Does an auctioneer have to treat all bidders exactly the same, in all respects and under all circumstances, or do the auctioneer and the seller have the discretion to waive or modify bidder qualification requirements in the Bidder Terms and Conditions that are intended for the benefit of the auctioneer and the seller? Check out this article from the West Virginia Law Review Online for legal analysis and perspective: https://researchrepository.wvu.edu/wvlr-online/vol124/iss2/1/ 

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. 

I think it’s fair to say that all participants at an auction – the seller, the bidders, and the auctioneer – have a reasonable expectation that property exposed for sale ought to be sold to the bidder who tenders the highest bid. There are times, however, when an auctioneer misses, or overlooks, an advancing bid and declares a lot sold not to the highest bidder, but to – for lack of a better term – the luckiest bidder. So, how do you handle that unfortunate reality?

Auctioneers have been told that you should say “sold” and mean it. Auctioneers have been told that “sold means sold.” Auctioneers have been told that you should never, never, never reopen the bidding after the fall of the hammer. Auctioneers have been told that you need to think about how reopening a lot today might affect attendance at your next auction. Auctioneers have even been told that you need to conduct your business more like a traditional retailer rather than an auctioneer when it comes to the possibility of unselling things. The question that auctioneers might ask in response is – How much of this advice is based on the law or on actual existing industry standards, and how much is based on personal preference divorced from the law and actual existing industry standards?

To start, I don’t believe that I have never met an auctioneer who said “sold” without meaning it. If an auctioneer misses a bid, points to a bidder that the auctioneer mistakenly believes to be the high bidder, and uses the magic word “sold,” I’d be willing to bet that the auctioneer means it. In that case, however, was it the intent of the auctioneer to sell to the luckiest bidder, and not to the highest bidder? Was it the intent of any of the bidders (including the bidder identified by the auctioneer and the bidder missed by the auctioneer) that the property be sold to the luckiest bidder, and not to the highest bidder? Was it the intent of the seller that the property be sold to the luckiest bidder, and not to the highest bidder? How does selling to the luckiest bidder comport with the reasonable expectation of the seller, the bidders, and the auctioneer that the property will be sold to the highest bidder? And, what does the law say about that? Similarly, if there is a glitch during an online auction that results in the early termination of a lot, or in a timely tendered bid going unrecognized, should the luckiest bidder be preferred over the highest bidder? How does a preference for the luckiest bidder over the highest bidder affect the seller? What are the implications with respect to the agency relationship between the auctioneer and the seller, and, in particular, the auctioneer’s fiduciary obligations to the seller, if the auctioneer favors – as a matter of policy – the luckiest bidder over the highest bidder?

Article 2 of the Uniform Commercial Code recognizes the expectation of the seller, the bidders, and the auctioneer that property sold at auction will be sold to the highest bidder, not the lucky bidder who the auctioneer erroneously believes – at least for a moment in time – was the highest bidder. Under the UCC, an auctioneer has the discretion to reopen the bidding after the fall of the hammer in order to recognize a bid that was timely tendered prior to the fall of the hammer, but that went unnoticed or unrecognized by the auctioneer. I’m not making this up – that’s what the law says! Specifically, Section 2-328(2) expressly 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 contract law, Section 2-328(2) of the UCC establishes a condition (actually a condition subsequent) to the existence and enforceability of the contract for sale that is formed with the fall of the hammer. Simply put, the UCC provides the auctioneer with the ability – through the exercise of discretion – to avoid a contract with the luckiest bidder when all of the parties expected that the highest bidder would be the buyer. This rule has been recognized in various cases throughout the United States, including, Callimanopulos v. Christie’s Inc., 621 F. Supp. 2d 127 (S.D.N.Y. 2009) – where reopening the bidding resulted in an increase in the hammer price by $200,000. Essentially, the UCC recognizes the ability of an auctioneer to undo a sale and to reverse the transfer of title (which occurs with the fall of the hammer unless provided otherwise in the auctioneer’s bidder terms and conditions). Why does the law allow that, and why would you do that? Well, let’s go back to the initial proposition that all participants – the seller, the bidders, and the auctioneer – have a reasonable expectation that the property will be sold to the bidder who tenders the highest bid. In this regard, the court in Kline v. Fineberg, 481 So.2d 108, 109 (Fla. App. 3 Dist., 1985), observed that “[t]he auctioneer possesses a great deal of discretion with respect to the conduct of an auction and the acceptance of bids. . . . [and] this discretion includes the right either to close bidding or reopen bidding based on whether the auctioneer believes a bid was timely raised.” In Kline, the court specifically noted that its decision – permitting the reopening of the bidding to recognize a timely tendered missed bid – was consistent with the “main purpose of auction sales” which is to obtain the best financial result for the seller. While, by its terms, the UCC applies only to the sale of personal property (not real property), the courts have borrowed from the UCC and applied its rules to the sale of real property. See Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (Va. 1972).

To be clear, the law doesn’t say that an auctioneer must reopen the bidding to recognize a timely tendered missed bid – the law says that an auctioneer has the discretion to reopen the bidding. Likewise, an auctioneer has the discretion not to reopen the bidding. This raises several questions: Under what circumstances might an auctioneer exercise the discretion to reopen the bidding? Under what circumstances might an auctioneer exercise the discretion not to reopen the bidding? Under what circumstances might an auctioneer give up the discretion to reopen the bidding (or not) prior to the auction (i.e., “I never reopen the bidding!”)?

If an auctioneer is selling $5.00 box lots, there may be a practical rationale supporting the determination not to reopen the bidding to capture another $2.50, or less. Also, it’s not difficult to imagine that an auctioneer who sells, primarily, $5.00 box lots might state – as a policy – that the bidding will never be reopened after the fall of the hammer. But what about the sale of higher-value assets? The price swing in Callimanopulos was $200,000. The price swing in Hoffman v. Horton was $17,000. What about a $25,000 price swing on a piece of farm equipment? Is an auctioneer serving the best interests of the seller by waiving the discretion to reopen the bidding, in advance, without considering the specific facts and circumstances on a case-by-case basis?

As a practical matter, if an auctioneer adopts a policy that bidding will never be reopened – regardless of what the law says and regardless of what actual existing industry standards are – that auctioneer should probably have a serious discussion with the seller up-front and explain in clear and unambiguous terms that the auctioneer will never reopen the bidding to recognize a timely tendered missed bid even if it would benefit the seller. It is one thing to waive your own rights, but if you are willing to leave the seller’s money on the table as a matter of policy, it is a good idea to inform the seller of the policy and obtain the seller’s consent. Otherwise, you run the risk of getting sideways with your seller. Considering that the law affords an auctioneer with the discretion to reopen the bidding, or not, by including appropriate language in both the seller’s contract and the bidder terms and conditions an auctioneer can preserve the discretion without having his or her hand forced one way or the other. Appropriate language may also protect the auctioneer in the exercise of discretion. Here is a sample provision you may want to discuss with your lawyer:

Auctioneer will regulate all matters relating to the conduct of the Auction and Auctioneer’s decisions will be final and binding. Auctioneer will have control over bidding, and Auctioneer will resolve any and all disputes. In Auctioneer’s sole and absolute discretion, Auctioneer may (but will not be required to) reopen the bidding if (i) a bid is made while the hammer is falling in acceptance of a prior bid or while bidding is otherwise being terminated, or (ii) after the fall of the hammer or other termination of the bidding Auctioneer is made aware of a bid that was unnoticed prior to the fall of the hammer or other termination of the bidding, and it is demonstrated to Auctioneer’s satisfaction that such bid was, in fact, timely made, or (iii) after the fall of the hammer or other termination of the bidding Auctioneer is made aware that Auctioneer and a bid assistant or ringman, or multiple bid assistants or ringmen, have acknowledged bids in the same amount bid from different Bidders, or (iv) an online bid, or other bid by a remote Bidder, tendered or attempted to be tendered prior to the fall of the hammer goes unrecognized, or (v) some other bid dispute arises. Any contract formed with the fall of the hammer will be subject to the conditions set forth in this Paragraph. If bidding is reopened pursuant to this Paragraph, the bid recognized by Auctioneer prior to the reopening of the bidding will be held, and may not be retracted, and, if no further bids are received, such bid will be the winning bid. Auctioneer will not suffer any liability based on Auctioneer’s exercise of discretion in determining whether or not to reopen the bidding.

I am not encouraging auctioneers to adopt one policy over another. I am, however, encouraging auctioneers to have a fully informed seller and fully informed bidders who understand the auctioneer’s policy. I am also encouraging auctioneers to understand the law and actual industry standards, rather than the personal preferences of someone selling $5.00 box lots. I would also suggest that an auctioneer’s ethical obligations and fiduciary duties are implicated to the extent an auctioneer’s decision on whether to reopen the bidding today is influenced by what the auctioneer might earn at a subsequent auction, rather than what might be best for today’s seller.

Finally, I typed this article on my laptop. When I bought the laptop, I actually read the terms and conditions, which included the following provisions:

Order Acceptance/Confirmation. Your receipt of an electronic or other form of order confirmation does not signify our acceptance of your order, nor does it constitute confirmation of our offer to sell. To the fullest extent permitted by law, [the Company] reserves the right at any time after receipt of order to accept or decline an order for any reason. [The Company] begins processing accepted orders immediately and is therefore unable to accept order cancellation requests once you have received an order confirmation.

Order Limitations/Limited Quantities. [The Company] reserves the right to reject any order placed, and/or to limit or cancel quantities on any order purchased per person, per household or per order, without giving any reason. These restrictions may include orders placed by the same [Company] Web site account, the same credit card, and orders that use the same billing and/or shipping address. If [the Company] makes a change to an order or rejects an order, [the Company] will attempt to notify you by contacting the e-mail address and/or billing address provided when the order is placed. Products and support acquired by you under these Terms of Sale are solely for your personal use and not for immediate resale or sub-licensing.

As you can see, the Company that sold my computer reserves the right to unsell a computer even after it is ordered and paid for. The rationale, of course, is that there may be certain eventualities or risks that make fulfilling the order impracticable or impossible, and the Company is protecting against those risks. Of course, the Company didn’t sell me a computer and not mean it. Rather, the Company identified a risk and used clear contractual language to allocated that risk and to protect itself. There is nothing inappropriate, arbitrary, or capricious about that. And, the Company is not alone – many online retailers use similar terms and conditions, Google® it!

So, I’ll leave you with one final question – If favoring the luckiest bidder over the highest bidder to the detriment of the seller is not required as a matter of law, is not an identifiable industry standard, is not consistent with the terms and conditions used by non-auctioneer retailers, and might call into question the satisfaction of your fiduciary obligations to the seller, is there a good reason to leave the seller’s money on the table without consideration, and without the exercise of discretion, on a case-by-case basis?

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.

Does an auctioneer have to treat all bidders exactly the same, in all respects and under all circumstances, or do the auctioneer and the seller have the discretion to waive or modify bidder qualification requirements in the Bidder Terms and Conditions that are intended for the benefit of the auctioneer and the seller? Check out this article from the West Virginia Law Review Online for legal analysis and perspective: https://researchrepository.wvu.edu/wvlr-online/vol124/iss2/1/