7.2 Absolute / Without-Reserve Advertising

Absolute / Without-Reserve Advertising

Rule 1440.260 is titled Advertising; Auction without Reserve; Absolute Auction. It is not a marketing preference. It is a two-part ban: (a) forbids minimum-bid or minimum-price language in any advertisement or announcement for an absolute or without-reserve sale, and (b) forbids issuing that advertisement or announcement unless two contract-and-title conditions are already true. Section 15-10 independently requires the written seller contract to state whether the auction is with reserve or absolute. Advertising "absolute" while the file keeps a secret reserve is therefore a 1440.260 problem, a 15-10 mismatch, a 15-5(1) material misrepresentation, and 20-15(9) untruthful advertising.

Subsection (a): no minimum language

No advertisement or announcement for an "absolute auction" or "auction without reserve" shall include any terms or language regarding a minimum bid or minimum price.

The rule names both labels. PSI will use either. "Absolute," "without reserve," and "no reserve" are the same advertising category for 1440.260 purposes. Once you use that label, you may not also say:

• "absolute auction, subject to a $40,000 minimum"
• "sells without reserve, opening bid $25,000 required"
• "absolute, seller reserves the right to reject bids below appraised value"
• "no reserve except a confidential reserve"

Those phrases are (a) violations even if the rest of the bill is honest. A with-reserve sale may talk about a published opening bid or a disclosed reserve if the sale is advertised as with reserve. (a) fires when the absolute / without-reserve banner is combined with minimum-price talk.

"Announcement" reaches the ring. Calling the sale absolute and then announcing "I need $40,000 to sell it" is an announcement with minimum-price language. The sale-bill and the microphone are both inside (a).

Subsection (b)(1): clean title, or a written release-without-regard

No advertisement or announcement for absolute / without reserve shall be issued unless:

(1) there are no liens or encumbrances on the property to be sold other than current tax obligations, easements, or restrictions of record to any person other than the seller, unless every holder of each lien or encumbrance provides the auctioneer written evidence of a binding commitment that the liens or encumbrances shall be released immediately after the sale or at closing, without regard to the amount of the highest bid on the property or the identity of the high bidder.

Parse the safe harbors. Current real-estate taxes, recorded easements, and restrictions of record do not by themselves block an absolute ad. A bank mortgage, a judgment lien, a UCC fixture filing, or a privately held note does block the ad unless every holder gives the auctioneer a writing. The writing must be a binding commitment to release immediately after the sale or at closing, and the release cannot depend on the bid amount or who the high bidder is. A lender letter that says "we will release if the bid pays us in full" is not (b)(1). A handshake from the banker is not written evidence.

The exam fact pattern is a farm with a $180,000 mortgage advertised as "absolute, no minimums." If the bank has not given a bid-amount-blind release commitment, the advertisement may not be issued. Current taxes and a recorded driveway easement on the same farm do not, standing alone, create the same block.

Subsection (b)(2): the contract must bind the seller to take the high bid and stay out of the bidding

(2) within the auction contract there is a binding written requirement that the seller, or agent of the seller, shall accept the highest bid, and transfer ownership of the property, without regard to the amount of the highest bid or the identity of the high bidder, and that the seller, or agent of the seller, shall not bid at the absolute or without-reserve auction, or otherwise participate in the bidding process.

Three contract sentences, all required:

1. Seller (or seller's agent) shall accept the highest bid.
2. Seller shall transfer ownership without regard to amount or identity of the high bidder.
3. Seller (or seller's agent) shall not bid and shall not otherwise participate in the bidding process.

A 15-10 contract that merely checks "absolute" but lets the seller "confirm" after the last bid is not (b)(2). A seller in the crowd who "protects" the lot, a spouse bidding as a shill, or an agent running the bid up is participation. The no-bid duty is in the advertising rule because you may not advertise absolute unless that writing already exists.

15-10 still requires the agreement to state whether the auction is with reserve or absolute. (b)(2) is the extra writing that makes an absolute advertisement lawful. Checking the absolute box without the accept-and-not-bid sentences is not enough to issue the ad.

Secret reserve, 15-5, and 20-15(9)

Chapter 6 taught 15-5(1): do not misrepresent a fact material to a purchaser's decision to buy. Whether the high bid actually buys the lot is material. Advertising absolute while intending to enforce a secret $40,000 reserve is:

• 1440.260(a) if any minimum language appears, and 1440.260(b) because the contract does not require acceptance without regard to amount;
• 15-5(1) as a material-fact misrepresentation;
• 20-15(9) substantial misrepresentation or untruthful advertising, and often 20-15(12) misleading advertising.

Do not pick "only a 15-10 checkbox problem." The advertising rule has its own test. Putting the reserve in the seller contract does not make the public advertising true.

UCC 2-328(3) — pointer only

Illinois has adopted UCC § 2-328(3) (810 ILCS 5/2-328). In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In an auction with reserve, the auctioneer may withdraw the goods at any time until completion of the sale is announced. Chapter 11 is the full UCC sale-by-auction treatment, including seller-bid consequences. For this section, remember why 1440.260(b)(2) exists: advertising without reserve is a public promise that the high bid will take the lot. UCC 2-328(3) is the sales-law engine of that promise once bids are called. Do not withdraw a without-reserve lot because the bid "is not enough."

Work every absolute-advertising item in this order: Does the copy use absolute or without-reserve? Does it also talk about a minimum? Are liens limited to taxes, easements, and restrictions of record, or is there a written release-without-regard from every other holder? Does the 15-10 contract force acceptance, transfer, and a seller who will not bid? If any answer is wrong, the advertisement shall not be issued.