Got a question related to Auction Laws?

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/ 

Auctioneering is a nuanced and idiosyncratic profession. As with any specialized field, when an attorney without significant industry exposure is presented with an auction case, he or she may face a steep learning curve. Thus, the effective prosecution or defense of auction-related litigation may require the identification and vetting of an auction industry expert. Unfortunately, there is always a risk that an “expert” might dress up personal preferences – and litigation expediencies – as customary practices or industry standards when they are not. A good example of this is the deposition testimony and opinion of a self-described auction industry “expert” in a recent case in which an auction company was sued by an individual who claimed to have been injured while climbing on a tractor trailer rig during an auction preview. On behalf of the individual suing the auction company, the “expert” expressed his opinion that auctioneers must inspect everything they sell for latent, or hidden, defects in order to identify and disclose non-apparent and otherwise unknown conditions to bidders and potential bidders. While held out as an industry standard, this supposed obligation is not an industry standard, nor has it been recognized as a legal requirement.

The case did not involve a failure to disclose a defect that was known to the auctioneer or to the seller, nor did it involve an obvious or apparent defect. There was no evidence – or even any suggestion – that the auctioneer had been informed about a non-obvious defect by the seller, or that the property had been cosmetically altered or improved to disguise material damage or defects known to the auctioneer or to the seller. There was no evidence – or even any suggestion – that the auctioneer intentionally turned a blind eye to evidence that a defective or unsafe condition might exist. Rather, the record demonstrates that no one, not the seller, not the auctioneer, not the individual who sued the auction company, was aware of the hidden defect that allegedly resulted in the injury leading to the lawsuit. However, the “expert’s” opinion was that, within the auction industry, there is an established obligation for every auctioneer to inspect every lot for hidden and unknown defects that are not apparent to the seller, to the auctioneer, or to the bidders – so that those otherwise unknown and non-obvious defects can be disclosed to bidders and potential bidders. In terms of risk allocation, the supposed industry standard articulated by the “expert” would impose significant operational costs on auctioneers, expose auctioneers to expansive potential liability, and effectively make auctioneers the guarantors of their sellers’ goods notwithstanding the fact that most property sold at auction is sold “as is, where is.”

The “expert’s” deposition – along with a very well written motion to exclude the “expert” as unqualified – are matters of public record and are publicly accessible. In the motion to exclude, defense counsel assailed the “expert’s” credibility, demonstrated the “expert’s” opinion to be unreliable, and articulated a compelling challenge – known as Daubert challenge – testing (i) whether the “expert’s” opinion was based on sufficient facts or data, (ii) whether the “expert’s” opinion was the product of reliable principles and methods, and (iii) whether the “expert” applied accepted principles and methods reliably to the facts of the case. While it appears that the case was resolved before the court ruled on the motion to exclude the “expert,” the record exists and makes for interesting reading.

Admitting that he is not licensed as an auctioneer in the state where the auction occurred, has never conducted an auction in the state where the auction occurred, has never conducted an auction of the nature and magnitude of the auction at issue in the case, and does not regularly sell the type of equipment at issue in the case, the “expert” attempted to establish his credentials by identifying himself as a prolific blogger and an instructor and lecturer for the National Auctioneers Association (the “NAA”) and various state auctioneer associations. Propping himself up on the platform afforded to him as a speaker for the NAA and state auctioneer associations, the “expert” claimed that the industry standard requiring auctioneers to inspect everything they sell for latent, or hidden, defects is mandated by Article IX of the National Auctioneers Association’s Code of Ethics. The “expert” also claimed that the alleged industry standard is supported by a supposed fifty-point inspection protocol which, according to the “expert,” has been adopted by an industry leader in the machinery and equipment auction sector. As it turns out, however, the “expert’s” assertions about the NAA Code of Ethics and the inspection protocol attributed to the industry leader referenced by the “expert” were demonstrably inaccurate.

Regarding the industry standard purportedly established by the National Auctioneers Association, the “expert” testified that Article IX of the NAA Code of Ethics requires that all auctioneers inspect everything they sell for latent, or hidden, defects. To support that contention, the “expert” produced a single-page excerpt from the NAA Code of Ethics showing Article IX, which reads as follows:

ARTICLE IX

Members shall avoid misrepresentation or concealment of material facts. There is an affirmative obligation to disclose adverse factors of which they have personal knowledge.

Understandably skeptical as how the NAA’s reasonable guidance that its members should disclose adverse factors of which they have personal knowledge translates into an industry standard requiring all auctioneers to inspect everything they sell for latent defects, the attorney for the defendant auction company asked about that. The “expert’s” response was a classic example of circular reasoning that could have come straight out of Alice in Wonderland, essentially stating that – Auctioneers have an obligation to disclose known defects. If they don’t know about a defect, they can’t disclose it, but they should know about it, so there is an obligation to inspect for hidden defects that neither the auctioneer nor the seller know about so that the auctioneer will discover any such non-apparent and previously unknown defects and will, thus, know about them, and will, then, have an affirmative obligation to disclose the now-known, but otherwise unapparent, defects. Therefore, auctioneers have an obligation to inspect everything they sell for latent, or hidden, defects. This analysis fundamentally misstates the NAA Code of Ethics, and manipulates it to support an absurd contention that does not reflect existing, or historical, industry standards. In addition to the “expert’s” flawed reasoning, his production of a single page from the NAA Code of Ethics was, at the very least, disingenuous, if not intended to deceive. This is because the Preamble to the NAA Code of Ethics (which was not produced by the “expert”) unequivocally states that “A violation of the NAA Code of Ethics shall not form the basis for civil liability nor can such a violation be used as a breach of duty of care in any civil litigation.” Given the express limitations set forth in the Preamble to the NAA Code of Ethics, the “expert’s” decision to cherry pick words and to deploy them out of context cuts against both his credibility and the reliability of his opinion. Even if the NAA Code of Ethics actually said what the “expert” attributed to it (which it doesn’t), his attempt to use it as a basis to establish civil liability in contradiction of the express language of the Code was wholly improper. Finally, defense counsel engaged in post-deposition due diligence resulting in (i) a review of the NAA Code of Ethics, in context and in its entirety, and (ii) an affidavit from a past-president of the NAA who participated in the drafting of the Code of Ethics disputing the “expert’s” assessment and conclusions.

Equally as disturbing as the “expert’s” fabricated and erroneous contention regarding the industry standard supposedly created by the NAA Code of Ethics was the liberty he took in asserting the existence of a supposed fifty-point inspection protocol allegedly designed by an industry leader to identify latent, or hidden, defects. In this regard, a representative of that company flatly contradicted the “expert’s” representations and conclusions in an affidavit that was submitted to the court.

While this “expert” lectures on his understanding of – or, perhaps, more accurately, his preferences for – customary practices and industry standards, the courts have recognized that “[c]ustom is usage so long established and so well known as to have acquired the force of law.” Adams v. Pittsburg Insurance Co., 76 Pa. 411 (1874). In this regard, the New York Court of Appeals has allowed that “it is not to be assumed customary practice and usage need be universal[,]” but, the court observed that the alleged customary practice need “be fairly well defined and in the same calling or business so that ‘the actor may be charged with knowledge of it or negligent ignorance.’” Trimarco v. Klein, 56 N.Y.2d 98, 106 (N.Y. 1982) (quoting Prosser on Torts [4th ed], § 33, p 168; Restatement, Torts 2d, § 295A, p 62, Comment a)). Similarly, from a contract perspective, Uniform Commercial Code Section 1-303(c) defines “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. . . .” With these guides to measure the existence and application of customary practices and industry standards, the “expert’s” reliance on a misstatement and misapplication of the NAA Code of Ethics and on the supposed, but inaccurately described, inspection protocol attributed to a single auction company reveals his opinion to be nothing more than a meritless concoction pulled out of thin air, and certainly not a true customary practice or industry standard as defined by the courts.

In addition to the foregoing, when confronted with the issue of whether an auctioneer has an obligation to inspect for latent, or hidden, defects, or unknown hazardous conditions, the courts have refused to impose such a burden on the auction industry. In Meyers v. Robb, 82 Mich. App. 549, 267 N.W.2d 450 (Mich. Ct. App. 1978), Michigan’s intermediate appellate court, addressed the issue as to whether the auctioneer had a duty to inspect the contents of certain fuel barrels sold at a farm auction to determine the existence of an otherwise unknown hazardous condition. Specifically, the court noted that “plaintiffs ask us to recognize an auctioneer’s obligation to inspect all goods sold at a farm auction.” The court, then, considered “whether, given the social utility of such auctions, the magnitude of risk of the auctioneer not inspecting the items for sale justifies the burden imposed by such an obligation.” Recognizing that “all reasonable persons would agree that the risk created by an auctioneer’s failure to inspect the items to be sold at a farm auction is a reasonable risk[,]” the court held that an auctioneer’s “liability may not be predicated upon his failure to inspect . . . .” Meyers, 82 Mich. App. at 555-56. As if to prove the prohibitive cost assessment noted by the Myers court, the “expert” in the case addressed in this article, with the help of a calculator, acknowledged that applying his supposed inspection requirement to the auction at issue would have cost the auction company $100,000.00 and would have consumed 250 eight-hour days if undertaken by a single inspector.

In Blade v. Sloan, 108 Ill. App. 2d 397, 248 N.E.2d 142 (Ill. App. Ct. 1969), an Allis-Chalmers self-propelled four-row combine was sold at auction with the auctioneer warranting that the equipment was “in good repair and ready to go into the field.” While being operated after the buyer took possession, the combine suffered a catastrophic engine failure as a consequence of a malfunctioning governor. Even with the auctioneer’s warranty, the court recognized that it was not customary to check the governor, and noted that, on the record, neither the auctioneer nor the seller had any knowledge of any defect in the governor. The court, then, concluded that “there was no implication that the [the auctioneer and/or the seller] were at fault in any way in failing to check the governor prior to the time of the auction.” Blade, 108 Ill. App. 2d at 405. Thus, in an action by the auctioneer for the purchase price, the buyer was obligated to pay for his purchase notwithstanding the existence of a hidden defect in the combine.

In Brejcha v. Wilson Machinery, Inc., 160 Cal.App.3d 630, 641 (Cal. Ct. App. 1984), the California Court of Appeals considered whether an auctioneer has a duty to inspect lots exposed for sale under the “as is, where is” disclaimer. There, the auctioneer sold a metal rolling machine in its “as is, where is” condition. Subsequently, the plaintiff, an employee of the buyer, was injured while using the machine, which lacked both a point of operation safety guard and an emergency cut-off switch. In sustaining summary judgment in favor of the auctioneer, the California court observed that “[i]t is uncontradicted that in the custom of the auctioning trade, the term ‘as is, where is’ means that the item being sold has not been modified, altered, inspected or operated by the auctioneer.” Brejcha, 160 Cal.App.3d at 641. The court, thus, concluded that “[w]e are aware of no statutory or decisional law . . . which places upon an auctioneer at public auction the duty (an essential element in a negligence cause of action) to inspect or service the machine in question.” Id.

During his testimony, the “expert” attempted to split a fine hair by arguing that the “as is” standard was inapplicable because the individual suing the auction company was not a purchaser, but, rather, was injured during the auction preview. The difficulty with this argument is that, when goods are being exposed for sale “as is,” the disclaimer serves as notice to buyers and potential buyers alike that the goods have not been modified, altered, inspected or operated by the auctioneer.

Given the foregoing, neither the law nor actual customary practices or industry standards impose a duty on an auctioneer to inspect goods sold at auction for latent, or hidden, defects. Undeniably, the “expert’s” opinion was not based upon sufficient facts, nor was it the product of reliable principles and methods properly applied to the facts of the case. The late auctioneer and attorney Steve Proffitt would often lament – “You can’t make this stuff up.” Well, unfortunately, it appears that at least one auction industry “expert” thinks you can; and that doesn’t benefit the industry.

The lessons that come out of this case go far beyond the dispute between the immediate parties. First, this case demonstrates the potential for real damage to the industry that can be inflicted when a self-proclaimed “expert” attempts to introduce a non-existing obligation as an industry standard. Second, this case shows how a self-proclaimed “expert” risks a complete loss of credibility, both within the industry and among lawyers looking to hire an expert witness, when there is a publicly accessible record showing that he simply made-up supposed customary practices and industry standards – that, if adopted and applied, would fundamentally alter the industry and the potential liability of auctioneers. In this regard, auctioneers should understand that not every opinion rendered by a so-called “expert” is credible or reliable. This is particularly important considering that – when not testifying on behalf of people suing auctioneers – this very same “expert” advises auctioneers to use bidder-friendly terms and conditions and to avoid provisions that reasonably allocate the risk away from the auctioneer or otherwise shield the auctioneer from liability.

In anticipation of the “expert’s” push-back, including the use of a strawman argument suggesting that I am advising auctioneers not to disclose defects or hazardous conditions, that is simply not the case. I am not suggesting that auctioneers should fail to exercise reasonable diligence or fail to disclose known defects or hazardous conditions. The issue is whether a completely made-up standard ought to serve as the basis of liability pursuant to which auctioneers will become the guarantors of their sellers’ property. The issue is also a matter of intellectual dishonesty by an “expert” seeking to shape the industry according to his personal practice preferences. While it is fair for a commentator to express personal practice preferences, it is improper for an “expert” to portray personal practice preferences as mandatory industry standards when they are not. The willingness of this “expert” to render an opinion that industry standards require auctioneers to inspect all property sold to determine the existence of latent, or hidden, defects that are otherwise unknown to the auctioneer and the seller also raises serious ethical concerns. Either the “expert” doesn’t know that no such industry standard exists (in which case he sold an opinion that he wasn’t competent to give), or he knew that there was no such industry standard (in which case he sold an opinion that he knew was erroneous). Under any circumstances, professional ethics should have prevented such an opinion from being delivered.

As stated at the beginning of this article, Auctioneering is a nuanced and idiosyncratic profession, and litigating an auction case may require a well credentialed and credible expert. While identifying the proper expert may take some effort, there are numerous experienced, knowledgeable, and highly regarded auctioneers who can satisfy that need. When venturing into unknown territory, however, lawyers and auctioneers should exercise care in choosing their guide – just ask the Donner party about that.

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.

†George A. Michak has been practicing law for more than thirty years, and regularly represents auctioneers and auction companies on wide-ranging issues, including litigation, contracts, and licensing. He regularly speaks before industry groups about auction law and ethics, and teaches auction law and ethics at the Reading Area Community College, the Reppert School of Auctioneering, and the Mendenhall School of Auctioneering. Currently a solo practitioner, he was previously a partner in a Pittsburgh-based law firm, and, was, earlier, associated with national law firms based in Washington, D.C. and Pittsburgh, Pennsylvania. 

I’ve been reading social media posts in which a commentator dabbles in uninformed legal theories and suggests that – in the relationship between an auctioneer (and a seller) on one side of a transaction and a bidder/buyer on the other – “commercial reasonableness” requires the opportunity for a pre-auction inspection in order for property to be sold “AS IS.” Apparently, as the argument goes, if – due to COVID-19 social distancing restrictions or, otherwise – a bidder/buyer is unable to perform a pre-auction inspection, but, nevertheless, makes the conscious, knowing, and willing decision to purchase “AS IS” without the availability of a pre-auction inspection, the buyer can be relieved from any personal responsibility for his or her conscious, knowing, and willing decision by claiming that he or she was compelled to voluntarily enter into a consensual transaction the terms of which were, somehow, not commercially reasonable. The suggestion has even been made that a bidder who finds it inconvenient to take advantage of a pre-auction inspection (because of distance) should, likewise, be able, after the fact, to avoid the consequences of his or her conscious, knowing, and willing decision to purchase “AS IS” without a pre-auction inspection. If this construct seems convoluted, it’s only because the argument is hopelessly convoluted. As a practical matter, this is yet another variation on a theme in which the same commentator has been tilting at the same windmill with successive legal theories, each less compelling than the previous, while apparently subscribing to the Don Quixote philosophy that “I perceive everything I say as absolutely true, and deficient in nothing whatsoever, and I paint it all in my mind exactly as I want it to be.” In the real world, however, circumstances, context, and the law actually matter.

As an attorney, I advise auctioneer clients that, while a pre-sale inspection is not required for the “AS IS” disclaimer to be enforceable under Article 2 of the Uniform Commercial Code (which applies to the sale of goods), a pre-auction inspection often makes practical sense, and can help deflect dubious claims (including tort claims alleging fraud and misrepresentation) made by a disgruntled buyer attempting to avoid contractual obligations and personal responsibility. The issue that keeps coming up, however, in what has developed into a pseudo-intellectual whack-a-mole game is not whether a pre-auction inspection is advisable, when possible, but whether the law requires a pre-auction inspection to make the “AS IS” disclaimer enforceable. In this regard, understanding the actual legal parameters that impact on a business decision will help you to make an informed decision. However, when someone dresses up personal preferences as legal requirements to influence others, that’s just intellectually dishonest. In other words, fair and reasonable debate is appropriate and productive, but making stuff up is just making stuff up.

he most recent embodiment of the necessary inspection argument, involves borrowing (without attribution) the requirement for commercial reasonableness in the liquidation of collateral by a foreclosing secured creditor under Article 9 of the Uniform Commercial Code, and attempting to overlay that standard on the purchase and sale transaction under Article 2 of the Uniform Commercial Code. In fact, it’s been suggested that the determination of whether a sales transaction is commercially reasonable as between the auctioneer/seller on one side and the bidder/buyer on the other requires that method, manner, time, place, and other terms be measured. These are the parameters to be considered in determining whether the liquidation of collateral by a foreclosing creditor is commercially reasonable. It is important, however, to recognize that context and circumstances matter, and will, typically, speak to what is commercially reasonable in any given situation. What is commercially reasonable in one situation may not be relevant in another. So let’s look at UCC Articles 9 and 2.

UCC Article 2 governs the sale of goods and its provisions are principally directed toward the contractual relationship between the seller and the buyer, and, to the extent that the sale is through an auction, the auctioneer is implicated as well. By comparison, UCC Article 9 governs secured transactions, and applies to the relationship between a secured creditor and a debtor. These are distinct relationships and distinct transactions. Auctioneers should be aware of both Article 9 and Article 2, but need to be able to discern that there is a difference between those Articles, as well as the nature of the transactions covered by each.

Under Article 9, if a debtor defaults on payment obligations, a secured creditor who has a perfected lien on collateral may, typically, repossess that collateral. A foreclosing creditor may, then, keep the collateral in satisfaction of the debt, or may sell it. If a foreclosing creditor sells collateral and it is sold for more than what is owed, then, the surplus will, typically, be paid to junior creditors, and, ultimately, disbursed to or for the benefit of the defaulting debtor. If a foreclosing creditor sells collateral and it is sold for less than what is owed, then, the defaulting debtor will, typically, be responsible for any shortfall or deficiency. Article 9 imposes a duty on a foreclosing creditor liquidating collateral to conduct the sale in such a way as to avoid the creation, or exacerbation, of a deficiency. As such, if a foreclosing creditor makes a couple of phone calls and sells the collateral at a steep discount in a private sale – rather than through a well-advertised public auction – the defaulting debtor may have an argument that the sale was not conducted in a commercially reasonable manner, and, thus, may have a defense to a deficiency claim. That is a wholly different issue than whether someone suffering buyer’s remorse may, after voluntarily purchasing property in its “AS IS” condition – with or without a preview – claim that he or she was forced to enter into a consensual sales transaction that was not conducted in a commercially reasonable manner. And, here’s an important difference between a sales transaction under UCC Article 2 and the liquidation of collateral by a foreclosing creditor under UCC Article 9. The Article 2 transaction is voluntary and consensual, and no one is forcing a bidder/buyer to participate in an auction, regardless of what the bidder terms and conditions are. Liquidation of collateral under Article 9 is, very often, not voluntary or consensual as regards the defaulting debtor who, typically, has no control over the method, manner, time, place, and other terms of liquidation.

 As near as I can tell, this latest iteration of the argument that the law requires a pre-auction inspection in order for the “AS IS” disclaimer to be effective results from typing the terms “UCC” and “commercially reasonable” into a search engine – which generates results that relate to UCC Article 9. However, you don’t need to be a lawyer to recognize that there is a difference between a secured transaction and a transaction for the sale of goods. And, you don’t need to be a math major to recognize that there is a difference between the Arabic numeral 9 and the Arabic numeral 2, or to acknowledge that the differently numbered Articles of the UCC address different subject matter. It takes a little independent thought, however, to correctly apply the concepts; and a little integrity not to misstate or misuse them. Bottom line is that (i) UCC Section 2-316 governs the use of the “AS IS” disclaimer in the transaction between auctioneer (and the seller) on one side and the bidder/buyer on the other; and (ii) UCC Section 9-610 and 9-627 govern the disposition of collateral by a foreclosing creditor with a perfected security interest in personal property. Confusing those concepts is sort of like comparing apples to bricks.

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 

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. 

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. 

Article 2 of the Uniform Commercial Code (the “UCC”) is a statute applicable to contracts for the sale of goods. Article 2 has been adopted as state law in forty-nine of the fifty states, with Louisiana being the only non-adopter (although Louisiana applies similar rules for the formation and enforcement of contracts). Section 2-328 is the only Article 2 provision in which auctions are specifically referenced. Consequently, there has been a fair amount of discussion within the auction community regarding Section 2-328. Unfortunately, the focus on Section 2-328 tends to ignore other provisions of the UCC that are also applicable to the sale of goods at auction. Additionally, it appears that an enduring misperception regarding the purpose and effect of Article 2 has created confusion among some auctioneers. In particular, auctioneers have been advised that Bidder Terms and Conditions (which form a contract between the auctioneer and each bidder and set out the terms of the contract between the seller and the buyer), must strictly conform to Article 2’s statutory provisions at the risk of being unenforceable. In this regard, auctioneers have been told that Bidder Terms and Conditions that are contrary to the provisions of Section 2-328 are neither advisable nor likely to be enforceable. Such advice, however, misses the purpose, intent, and application of Article 2, and is a classic example of the tail wagging the dog.

The purpose of this article is to add some legal perspective to the discussion. It may seem a little esoteric and in the weeds, but putting Article 2 in its proper perspective will facilitate a more meaningful discussion about Bidder Terms and Conditions, and, in particular, about an auctioneer’s ability to use Bidder Terms and Conditions that are reasonably favorable to the auctioneer and the seller, that conform to the individual auctioneer’s practices, and that are appropriate to the asset class and the nature of the sale.

Prior to the adoption of Article 2 (and, before that, the Uniform Sales Act), contracts for the sale of goods were governed exclusively by the common law (i.e., judicial precedent) – and the rules for contract formation, interpretation, and enforcement were fairly formal and rigid. Under the common law, parties to contracts for the sale of goods (particularly in non-auction sales) needed to be very specific. The offer needed to address all pertinent terms including, without being limited to: identification of the goods; price; payment; delivery; title; possession; risk of loss; warranties; disclaimers; and remedies. Then, the acceptance needed to mirror the offer. A problem with the common law rules was that – even though the parties may have desired to form a contract for the sale of goods, the absence any necessary term(s), or some slight difference between the acceptance and the offer, could result in there being no contract. Thus, while the parties had the right to determine the terms to be included in their contracts, the failure to include all essential terms could be fatal to the contract. Additionally, differences in the common law rules from state to state could lead to confusion in transactions where the seller was in one state and the buyer was in another.

This is where UCC Article 2 comes in. Like the Uniform Sales Act before it, Article 2 was designed to establish a set of rules for the sale of goods that was essentially uniform or consistent from state to state. I say essentially uniform or consistent because the states could choose from various alternative provisions in certain sections of the UCC, and the courts in each state still have the ability to interpret statutory and contract language and determine its application in specific cases. Another significant goal of Article 2, like the Uniform Sales Act, was to facilitate the formation of contracts when it was apparent that the parties intended to enter into a contract but failed to satisfy all of the common law requirements. In particular, UCC Section 2-207 is intended to prevent the potentially draconian consequences of the common law as regards contract formalities. Section 2-207 provides, as follows:

§ 2-207. Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Sections 2-207(1) and (2) were designed to address the common law’s mirror-image rule and overcome what had become known as the battle of the forms. Section 2-207(3) addresses gap-filler provisions that fall into place if the parties have not included every essential term in their intended contract.

A critical point to bear in mind regarding UCC Article 2 is that, while the common law required that every essential term be addressed in order for there to be a contract between the seller and the buyer, by operation of Section 2-207(3) and the gap-filler provisions set forth throughout Article 2, so long as an intent to enter into a contract is expressed between the parties, there are only two essential terms that must be agreed to – (i) the identity of the goods and (ii) the quantity. Thus, if parties expressing an intent to enter into a contract for the sale of goods agree on the identity of the goods and the quantity – and nothing else – the gap-filler provisions of Article 2 will provide every other term, including the terms for: payment (Section 2-310); delivery (Section 2-308); passage of title (Section 2-401 and Section 2-328(2)); risk of loss (Section 2-509); and even price (Section 2-305), to mention a few. While the applicability of Article 2’s gap-filler provisions might seem more readily apparent to non-auction transactions, many of those provisions – beyond just Section 2-328 – apply in the auction context, as well.

Section 2-207(3) suggests the proper sequence for interpreting a contract for the sale of goods – first, you start with the terms agreed to by the parties, and, then, you fill in any gaps not specifically addressed by the parties by using the default provisions of Article 2. Thus, only after focusing on the terms expressly agreed to by the parties does the Article 2 – as directed by Section 2-207(3) – turn its attention to the “supplementary terms incorporated under . . . other provisions of [the] Act.” This is where those who derisively dismiss the “infamous gap-filler crowd” (of which I am a member) fail in their analysis. Specifically, the suggestion that you can’t – or shouldn’t – use Bidder Terms or Conditions that diverge in any way from the provisions of Article 2 misses the entire point of Article 2. Thus, starting your contract analysis from the perspective that the provisions of Article 2 are carved in stone, and dictate the terms that must be agreed on between the parties, gets the process backwards. Instead, the analysis of a contract for the sale of goods should start with the terms actually agreed on by the parties, before turning to Article 2 to fill in any gaps. That’s what Article 2 actually requires.

Perhaps the best description of how the gap-filler provisions apply was articulated by the New Jersey Supreme Court in Lott v. Delmar, 2 N.J. 229, 66 A.2d 25 (1949). The Lott case was decided under the Uniform Sales Act (which, as indicated earlier, was the predecessor statute to Article 2 of the UCC), but the principle is the same. In Lott, the court considered the issue of when title passes to goods sold at auction, and focused on a provision of the Uniform Sales Act that was later carried forward into Article 2 of the UCC – “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner.” The Lott court observed that, if the parties had said nothing about the passage of title, then, title (along with the risk of loss) would have passed with the fall of the hammer. However, the Bidder Terms and Conditions actually used in that case called for title (along with the risk of loss) to be retained by the seller until payment was made. Because, in Lott, the property was lost before payment was made, the Bidder Terms and Conditions controlled over the gap-filler provision of the Uniform Sale Act and the loss was realized by the seller, not the buyer. In describing the interplay between Bidder Terms and Conditions and the gap-filler provisions of the statute, the court observed that –

“[T]he Uniform Sales Act is largely declaratory of the common law. Its modifications of the common-law rules were designed to make for uniformity in the law of sales in this country. The act does not deprive parties of the common-law right of contract. The rule of the Uniform Sales Act is presumptive merely, and is therefore applicable only where the parties have not expressly stipulated [otherwise].”

This is wholly consistent with UCC Section 2-207(3) (as described above) and with UCC Section 1-302, which provides that the “effect” of the provisions of the UCC may be varied by agreement.

Here, it is important to spend a moment on the words used in Section 1-302. Section 1-302 does not say that the UCC, including Section 2-328 “can be modified” by agreement, it says that “the effect of provisions of [the Uniform Commercial Code] may be varied by agreement.” This is an important distinction. By way of example –

• If the parties to a contract for the sale of goods say nothing about price, the default provision set forth in UCC Section 2-305 will apply to set “a reasonable price at the time for delivery.” However, if, in the first instance, the parties agree on a price, the effect of Section 2-305 is modified by agreement.

• If the parties to a contract for the sale of goods say nothing about when payment is due, the default provision set forth in UCC Section 2-310(a) will apply and payment will be “due at the time and place at which the buyer is to receive the goods.” However, if, in the first instance, the parties agree on payment terms (i.e., 30, 60, 90, 120 days), the effect of Section 2-310(a) is modified by agreement.

• If an auctioneer’s Bidder Terms and Conditions say nothing about when title passes from the seller to the buyer, the default provision set forth in UCC Section 2-328(2) will apply, and title will pass with the fall of the hammer (even before the buyer pays). However, if, in the first instance, the Bidder Terms and Conditions provide that title only passes when payment is made, the effect of Section 2-328(2) is modified by agreement.

In other words, the agreement of the parties determines the applicability and, thus, the effect, of the Article 2 gap-filler provisions. That is precisely how the court in Lott said it should work. And, that is precisely how Section 2-207(3) says it should work. It’s kind of like going to a wedding – you get the first choice on what you’re going to eat, but, if you don’t check the Vegan box when you RSVP, you’re going to get the steak by default.

Article 2 of the UCC is intended to facilitate the formation of, and performance under, contracts for the sale of goods. Under Article 2, contracts are formed on the terms and conditions agreed to by the parties. If, however, the parties have not addressed every essential term of the contract, the gap-filler provisions drop in to complete the contract. Starting with your own reasonable terms is not contrary to Article 2, it is anticipated by Article 2. In this regard, the courts have consistently recognized both (i) the ability of the auctioneer and seller to establish reasonable terms for the auction, and (ii) the general enforceability of such terms. Terms that do not strictly track the Article 2 default provisions are not – without further analysis – unreasonable, unenforceable, or ill-advised. Absolute statements to the contrary – without considering the specific terms at issue – are inconsistent with both the letter and intent of Article 2, and do not contribute to a meaningful discussion. I am confident that most auctioneers understand customary practices and can identify and implement reasonable Bidder Terms and Conditions. That’s where the discussion should be. Certainly, Article 2 is not the only measuring stick for reasonableness. Conversation stoppers like “you can’t do that because it’s not in the UCC” . . . or . . . “Bidder Terms and Conditions that are inconsistent with the UCC are illegal” . . . or . . . “you have to strictly follow the UCC”. . . all miss the point and suggest that auctioneers must abandon the right to establish their own reasonable contract terms. That’s simply not the case. Of course, specific questions about enforceability and reasonableness should be referred to a competent attorney of your own choosing.

Hopefully, having added some perspective to UCC Article 2 and its application, we can move on to a meaningful discussion of Section 2-328 – which will be the subject of another article for auctioneers to consider.

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.

“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.