Auction Journal

I was watching another lawyer argue an appeal once, and one of the judges, paraphrasing a point that the lawyer had just made, asked – “Are you saying that . . . .?”. The lawyer responded – “That’s not what I’m saying, your Honor, that’s what the General Assembly said, I’m just repeating it.” That was a great answer that was wholly accurate in the context of the case, and he ultimately won the appeal based on the application of the statutory language.

With that backdrop, let’s look at an auctioneer’s discretion to reopen the bidding to recognize a timely tendered missed bid (i.e., a bid tendered before the fall of the hammer, but brought to the auctioneer’s attention only after the fall of the hammer). Auctioneers (and people who might be willing to sue an auctioneer) have been barraged by “expert” advice on social media – accompanied by a copious amount of table pounding – advising, first, that auctioneers can’t reopen the bidding, and, then (after being confronted with the law as it actually exists), advising that auctioneers should never, never, never reopen the bidding even if it is consistent with the law and industry practices.

The rationale for the “you should never, never, never reopen the bidding” advice is – as near as I can tell – multifold: first, BECAUSE I SAID SO, second, BECAUSE IT MIGHT DISCOURAGE BIDDERS FROM ATTENDING YOUR NEXT AUCTION, and third, BECAUSE IT MIGHT RESULT IN A LAWSUIT. These reasons are not compelling. The first rationale (because I said so) is not a sound argument, and rarely works on anyone over the age of four. The second rationale (because it might discourage bidders from attending your next auction) raises the ethical question as to the possible elevation of an auctioneer’s interest in potential future revenues over the interests of the auctioneer’s current seller. And, with respect to the third, while it is a good idea to avoid litigation when reasonably possible, I’m not sure it’s reasonable under all circumstances to give away the seller’s money to avoid a meritless lawsuit.

Writing about auction law, teaching auction law classes at several schools of auctioneering, and presenting to various auctioneer associations across the country, I have observed that an auctioneer has the discretion to reopen the bidding to recognize a timely tendered missed bid. To be clear, however, that’s not what I’m saying, that’s what the General Assembly in every state that has adopted Article 2 of the Uniform Commercial Code (49 out of 50) has said, and that’s what numerous courts (including courts in Louisiana, the state that has not adopted Article 2 of the UCC) have said. I’m just repeating it.

Moreover, the exercise of discretion to reopen the bidding to recognize a timely tendered missed bid has been a long-standing industry practice. By way of example, in 1744, Samuel Baker (the founder of the firm that became known as Sotheby’s) provided for the possibility of reopening the bidding in his Bidder Terms and Conditions.With respect to the UCC, Section 2-328(2) provides that –

A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.

As a matter of law, then, an auctioneer has the discretion to reopen the bidding to recognize a timely tendered missed bid. To be clear, however, that’s not what I’m saying, that’s what the General Assembly in 49 out of 50 states has said. I’m just repeating it. Moreover, the courts have recognized an auctioneer’s discretion to reopen the bidding to recognize a timely tendered missed bid (see Callimanopulos v. Christie’s Inc., 621 F. Supp. 2d 127 (S.D.N.Y. 2009); Kline v. Fineberg, 481 So.2d 108, 109 (Fla. App. 3 Dist., 1985); Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (Va. 1972)). Again, that’s not what I’m saying, I’m just repeating it.

So, let’s talk about discretion. One definition of “discretion” is “the freedom to decide what should be done in a particular situation.” This means that an auctioneer exercising his or her discretion to reopen the bidding may exercise that discretion in favor of reopening the bidding to recognize a timely tendered missed bid, or may exercise his or her discretion against reopening the bidding to recognize a timely tendered missed bid. There are numerous factors that might influence the exercise of that discretion. By way of example (but not limitation):

- If an auctioneer is selling a $10,000,000 property in Colorado and the missed bid represents a $250,000 advance, circumstances might weigh in favor of reopening the bidding.

- If an auctioneer is selling a $3,000,000 painting in New York and the missed bid represents a $100,000 advance, circumstances might weigh in favor of reopening the bidding.

- If an auctioneer is selling a $200,000 piece of farm equipment in South Dakota and the missed bid represents a $10,000 advance, circumstances might weigh in favor of reopening the bidding.

- If an auctioneer is selling $5.00 box lots in Ohio and the missed bid represents a $1.50 advance, circumstances might weigh against reopening the bidding.

While there will, naturally, be other considerations, I expect that most auctioneers recognize the difference between a high-value asset and a $5.00 box lot, and also recognize that different considerations may be implicated based on asset class, asset value, and the needs of the seller, and that, perhaps, a $5.00 box lot should not be the tail wagging the dog in the auction industry.

To be clear, regardless of your position on reopening the bidding, UCC 2-328 (as written, and as interpreted by the courts) gives the auctioneer the discretion to reopen the bidding to recognize a missed bid, or not. Discretion means that it is the auctioneer’s choice on a case-by-case basis. Certainly, that choice ought to take the interests of the seller into consideration. And, if it is your up-front determination to never, never, never reopen the bidding regardless of the circumstances, regardless of the value of the asset, and regardless of the interests of the seller, you should probably advise the seller of that determination when the seller is deciding whether to hire you. Also, you really want to consider whether it makes sense for an auctioneer to abandon a right afforded under the law (that is also consistent with industry standards as established over hundreds of years) to avoid a possible frivolous lawsuit by a bidder who harbors the unsustainable belief that you shouldn’t have reopened to bidding to recognize a timely tendered missed bid.

This brings me to an interesting point, I have read several social media posts in which a self-proclaimed industry “expert” argues, both, that (i) auctioneers should never, never, never reopen the bidding, and (ii) auctioneers should never, never, never use Bidder Terms and Conditions that vary the effect of any provisions of Article 2 of the UCC (even though that possibility is consistent with the function of the Article 2 as a gap-filler statute, and even though that possibility is expressly recognized in Section 1-302 of the UCC). One of the problems with that advice (and that’s not to say that there is only one problem) is that, while an auctioneer has the right to start the auction by saying “Sold means sold, and I will never, never, never reopen the bidding,” by doing so, the auctioneer is introducing terms that vary the effect of Section 2-328(2) of the UCC. Yes, waiving the discretion to reopen the bidding (or not) up-front (as opposed to exercising that discretion one way or the other on a case-by-case basis) varies the effect of Section 2-328(2) of the UCC. As such, adopting a policy to never, never, never, reopen the bidding (and incorporating that policy into your Bidder Terms and Conditions) and never, never, never using terms that vary the effect of Section 2-328 of the UCC are two mutually exclusive conditions that cannot exist at the same time. Thus, when auctioneers are encouraged to adhere to both of these mutually exclusive conditions, perhaps they should question whether that advice is reasonable, reliable, and informed, or just made up. You might also want to ask how the never, never, never reopen the bidding position can be reconciled with the view adopted by the General Assembly in each of 49 states, as well as the founder of Sotheby’s.

 THIS ARTICLE IS FOR INFORMATION AND DISCUSSION PURPOSES ONLY, AND IS NOT INTENDED AS, AND CANNOT BE RELIED ON AS, LEGAL ADVICE. NO ATTORNEY-CLIENT RELATIONSHIP IS INTENDED OR ESTABLISHED. SPECIFIC QUESTIONS SHOULD BE REFERRED TO AN ATTORNEY OF YOUR OWN CHOOSING. 

On Sunday, January 23, 2022, Tom Brady threw a 55-yard touchdown pass to wide receiver Mike Evans who, after scoring, tossed the ball into the stands. A week later, Brady made the surprising announcement that he was retiring from professional football. Because of Brady’s announced retirement, the ball was not just tied to Brady’s 86th playoff touchdown (a seemingly unpassable record), but it became the ball used for Brady’s final career touchdown. On March 12, 2022, the football was at auction for $518,628 (including Buyer’s Premium). Then, on March 13, Brady tweeted that he was un-retiring, and was planning to play for Tampa Bay in the 2022 NFL season. Sports memorabilia experts have speculated that Brady’s un-retirement resulted in a precipitous drop in the value of the football.

Not surprisingly, there has been discussion about the legal rights and responsibilities of the auctioneer, the seller, and the buyer under these circumstances. In some of these discussions, there has been speculation as to whether, under the Uniform Commercial Code, the buyer could reject the football as nonconforming goods, or, if the buyer had taken possession, whether the buyer could revoke acceptance of the football as nonconforming goods. I have also even seen speculation about whether the auction house somehow misrepresented the nature or character of the football. I don’t find these assessments, or associated theories, compelling. First, at the time of the auction, the football was exactly as described. And, because Tom Brady hasn’t yet thrown another touchdown, the football is, today, exactly as described at the time of the auction. So, there was certainly no misrepresentation by the auction house, and to suggest otherwise is just silly. Also, the UCC doesn’t afford the buyer the opportunity to reject acceptance of, or to revoke acceptance of, conforming goods. And, as of today, the football constitutes conforming goods. Moreover, because it appears that the Bidder Terms and Conditions did not reserve title in the seller until payment was made by the buyer, by operation of Section 2-328 of the UCC, the buyer owns the football (which is subject to possessory liens in favor of the seller and the auction house), and is obligated to pay the hammer price and the buyer’s premium.

So, how should we look at this situation from a legal perspective. To start, it is important to recognize that every auction transaction involves risk, and each auction transaction may involve risk that is unique to the specific transaction. The first question to be asked, then, is – What was the risk associated with the auction purchase of Tom Brady’s final career touchdown football? The second question might be – Did the auction house guarantee that Tom Brady would not un-retire?

The provenance of the football was well documented, and, therefore, the risk of whether this was THE FOOTBALL was pretty well covered. Plus, the auction house warranted authenticity (i.e., that this was THE FOOTBALL). So, what was the risk? The risk, from a value perspective, was that Brady might un-retire (which he has announced) and that he might throw another touchdown (which he hasn’t done yet, and may never do). Nothing in the Bidder Terms and Conditions, or in the UCC, made the auction house the guarantor of Tom Brady’s retirement. It’s as simple as that. I would argue that the value of the football vis-à-vis Tom Brady’s retirement status was a risk assumed by the buyer. In this regard, hindsight suggests that a call from the buyer to Lloyd’s of London (or some other provider) to explore customized insurance products might have been prudent.

How this is handled among the parties may, largely, be a business decision. From a legal perspective, however, with the exception of an action by the seller and/or the auction house to enforce the buyer’s payment obligation, any litigation might be premature and unsustainable.

THIS ARTICLE IS FOR INFORMATION AND DISCUSSION PURPOSES ONLY, AND IS NOT INTENDED AS, AND CANNOT BE RELIED ON AS, LEGAL ADVICE. NO ATTORNEY-CLIENT RELATIONSHIP IS INTENDED OR ESTABLISHED. SPECIFIC QUESTIONS SHOULD BE REFERRED TO AN ATTORNEY OF YOUR OWN CHOOSING. 

Within the auction industry absentee bids left with an auctioneer are generally seen – and should be seen – as a ministerial accommodation to bidders who are unable to be physically present at an auction (or, if present, choose not to execute their own bids). Absentee bids can also benefit the seller by potentially increasing the Hammer Price on a lot, and by potentially providing a starting point for bidding. Because bidders and sellers often bring their own expectations to the auction (including expectations around absentee bidding), and because those expectations may, and often are, inconsistent with industry standards and with the practices of the individual auctioneer, it is important for all parties to understand the nature of an absentee bid, and relationships of the parties with respect to an absentee bid. As such, in order to educate the parties, manage their expectations, avoid disputes, and reduce the risk of liability, auctioneers who receive absentee bids should clearly establish the nature of absentee bidding and the procedures employed by the auctioneer in handling absentee bids. Moreover, in some licensing states, the auctioneer is required to describe his or her policies regarding absentee bids in the seller’s contract. Under any circumstances, I would suggest that your procedures for handling absentee bids be set out in your seller’s contract, in your Bidder Terms and Conditions, and in your absentee bid form.

As a starting proposition, the auctioneer is the seller’s agent. This means that the auctioneer acts on behalf of, and for the benefit of, the seller. Notwithstanding this essential reality, when an auctioneer agrees to receive and execute an absentee bid, several questions arise:

• What, if any, relationship and potential liabilities are established between the absentee bidder and the auctioneer?

• At what amount do you set-in the absentee bid? (By way of example, if you have a $500 absentee bid, do you set it in at $500 or at some lower amount to be advanced competitively?)

• What happens if there is a failure to execute the absentee bid, and, in particular, is the auctioneer potentially liable to the absentee bidder or the seller?

Like so many issues confronted by auctioneers, the answers to these questions should be found in both the auctioneer’s Bidder Terms and Conditions and in the written contract between the auctioneer and the seller.

The Bidder Terms and Conditions provide the auctioneer with the opportunity to establish rules applicable to the auction and to describe the contractual relationship between the auctioneer and the bidders. The Bidder Terms and Conditions should clearly state that the auctioneer is the seller’s agent, and that, under no circumstances (including the receipt of absentee bids), will the auctioneer act as, or be deemed, an agent of a bidder. Additionally, the Bidder Terms and Conditions should indicate that if absentee bids are accepted, they will be accepted in the auctioneer’s sole and absolute discretion, and will be executed as a ministerial accommodation only – not as an obligation.

Should an auctioneer be willing to make the accommodation of receiving absentee bids, he or she must determine, as a matter of policy, whether an absentee bid will be executed at its full amount or whether it will be executed competitively (i.e., initiated at a lower opening amount that is typically a percentage of the maximum bid and only executed up to the amount necessary to constitute the high bid, or until exhausted (whichever comes first)). Once this determination is made, it should be stated clearly in the Bidder Terms and Conditions, and in the seller’s contract, so that there are no surprises.

Occasionally, I’ve been told by an auctioneer that “I set it in where the absentee bidder tells me to set in.” When I hear that, which, fortunately, is not often, it gives me palpitations because, if you are not the agent of the absent bidder, the absentee bidder should not be giving you instructions. And, to the extent you are taking instructions from the absentee bidder you run the risk – at least of the argument – that an agency relationship was created. Remember, it’s your auction, your rules, and you work for the seller. If the absentee bidder can direct how his or her bid is executed, do you risk creating the expectation of an agency relationship on behalf of the bidder?

Bear in mind that, in a brokered real estate transaction, a listing agent who receives an offer from a potential buyer is, typically, required to provide a disclosure of agency relationship, in writing, so that the offeror understands that the listing agent is working for the seller and that there is no dual agency (unless expressly agreed to). An auctioneer receiving an absentee bid really wants to have a similar disclosure in place. Once the auctioneer determines how an absentee bid will be set-in it needs to be set forth in Bidder Terms and Conditions, in the absentee bid form signed by the absentee bidder, and in the seller’s contract with the auctioneer so that everyone is on the same page. In this regard, if the auctioneer is setting the bid in at a percentage of the maximum amount, you want to explain the rationale to the seller up front so that you don’t have to explain, later, how it was that you had a $500 absentee bid, but sold the lot for $480.

Next, the Bidder Terms and Conditions and the seller’s contract should recognize the possibility that – for any number or reasons – an absentee bid may go unexecuted. I’ve actually been in that position as an absentee bidder. Having left a $500 absentee bid on a lot, I called the auctioneer (a good friend of mine) after the sale and asked how I did. After a moment of awkward silence, I was told I didn’t win the lot. Expressing surprise, I told the auctioneer that I thought I left some cushion in the bid. Well, it turns out that the lot sold for $300, and my bid was never executed. It happens. And, you want to let both your absentee bidder and your seller know that – while you will make reasonable efforts to execute absentee bids, there are circumstances that may result in such a bid not being executed, and that there will be no liability for the failure to execute an absentee bid. Essentially, the risk of a failure to execute should not rest on the auctioneer.

Each absentee bidder should also be advised that a lot subject to an absentee bid may be sold to another bidder for the maximum amount of the absentee bid based a bidding sequence that causes another bidder to reach that amount first (for example, the maximum amount of the absentee bid was $100, the absentee bidder was in at $90, and the lot sells to another bidder for $100). Additionally, the Bidder Terms and Conditions should address how an absentee bid will be handled if its execution would be for less than a full bidding increment established by the auctioneer. By clearly articulating the rules for handling absentee bids in the Bidder Terms and Conditions, the auctioneer can manage the bidder’s expectations and reduce the risk of liability.

Here is an absentee bid form that I have provided to auctioneers addressing the issues discussed in this article. Remember, the provisions should be paralleled in your seller’s contract, as well.

Given all of the foregoing, I was taken aback recently to read a theory on social media that an auctioneer’s receipt of an absentee bid to be executed competitively creates a conflict of interest between the absentee bidder (who hopes to get the lot at the lowest possible price) and the auctioneer (who benefits from striking it off at the highest possible price). That theory is based on fundamental misunderstanding of what constitutes a conflict of interest, and improperly suggests an agency relationship between the auctioneer and the absentee bidder – which you want to avoid. Typically, parties to a contract will have divergent interests. Even in so-called win-win situations, the parties want different things. The potential for a conflict of interest, typically, only arises when the parties are in a confidential relationship or when one party owes a fiduciary obligation to the other. So, a trustee who buys property out of an estate has a potential conflict of interest even if a fair price is paid (that’s why you get court approval for that), an officer in a real estate development company has a potential conflict of interest if he seizes a corporate opportunity, and a director of a non-profit corporation has a potential conflict of interest if she sells goods or services to the entity for a profit. If you do not represent the absentee bidder, and you have agreed to execute the absentee bid as a ministerial act according to your rules, there is no conflict of interest.

THIS ARTICLE IS FOR INFORMATION AND DISCUSSION PURPOSES ONLY, AND IS NOT INTENDED AS, AND CANNOT BE RELIED ON AS, LEGAL ADVICE. NO ATTORNEY-CLIENT RELATIONSHIP IS INTENDED OR ESTABLISHED. SPECIFIC QUESTIONS SHOULD BE REFERRED TO AN ATTORNEY OF YOUR OWN CHOOSING. ANY SAMPLE LANGUAGE OR FORMS SHOULD BE REVIEWED BY AN ATTORNEY OF YOUR OWN CHOOSING BEFORE BEING USED. 

“As is” – “Where is” – “With All Faults” . . . . Those phrases have been uttered by auctioneers, and written into Bidder Terms and Conditions, probably for as long as there have been auctioneers. The purpose is to disclaim any and all implied warranties by the auctioneer. They are part of the contract between the auctioneer and each bidder. They also become part of the contract of sale between the seller and the buyer, in turn, disclaiming any and all implied warranties by the seller. “AS IS,” “WHERE IS,” and “WITH ALL FAULTS” are examples of the allocation of risk, which is an essential function of contracts. Parties to a contract can agree as to who will bear certain risks, and, absent exceptional circumstances, the courts will not disturb that agreement.

“AS IS,” “WHERE IS,” and “WITH ALL FAULTS” are important and viable tools in any sales transaction, and they have particular significance in the auction industry. There are numerous cases in which the courts have upheld the “AS IS” disclaimer in an auctioneer’s Bidder Terms and Conditions, thereby (i) holding buyers to the risks voluntarily assumed in exchange for the privilege of bidding and (ii) allowing the auctioneer to overcome after-the-fact challenges based on the nature, character, or quality of goods sold at auction (or the buyers’ subjective expectations as to the nature, character, or quality of goods sold at auction). Now, with travel and assembly restrictions associated with the COVID-19 pandemic driving more and more auction activity toward online bidding platforms, and considering the near universal inability to have pre-auction inspections, it is important to address some misinformation that may lead to uncertainty within the auction community, along with possible reluctance to include these important disclaimers in the Bidder Terms and Conditions for online-only auctions while social distancing (assuming that online-only business activity is otherwise permitted in your jurisdiction during the shutdown). Additionally, there is a concern that a repeated misstatement of the law in this area can result in elevated and unjustified expectations among buyers who – notwithstanding clear and unambiguous Bidder Terms and Conditions – may be led to believe that they are entitled to more than what they bargained for.

The particular language of concern – and source of confusion – is the statement, floated on social media and among auction groups, that the Supreme Court of the United States has said that if you’re going to sell "AS IS" at auction you must provide for a preview and a reasonable opportunity for pre-auction inspection. Now, if that were true, and if a United States Supreme Court decision on contract law was necessarily binding on the states, then, it might raise a legitimate issue as to whether an auctioneer can sell “AS IS” while social distancing. However, as will be discussed below, it is not true that the United States Supreme Court has said that if you’re going to sell "AS IS" at auction you must provide for a preview and a reasonable opportunity for pre-auction inspection. Moreover, the law of contracts affecting most auction transactions is state law, and a decision by the United States Supreme Court on a state contract law issue (not involving the United States Constitution or a federal statute) is not binding on the states. This is because, under our federalist system of government, the highest appellate court in each state is the final authority on the meaning of that state’s law.

The fodder for this erroneous argument about the requirement of pre-auction inspection in order to sell “AS IS” appears to be a misinterpretation, and misrepresentation, of Mottram v. United States, 271 U.S. 15, 46 S.Ct. 386, 70 L.Ed. 803, which was decided by the United States Supreme Court in 1926. The Mottram case has been cited to auctioneers (and, I suppose, to people looking to sue auctioneers or to, otherwise, avoid their contractual obligations) for the proposition that property can only be sold "AS IS" at auction if it is made available for inspection prior to the bidding. Specifically, it has been suggested that, in Mottram, the Supreme Court established a "minimum standard" for "AS IS" auction sales, applicable to all auctioneers in the United States, by prescribing that a buyer at auction can only be held to an "AS IS" transaction if the property is open for inspection and the buyer has had a reasonable opportunity for preview. This interpretation of Mottram, however, is just plain wrong and suggests a legal requirement that doesn’t exist. Whether or not it is a good idea to make pre-auction inspection available (and I, personally, think it is a good idea, when possible), there is a world of difference between preferred practices and things that are mandated as a matter of law. Blurring the line between practice preferences and legal requirements creates confusion and may embolden those suffering buyer’s remorse to try to avoid risks that were willingly assumed at the time of biding.

As a preliminary matter, it is important to recognize that issues related to auction sales will, typically, be governed by state contract law or (depending on the specific circumstances) state tort law. Contracts and torts are largely matters of state law, and neither the United States Supreme Court, nor the lower federal courts, can dictate the meaning of state law. Simply put, the United States Supreme Court can tell you what the United States Constitution means, can tell you what federal statutes mean, and can tell you whether a state law violates the United States Constitution or a federal statute, but cannot definitively tell you what any particular state law means or speak to the enforceability of contracts as a matter of state law. While the United States Supreme Court, and the lower federal courts, can opine as to the meaning of state law, such an opinion is not binding, but is persuasive at best. As such, even if United States Supreme Court articulated some standard for “AS IS” sales at auction in Mottram (which it did not), that standard would not be binding on the states.

By way of background, in Mottram, the United States government (pursuant to an act of Congress) was selling WWI surplus at auction. An auction catalogue for goods stored at a depot in Slough, England listed 11 lots of Garlock packing. Due to an error in the catalogue, the quantity was expressed in hundredweights instead of pounds. Because of the mistake, the catalogue indicated one hundred times more than the actual quantity being sold. The Bidder Terms and Conditions, however, provided that “[t]he whole shall be sold, with all faults, imperfections, errors of description, in the lots of the catalogue . . . and without any warranty whatever . . . .” Essentially, this stated an “AS IS” standard.

The buyer in Mottram received the catalogue, inspected the Garlock packing (as he was encouraged to do), and was the winning bidder at the auction. Additionally, when the Garlock packing came across the block, the buyer asked the auctioneer to confirm the quantity, and the auctioneer stated that he would not guarantee any quantity. After the auction, the buyer demanded that quantity of Garlock packing erroneously published in the catalogue be delivered to him for the hammer price. However, under the Bidder Terms and Condition – which the buyer had accepted as a condition to the privilege of bidding – the buyer assumed the risk as to the actual quantity. And, although he had inspected the lot and seen the actual quantity, the risk would have been his even had there been no inspection. Essentially, the buyer in Mottram attempted to avoid a risk that he had voluntarily assumed pursuant to the Bidder Terms and Conditions, and tried to take advantage of a mistake in the catalogue to get more that what he bargained for. When the government informed the buyer that he was going to be held to the Bidder Terms and Conditions, he filed a petition seeking damages because of the shortfall in quantity.

The Court noted that the buyer “was warned by the statement in the catalogue that the sales were to be held subject to errors of description and were to be made without any warranty.” And, while the phrase “AS IS” was not actually used in Mottram, the case stands for the proposition that selling “AS IS” can be used to pass certain risks onto the bidders and buyers. The fact that the buyer inspected the property in Mottram cut against his claim that he was entitled to something other than what was actually offered, and something other than what actually sold, but that was not the Court's holding, nor was it essential to the Court’s decision. Mottram neither states, nor suggests, that the buyer MUST be afforded an opportunity to inspect in order for an “AS IS” sale to be effective. It just doesn’t say that, and it cannot be relied on for that purpose. Whether or not there are practical benefits to making property available for inspection is a different issue entirely; it’s just not required as a matter of law. Here is a link to the Mottram decision: https://www.law.cornell.edu/supremecourt/text/271/15. Feel free to read the case, and see if you can find where it says that an inspection is necessary in order to sell “AS IS” at auction – it’s just not there. Moreover, the Mottram case involved the sale of war surplus pursuant to an Act of Congress, and any precedent coming out of Mottram would not be binding on the states or otherwise control the application of state contract law.

So, if the Mottram case doesn’t actually say what has been attributed to it, and, in any event, doesn’t control the use of the “AS IS” disclaimer for most auctions conducted under state law, then what does? Well, when you are dealing with the sale of goods, the best place to start is probably Article 2 of the Uniform Commercial Code – which is a state statute (meaning that it is state law) adopted in every state except Louisiana. UCC Section 2-316 specifically addresses the exclusion or modification of warranties, and provides several alternatives for the disclaimer of implied warranties. Section 2-316(2) allows for certain warranties to be disclaimed by specific and conspicuous reference. More broadly, UCC Section 2-316(3)(a) provides that all implied warranties are excluded by expressions like "AS IS," "WITH ALL FAULTS" or other language that calls the buyer’s attention to the exclusion of warranties and makes it clear that that there is no implied warranty. UCC Sections 2-316(3)(b) and (c) provide alternative methods for disclaiming implied warranties, including through the buyer’s inspection of, or failure to inspect, the goods (Section 2-316(3)(b)), or through a course of dealing, course of performance, or usage of trade (Section 2-316(3)(c)). There is nothing in Section 2-316, however, that requires both an "AS IS" disclaimer and a pre-sale inspection. And, there is nothing in the UCC, or in the case law, that suggests Section 2-316 applies differently to auction sales and to non-auction sales. Additionally, although not the point of this article, it should be noted that the "AS IS" disclaimer can be fairly described as a usage of trade in the auction industry (UCC Section 1-303(c) defines a "usage of trade" as "any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question").

As observed by the Delaware Superior Court in Lecates v. Hertrich Pontiac Buick Co., 515 A.2d 163, 167-68 (Del. Super. Ct. 1986), UCC Section 2-316(3)(a), (b), and (c) provide alternative methods by which sellers may shift risk to buyers. Similarly, in Boyd v. Steve’s Key City Auto, 91 N.E.3d 910, 914 (Ill. App. Ct. 2017), the Illinois Appellate Court noted that use of the phrase “AS IS” plainly indicates there is no warranty being implied in the sale. In Moustakis v. Christie’s, 68 A.D.3d 637 (N.Y. App. Div. 2009), a New York appellate court focused on the auction company’s Bidder Terms and Conditions, which provided that “all property is sold ‘as is’ without any representation or warranty of any kind by [the auctioneer] or the seller.” The court, went on to note that “UCC 2-316(3)(a) recognizes that ‘unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like ‘as is’ . . . which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.’” Because of the auctioneer's use of the “AS IS” disclaimer, it was not necessary for the Moustakis court to go any further, or to consider whether a preview was also available to the bidder. Thus, it is clear that implied warranties can be disclaimed (i) by contract (with use of the words “AS IS” and “WITH ALL FAULTS”), or (ii) by inspection (or waiver of inspection), or (iii) or through a course of dealing, course of performance, or usage of trade. UCC Article 2 – which is the law applicable to the sale of goods – does not require both the use of the phrase “AS IS” and an opportunity to inspect in order for the “AS IS” disclaimer to apply.

As a matter of practice, does making pre-auction inspection available help deflect buyer’s remorse, and hold a buyer to the allocation of risk agreed to before the auction? Sure, and, to that end, the following language has been used when a preview was available:

ALL PROPERTY SOLD “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.” ALL PROPERTY IS BEING OFFERED AND SOLD IN ITS AS IS/WHERE IS CONDITION AT THE TIME OF THE AUCTION, WITH ALL FAULTS, INCLUDING ANY HIDDEN DEFECTS OF ANY NATURE. NEITHER AUCTIONEER NOR SELLER MAKES ANY REPRESENTATIONS, WARRANTIES, OR GUARANTEES WHATSOEVER, EXPRESS OR IMPLIED, REGARDING THE NATURE, VALUE, SOURCE, AUTHENTICITY, FITNESS, MERCHANTABILITY, AND/OR ANY OTHER ASPECT OR CHARACTERISTICS OF SUCH PROPERTY. NO STATEMENT ANYWHERE, WHETHER EXPRESS OR IMPLIED, INCLUDING VERBAL STATEMENTS MADE BY AUCTIONEER, WILL BE DEEMED A WARRANTY OR REPRESENTATION BY AUCTIONEER OR SELLER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THERE ARE NO WARRANTIES OF NON-INFRINGEMENT, AUTHENTICITY, ORIGIN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. YOU ACKNOWLEDGE AND AGREE THAT YOU CANNOT RELY, AND HAVE NOT RELIED, ON ANY REPRESENTATION, WARRANTY, OR GUARANTY MADE BY AUCTIONEER OR THE SELLER, OR ANYONE ACTING AS AGENT OF THE SELLER, ORALLY OR IN WRITING. BY BIDDING, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE HAD A FULL AND FAIR OPPORTUNITY TO INSPECT THE PROPERTY, AND THAT YOU ARE RELYING SOLELY ON, OR THAT YOU HAVE WAIVED, SUCH INSPECTION AND INVESTIGATION (i) IN DETERMINING WHETHER TO BID, (ii) IN DETERMINING THE AMOUNT OF A BID, AND (iii) IN BIDDING.

While both “AS IS” language and an inspection are not necessary to effect an “AS IS” sale, having more than one arrow in your quiver is always useful – you’re just not required to use them all. Remember, the Supreme Court’s decision in Mottram, just like the decision in Moustakis, was based on the allocation of risk set forth in the Bidder Terms and Conditions, and, therefore, agreed to as a matter of contract. The fact that the buyer in Mottram also inspected the property doesn’t change the holding of the case, or add an additional condition to the effectiveness of the contractual language. As a practical matter, many bidders in online-only auctions accept the “AS IS” character of the sale without ever taking the opportunity to inspect.

Given the foregoing, neither Mottram nor any arguments derived from Mottram require the realignment of the allocation of risk in an “AS IS” transaction during social distancing. And, mandated social distancing need not be a reason for an auctioneer or seller to assume additional risks regarding the nature, character, or quality of goods sold at auction. Nevertheless, it might be helpful to modify your Bidder Terms and Conditions to specifically reflect the agreed allocation of the risk when no preview is available –

ALL PROPERTY SOLD “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.” ALL PROPERTY IS BEING OFFERED AND SOLD IN ITS AS IS/WHERE IS CONDITION AT THE TIME OF THE AUCTION, WITH ALL FAULTS, INCLUDING ANY HIDDEN DEFECTS OF ANY NATURE. NEITHER AUCTIONEER NOR SELLER MAKES ANY REPRESENTATIONS, WARRANTIES, OR GUARANTEES WHATSOEVER, EXPRESS OR IMPLIED, REGARDING THE NATURE, VALUE, SOURCE, AUTHENTICITY, FITNESS, MERCHANTABILITY, AND/OR ANY OTHER ASPECT OR CHARACTERISTICS OF SUCH PROPERTY. NO STATEMENT ANYWHERE, WHETHER EXPRESS OR IMPLIED, INCLUDING VERBAL STATEMENTS MADE BY AUCTIONEER, WILL BE DEEMED A WARRANTY OR REPRESENTATION BY AUCTIONEER OR SELLER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THERE ARE NO WARRANTIES OF NON-INFRINGEMENT, AUTHENTICITY, ORIGIN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. YOU ACKNOWLEDGE AND AGREE THAT YOU CANNOT RELY, AND HAVE NOT RELIED, ON ANY REPRESENTATION, WARRANTY, OR GUARANTY MADE BY AUCTIONEER OR THE SELLER, OR ANYONE ACTING AS AGENT OF THE SELLER, ORALLY OR IN WRITING. YOU ACKNOWLEDGE AND AGREE THAT BECAUSE OF SOCIAL DISTANCING RESTRICTIONS RELATED TO THE COVID-19 PANDEMIC, YOU HAVE NOT HAD THE OPPORTUNITY TO INSPECT ANY LOT(S). YOU, FURTHER, ACKNOWLEDGE AND AGREE THAT ANY PHOTOGRAPHS OR OTHER IMAGES OF LOT(S) ARE ADEQUATE FOR YOUR PURPOSES, AND THAT YOU HAVE HAD A FULL AND FAIR OPPORTUNITY TO ASK QUESTIONS OF AUCTIONEER, AND TO CONDUCT ANY AND ALL DUE DILIGENCE DEEMED BY YOU TO BE NECESSARY OR APPROPRIATE. YOU ACKNOWLEDGE AND AGREE THAT ALL SALES ARE FINAL WITH NO REFUNDS AND NO RETURNS.

Assuming that, in your jurisdiction, you are otherwise permitted to engage in business activities without direct, in-person, public interaction during the COVID-19 shutdown (and, thus, can conduct online-only auctions), there is no prohibition against selling "AS IS" while social distancing (i.e., without a preview). "AS IS" is a contract term governed by state law (specifically, UCC Section 2-316 if you are selling personal property), and if, by accepting your Bidder Terms and Conditions as a prerequisite to their participation in the auction, your bidders assume the risk of buying "AS IS" without a pre-auction inspection, they ought to be bound by that contractual agreement. As a first step, however, you should verify that there is no applicable state or local prohibition against engaging in online-only business activity during this crisis.

THIS ARTICLE IS FOR INFORMATION AND DISCUSSION PURPOSES ONLY, AND IS NOT INTENDED AS, AND CANNOT BE RELIED ON AS, LEGAL ADVICE. NO ATTORNEY-CLIENT RELATIONSHIP IS INTENDED OR ESTABLISHED. SPECIFIC QUESTIONS SHOULD BE REFERRED TO AN ATTORNEY OF YOUR OWN CHOOSING. ANY SAMPLE LANGUAGE SHOULD BE REVIEWED BY AN ATTORNEY OF YOUR OWN CHOOSING BEFORE BEING INCORPORATED INTO YOUR BIDDER TERMS AND CONDITIONS.

A recent study finds that home-staging services affect a home’s sale price less than most people think How much does a tacky purple wall color affect a home’s sale price? Not much, according to new research on home staging. Option 1: Some study participants saw a home rendering with ugly purple walls and mismatched furniture. Troy Hines/HBA Architecture & Interior Design While good staging does influence a home buyer’s overall impression of a house, staging alone doesn’t result in buyers willing to pay more for the house, says Michael Seiler, professor of real estate and finance at the College of William and Mary, who researched how home buyers responded to six house tours that varied in paint color and furniture quality. His findings show that buyers are willing to pay roughly $204,000 in each of the house examples, regardless of the quality of furnishings or paint color. However, the research subjects believed that other buyers would adjust their pricing based on how the house is staged. Option 2: Other participants saw a rendering of a room with neutral paint color and matching furniture. Troy Hines/HBA Architecture & Interior Design “We were able to parse out what you consciously believe and subconsciously believe,” Mr. Seiler says. “Beforehand, everyone thinks poor staging is going to be a problem. But when we actually did the experiment, we found it doesn’t matter.” Mr. Seiler and co-authors Mark Lane of Old Dominion University and Vicky Seiler of Johns Hopkins University led 820 home-buyers through one of six virtual house tours in March 2012. Using professional-grade rendering software created by an architecture firm in Virginia Beach, Va., each house featured either a “neutral” beige wall color or an “unattractive” purple paint color, and “good” furniture, “ugly” furniture or no furniture. The neutral and attractive options were chosen to appeal to the greatest number of people, Mr. Seiler says. The home buyers then reported what they would be willing to pay, as well as their overall impression of the house. Still, Mr. Seiler warns: “All we could test is how much the home would sell for. What we don’t know is whether a well-staged home will sell faster. It may sell quicker.” The study, “The Impact of Staging Conditions on Residential Real Estate Demand,” has been accepted by the Journal of Housing Research for publication sometime next year, he said. It may be hard to persuade real-estate professionals of the findings. Doug Eichman, a real-estate agent with Core in New York City, spent more than $30,000 to stage a Midtown East penthouse co-op listed for $6.995 million. His stager, Cheryl Eisen, president of New York City-based Interior Marketing Group Inc., says staging works when buyers feel emotionally connected to the house. “The bare-bones reason for staging initially is to show buyers how they can function in a space,” Ms. Eisen says. “When you go over the top, you make them have an emotional reaction to the space. If they fall in love with the space, they will be willing to pay for it.” Darci Willis, a real-estate agent with Century 21 Scheetz in Carmel, Ind., says that when potential buyers are on the fence, a well-staged home may be a deciding factor. “Even though people logically know that they can change the paint color, it can be distracting and off-putting. Buyers are thinking emotionally at that point,” she says. Skip Dreibelbis, Auctioneer & CEO True Blue Auctions

Social media and the Internet are interesting tools. Among other things: they can be used to facilitate an exchange of ideas and opinions among people with similar interests and occupations; they can provide access to seemingly limitless caches of information (both accurate and inaccurate); and they can arm someone with terms of art and small kernels of knowledge that might be parleyed into a convincing (if not dangerous) aura of authority on topics with respect to which the speaker is not truly informed. As an example, I have never studied jet propulsion, but give me a couple of hours on Google and a roomful of people who know less about it than me, and I might sound like a jet propulsion genius. Of course, if someone took good notes and tried to build a rocket based on what I had to say, the consequences would likely be disastrous. And, that’s where the irresponsibility of some of these Internet mavens reveals itself – the harm, and potential harm, it visits on others. For this very reason, if someone is going to advise auctioneers as to what the law requires or prohibits, he or she should have more than a passing acquaintance with legal principles gleaned from a Google search. “Otherwise,” to quote Dwight Schrute, “it’s just malfeasance for malfeasance’s sake.”

One recurrent problem I’ve seen in this regard, is the specious characterization of an individual’s preferred practices as customary practices or legal requirements, or both, when they are, in truth, neither. Such activity does not benefit the auction industry, but, instead, has the capacity to encourage disgruntled sellers, bidders, and buyers to eschew personal responsibility by dragging, or threatening to drag, auctioneers into court (and, sometimes, it generates fees for the hired-gun experts who help them). It is one thing to say, “I believe it is a good practice for auctioneers who sell AS IS to provide a reasonable opportunity for a pre-auction inspection whenever possible” – which, by the way, is advice I regularly give to auctioneer clients along with a principled explanation as to why. It is quite another thing to say, “As a matter of law, an auctioneer cannot sell AS IS unless there is a reasonable opportunity for a pre-auction inspection,” or that “The law says that you cannot hold a bidder to an AS IS sale unless there has been a reasonable opportunity for a pre-auction inspection” – both of which statements are just flat wrong from a legal perspective. In this regard, and while I won’t speculate as to motivation, I wonder to what extent the target audience for the statement that an auctioneer cannot hold a bidder to an AS IS sale unless there has been a reasonable opportunity for a pre-auction inspection is comprised of auctioneers, and to what extent that target audience is comprised of those who – due to buyer’s remorse or otherwise – might be looking for a way to get out of a transaction or to sue an auctioneer.

While the issue of selling AS IS with or without an opportunity for pre-auction inspection has been the subject of a somewhat academic discussion in the past (when pre-auction inspections were both possible and routinely available), it has become a more pressing concern with real-world implications during the time of COVID-19 and associated social distancing restrictions. Specifically, if an auctioneer can conduct an online auction, but is precluded from allowing potential bidders onsite for a preview, can the property still be sold AS IS? In other words, do the realities of social distancing deprive contracting parties of their ability to allocate certain risks by contract?

 Let’s start with a brief history of the running debate on this issue. Several years ago, a self-proclaimed auction law “expert” began telling auctioneers that, as a matter of law, you cannot sell AS IS unless you make a pre-auction inspection available. That statement appears to be the product of a Google search that yielded a reference to Mottram v. United States, 271 U.S. 15, 46 S.Ct. 386, 70 L.Ed. 803 (1926). As the argument goes (or, as it originally went before being subsequently massaged by the author) –

“The Supreme Court of the United States has set the minimum standard for as-is sales for auctioneers. In Mottram v. United States (1926) the Court ruled that a buyer at auction can only be held to an as-is transaction if that subject property is open for inspection and the buyer has [reasonable] opportunity for preview.”

Ascribing both authority and weight to the Mottram decision, the same expert has told auctioneers that –

“The Supreme Court of the United States in Mottram v. United States dictates that in “as-is” auction sales the subject property must open for inspection and the bidders have [reasonable] opportunity for preview.”

Now, those are pretty strong and definitive statements. And, as I read them, the clear message is that auctioneers cannot hold buyers to an AS IS standard unless there has been a reasonable opportunity to conduct a pre-auction inspection – because the Supreme Court of the United States said so. The problem with that legal conclusion is that it is, in a word, wrong. The Supreme Court of the United States has never said that auctioneers must afford bidders an opportunity to conduct a pre-auction inspection in order to sell AS IS. Moreover, even if the U.S. Supreme Court had articulated such a holding, it would not be binding on most auction transactions because most auction transactions are governed by state law, and the decisions by the Supreme Court of the United States are not binding authority as to the meaning of state law. That being said, there is not necessarily anything wrong with a self-proclaimed industry expert who stays in his lane and advises auctioneers on his perception of industry standards and best practices (clearly indicated as his preference). The problem arises when opinions as to customary practices are fortified by misstatements of the law, and auctioneers are given erroneous information as to what the law allows them to do or precludes them from doing.

Back to the issue at hand – If the Mottram case doesn’t govern use of the AS IS disclaimer in most auction transactions, what law does? Well, as I wrote recently (http://www.michak.legal/blog/can-an-auctioneer-sell-as-is-without-a-preview), Section 2-316 of the Uniform Commercial Code specifically addresses the exclusion and modification of warranties (both express and implied), as well as the use and effect of the AS IS disclaimer with respect to implied warranties. Here’s what it says:

§ 2-316. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. 

(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”

(3) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and

(b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and

(c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

(4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719).
 

Although I happen to have one, it doesn’t take a law degree to see that Section 2-316(3)(a) says that “unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.” It says what it says, just like Section 2-316(3)(b) says that implied warranties can also be waived based by a pre-purchase inspection. However, there is nothing in Section 2-316 that says, or even suggests, that the AS IS disclaimer must be accompanied by an inspection in order to be effective. I’m not making it up, that’s what the statute says, and that’s how the courts have interpreted it.

While an argument has been articulated that as a matter of law the AS IS disclaimer must be accompanied by an inspection in order to be effective, that legal argument is contradicted by the UCC and the case law, and, thus, is about as compelling as the discredited proposition that “[t]he Supreme Court of the United States in Mottram v. United States dictates that in “as-is” auction sales the subject property must open for inspection and the bidders have [reasonable] opportunity for preview,” or, perhaps the arguments that the earth is flat, or that the sun rises in the west. Simply put, the law supports the proposition that an auctioneer can sell AS IS either with or without a pre-auction inspection. This rule of law becomes particularly relevant if auctioneers are prohibited from conducting live events, including auctions, previews, and pick-up. And, here’s where the practical concern about uninformed legal advice arises – if you subscribe to the rationale that auctioneers must (as a matter of law) have pre-auction previews in order to sell AS IS, and previews are not possible because of social distancing restrictions, then, the necessary conclusion is that social distancing restrictions, effectively, deprive an auctioneer of the ability to allocate risk by contract, thereby imposing implied warranties that cannot be disclaimed. This would be an industry-wide game changer. If, however, you draw your understanding of the UCC from the code, itself, and from actual case law, rather than Google searches, then, there is legal support for the continued use and effectiveness of the AS IS disclaimer even when a preview is not possible. It’s as simple as that.

Among other things, a lawyer’s job is to advise his or her clients as to the applicable law (which is not always clear and may be subject to interpretation) and to allow the client to factor that advice into the client’s business decisions. With respect to the issue of selling AS IS with or without a preview, I’ve given my interpretation of the law (which, frankly, is pretty clear on this point). It is not my job to tell auctioneers – and I would not presume to tell auctioneers – that they should or should not sell AS IS if a pre-auction inspection is not possible. Rather, I advise as to the possible legal implications or their business decisions. Of course, when making that decision it helps to get your legal advice from someone who actually knows what he or she is talking about. And, this is where the Straw Man Fallacy enters this discussion.

The Straw Man Fallacy is method of argument in which one party misstates the position taken by another in order to knock it down (like a straw man). Here’s how the Straw Man Fallacy has been employed in the ongoing discussion about whether an auctioneer is required to make a pre-auction inspection available as a condition to selling AS IS:

Auction Law "Expert": The law says that auctioneers cannot sell AS IS unless there is a reasonable opportunity for a pre-auction inspection.

Lawyer (me): The law doesn’t say that. The law says that you can sell AS IS with or without a pre-sale inspection. That’s something to think about if social distancing restrictions make a pre-auction inspection impossible.

Auction Law "Expert": That lawyer is telling auctioneers that they should sell AS IS and deny bidders the opportunity for a pre-auction inspection.

The Straw Man Fallacy is not a valid argument, and adds nothing meaningful to the discussion.

Prior to social distancing restrictions, I typically used this (or a variation of this) provision when preparing Bidder Terms and Conditions for auctioneer clients:

ALL PROPERTY SOLD “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.” ALL PROPERTY IS BEING OFFERED AND SOLD IN ITS AS IS/WHERE IS CONDITION AT THE TIME OF THE AUCTION, WITH ALL FAULTS, INCLUDING ANY HIDDEN DEFECTS OF ANY NATURE. NEITHER AUCTIONEER NOR SELLER MAKES ANY REPRESENTATIONS, WARRANTIES, OR GUARANTEES WHATSOEVER, EXPRESS OR IMPLIED, REGARDING THE NATURE, VALUE, SOURCE, AUTHENTICITY, FITNESS, MERCHANTABILITY, AND/OR ANY OTHER ASPECT OR CHARACTERISTICS OF SUCH PROPERTY. NO STATEMENT ANYWHERE, WHETHER EXPRESS OR IMPLIED, INCLUDING VERBAL STATEMENTS MADE BY AUCTIONEER, WILL BE DEEMED A WARRANTY OR REPRESENTATION BY AUCTIONEER OR SELLER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THERE ARE NO WARRANTIES OF NON-INFRINGEMENT, AUTHENTICITY, ORIGIN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. YOU ACKNOWLEDGE AND AGREE THAT YOU CANNOT RELY, AND HAVE NOT RELIED, ON ANY REPRESENTATION, WARRANTY, OR GUARANTY MADE BY AUCTIONEER OR THE SELLER, OR ANYONE ACTING AS AGENT OF THE SELLER, ORALLY OR IN WRITING. BY BIDDING, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE HAD A FULL AND FAIR OPPORTUNITY TO INSPECT THE PROPERTY, AND THAT YOU ARE RELYING SOLELY ON, OR THAT YOU HAVE WAIVED, SUCH INSPECTION AND INVESTIGATION (i) IN DETERMINING WHETHER TO BID, (ii) IN DETERMINING THE AMOUNT OF A BID, AND (iii) IN BIDDING.

This disclaimer undeniably contemplates an AS IS sale where a pre-auction inspection was possible – and I wrote it!

In this regard, the availability of a pre-auction inspection coupled with an opportunity to inspect prior to bidding, can protect an auctioneer even outside the contract context. A good example of this is Pardo v. Mecum Auction, Inc., (U.S.D.C., N. Dist. Ill., No. 12 C 08410 (2017)), which was decided in 2017 by the United States District Court for the Northern District of Illinois. In Pardo, the Plaintiff purchased a vehicle at auction, and, later, sued the auction company, claiming fraud and arguing that the auction company misrepresented the nature, character, and quality of the vehicle. In that case, not only was the vehicle sold AS IS, but there was an opportunity for a pre-auction inspection, and the buyer acknowledged that he was relying only on his (or his agent’s) inspection of the vehicle, not on any representations by the auction company. Applying Illinois law, the court concluded that the Plaintiff could not make out a case for fraud because fraud requires reasonable reliance on a misrepresentation of material fact. Without going any further, the court held that the buyer’s acceptance of the Bidder Terms and Conditions in which he acknowledged and agreed that he was relying on his own inspection – and that he was not relying on any representations by the auctioneer – meant that an essential element of a cause of action for fraud was missing. The case was decided in favor of the auction company. I was not involved in the Pardo case, but I often reference it to auctioneers as a good example of the benefit of strong Bidder Terms and Conditions and the ability of an auctioneer to allocate risk to the bidders, particularly when a pre-auction inspection is available.

Recognizing that pre-auction inspections may not be possible because of social distancing restrictions imposed due to COVID-19, I prepared the following language to reflect current circumstances:

ALL PROPERTY SOLD “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.” ALL PROPERTY IS BEING OFFERED AND SOLD IN ITS AS IS/WHERE IS CONDITION AT THE TIME OF THE AUCTION, WITH ALL FAULTS, INCLUDING ANY HIDDEN DEFECTS OF ANY NATURE. NEITHER AUCTIONEER NOR SELLER MAKES ANY REPRESENTATIONS, WARRANTIES, OR GUARANTEES WHATSOEVER, EXPRESS OR IMPLIED, REGARDING THE NATURE, VALUE, SOURCE, AUTHENTICITY, FITNESS, MERCHANTABILITY, AND/OR ANY OTHER ASPECT OR CHARACTERISTICS OF SUCH PROPERTY. NO STATEMENT ANYWHERE, WHETHER EXPRESS OR IMPLIED, INCLUDING VERBAL STATEMENTS MADE BY AUCTIONEER, WILL BE DEEMED A WARRANTY OR REPRESENTATION BY AUCTIONEER OR SELLER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THERE ARE NO WARRANTIES OF NON-INFRINGEMENT, AUTHENTICITY, ORIGIN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. YOU ACKNOWLEDGE AND AGREE THAT YOU CANNOT RELY, AND HAVE NOT RELIED, ON ANY REPRESENTATION, WARRANTY, OR GUARANTY MADE BY AUCTIONEER OR THE SELLER, OR ANYONE ACTING AS AGENT OF THE SELLER, ORALLY OR IN WRITING. YOU ACKNOWLEDGE AND AGREE THAT BECAUSE OF SOCIAL DISTANCING RESTRICTIONS RELATED TO THE COVID-19 PANDEMIC, YOU HAVE NOT HAD THE OPPORTUNITY TO INSPECT ANY LOT(S). YOU, FURTHER, ACKNOWLEDGE AND AGREE THAT ANY PHOTOGRAPHS OR OTHER IMAGES OF LOT(S) ARE ADEQUATE FOR YOUR PURPOSES, AND THAT YOU HAVE HAD A FULL AND FAIR OPPORTUNITY TO ASK QUESTIONS OF AUCTIONEER, AND TO CONDUCT ANY AND ALL DUE DILIGENCE DEEMED BY YOU TO BE NECESSARY OR APPROPRIATE. YOU ACKNOWLEDGE AND AGREE THAT ALL SALES ARE FINAL WITH NO REFUNDS AND NO RETURNS.

And, this is where the discussion returns to Google, and gets a little crazy. After I posted an article stating that – as a matter of law – the UCC provides that an auctioneer can sell AS IS even when a pre-auction inspection is not possible, I read a counter-argument, posted on a social media blog, challenging that position and using, as support, an article written by Richard Stim (a California attorney who, apparently due to an inadequate Google search, is referred to in the blog post as a New York attorney). Mr. Stim’s article was published on the legal website Nolo, and can be found here: https://www.nolo.com/legal-encyclopedia/contract-disclaimers-as-is-provisions-34944.html.

The counter-argument holds out an interpretation of Mr. Stim’s article as supporting the proposition that a buyer must be afforded an opportunity to conduct a pre-purchase inspection in order to be held to an AS IS transaction. Relying on that legal conclusion – attributed to Mr. Stim – the suggestion is that my interpretation of Mottram and UCC Section 2-316 is, well, wrong. Yikes! Wouldn’t that be embarrassing?

Over the past several weeks, I’ve read at least two blog posts championing Richard Stim’s purported contrary position, and I’ve seen two Youtube videos comparing Richard Stim’s supposed interpretation of the law to my interpretation of the law. Until they are deleted or modified (as I expect they will be) the blog posts and videos challenging my legal interpretation by reference to Mr. Stim can be found here:

https://mikebrandlyauctioneer.wordpress.com/2020/05/12/as-is-and-the-right-to-inspect/

https://mikebrandlyauctioneer.wordpress.com/2020/05/26/as-is-with-inspection-or-return-policy-if-not/

https://www.youtube.com/watch?v=B3rCl50JF7A&t=143s

https://www.youtube.com/watch?v=q--8mvfvpAw&t=28s

(No worries if the links are no longer active when you get there, or if the content has changed, I saved copies.)

I don’t think Mr. Stim’s article, fairly read, supports the conclusion that a buyer must be afforded an opportunity to conduct a pre-purchase inspection in order to be held to an AS IS transaction. Moreover, even if another attorney took a contrary position to mine, that wouldn’t necessarily mean that I was wrong (stop into a courtroom sometime and see how that works). Nevertheless, in one of the above-referenced Youtube videos, the rhetorical question was posed – “What would Richard Stim think?” about Bidder Terms and Conditions that provided for an AS IS sale with no pre-auction inspection. Well, because the question was asked, I thought it only appropriate to inquire of Richard Stim, which I did.

Here is the text of my email to Mr. Stim:

Hello. I am an attorney. My practice involves commercial transactions, commercial litigation, and auction law. I represent auctioneers and auction companies. I am reaching out to you because you have been cited for a proposition that I’m not sure I draw from your writings. Long story short, an auctioneer who holds himself out as an “auction law expert” published a blog post in which he stated, as an absolute proposition, that auctioneers cannot sell property AS IS unless they make the property available for inspection prior to the auction. Initially, he based his argument on an old U.S. Supreme Court case, Mottram v. United States, 271 U.S. 15, 46 S.Ct. 386, 70 L.Ed. 803, which really doesn’t say that, and wouldn’t be controlling law in any event.

With social distancing restrictions related to COVID-19, auctioneers are able to conduct online auctions, but, in many jurisdictions, cannot have previews or pick-up. As such, I wrote a short article addressing the ability to sell AS IS without an inspection (which is really just a matter of assigning the risk). As a practical matter, I believe that an inspection is useful and appropriate whenever possible (and I am not suggesting that auctioneers or sellers dispense with pre-purchase inspections if possible). In fact, just like in the Mottram case, and, I believe, in your Nolo article Contract Disclaimers and As Is Provisions, I think the opportunity for a pre-auction inspection cuts against any after-the-fact complaints from the buyer regarding the character, nature, or condition of the property. However, I believe that UCC Section 2-316, and the related case law, supports the possibility of an AS IS sale even if a pre-purchase inspection is not possible or otherwise available. My article appears here: http://www.michak.legal/blog/can-an-auctioneer-sell-as-is-without-a-preview.

This is where your Nolo article comes in. You were cited in a blog post challenging my position - “Mr. Stim holds that buyers have been traditionally obligated to seriously inspect every purchase (caveat emptor) but today buyers can be held to “as-is” purchases so long as they have the reasonable opportunity to inspect beforehand, and therefore cannot complain later.” (emphasis added). The post citing you appears here: https://mikebrandlyauctioneer.wordpress.com/2020/05/12/as-is-and-the-right-to-inspect/

This same auctioneer has, also referenced you (although not by name) in a Youtube video as advising that a buyer can only be held to an AS IS sale if there was an opportunity for a pre-purchase inspection.

As I read UCC Section 2-316 and the related case law, I believe that, while an pre-purchase inspection is one way to impose an AS IS standard, the AS IS disclaimer, itself, is sufficient. I don’t advise auctioneers to dispense with a preview (if available and practicable), but I don’t think it’s a fair representation of the law to say that a preview is a legal requirement.

I believe that there can be a big difference between preferred practices and strict legal requirements. I am curious to know whether you believe that the auctioneer/author citing you for the proposition that a pre-purchase inspection is an essential condition to holding a buyer to an AS IS standard gets it right, and fairly represents your Nolo article, or if he overstates your position (and confuses preferred practices with legal requirements). I think it may be the latter.

Thanks for your time. I would sure appreciate a response.

And, here is Mr. Stim’s response:

Hi

Thanks for your email. I believe you’re correct. The UCC doesn’t require an inspection as a condition of disclaiming implied warranties.

I left Nolo five years ago but I’ll write to the managing editor there and request the article be modified as follows: “But this implied warranty does not apply when property is sold as is, and the as is buyer takes the goods in their current condition and cannot complain about problems later. Similarly, when the buyer before entering into the contract has examined the goods or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought to have revealed.”

Thanks again for alerting me to this.

Best,

Rich

There is a saying among lawyers that – When you find yourself in a hole, you should stop digging! Over the past several weeks, auctioneers who are consumers of social media have been treated to a festival of the absurd. And, a flailing effort to support an unsustainable legal argument has demonstrated that Google is not the best source of legal advice. As a passing note, if you’re going to rely on the supposed position of a lawyer you found on Google, you might want to do more than the basic search. It’s probably a good idea to confirm that you are putting such information to an appropriate use, and it might lend a little credibility to your argument if you knew where the lawyer is actually admitted. Just a couple of thoughts.

We find ourselves in difficult and uncertain times brought on by the COVID-19 situation. Many businesses, including businesses conducted by auctioneers, are struggling for their very survival. Auctioneers who are migrating to online auctions – or continuing with online auctions – ought to be able to make decisions (including the decision of whether to sell AS IS when no preview is possible) based on an honest interpretation of the law.

In the meantime, I'll pour myself another cup coffee, and do some actual legal research.

This article is for information and discussion purposes only, and is not intended as, and cannot be relied on as, legal advice. No attorney-client relationship is intended or established. Specific questions should be referred to an attorney of your own choosing. Any sample language should be reviewed by an attorney of your own choosing before being incorporated into your Bidder Terms and Conditions.