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.

The process or the tradition of the auction is as old as 500 B.C. It can significantly be remarked in Greece where the women were auctioned for marriage. Women were not allowed to marry if they did not pass this step of the procedure. As the highest bid was found equal or higher than the reserved price women were sold to that buyer. if the marriage did not persist or if the marriage dissolves the bidder was allowed to take back all the money paid. s the new economic policy, 1990 was introduced in India it brought many changes in the economy of the country as well as there was a tremendous growth of technology which opened the doors for many other goods to be auctioned like computers, mobile phones, printer machines etc.

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.

“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.

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.

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.