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18 Jul 2022

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Blog

Can an Auctioneer Sell “AS IS” Without a Preview?

Posted By: Michak Legal

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Legals

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“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.

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Auctioneer Discretion in Reopening the Bidding to Recognize a Timely Tendered Missed Bid

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.

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Understanding the Risk Associated with the Auction Purchase of the Brady Football

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.

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