 expressly provides that the effect of provisions of the UCC may be varied by agreement. On this line, as early as 1952, in United States v. Blair, the United State Court of Appeals for the Third Circuit observed that – "Generally, a sale by auction is complete when the auctioneer announces its completion. And, title passes to the successful bidder at that time, unless the parties intend to the contrary. The owner of the property offered for sale at the auction has the right to prescribe the manner, conditions and terms of the sale."
Following the language of the UCC, and taking guidance from cases like Blair, the auctioneer’s bidder terms and conditions can determine when title to personal property passes, and under what circumstances. There can be a variety of reasons for delaying the passage of title, among them (and without limitation) – (i) you may want to wait until payment (in the form of a check or draft) clears, (ii) you may want to afford the buyer a limited period of time to finance the purchase (without making financing a condition to the sale), or (iii) you may want to create different avenues for the auctioneer and seller to retain or regain possession of the property.
These issues highlight the flexibility provided under the UCC and the importance of the auctioneer’s bidder terms and conditions in establishing the rules of the auction, assigning rights and responsibilities, allocating risk, and managing expectations.