Auctioneer/Seller Withdraws an Item with Bids. Is It Legal?

February 20, 2011

terry hagen Says:

I recently bid on an item at a live auction of a store going out of business. After many bids I was the highest bidder and the auctioneer was going to bring down the hammer. At the last second a family member told the auctioneer he felt the item would get a higher price at local dealer’s place of business. The family member then told the auctioneer to only accept a bid that was quite a bit higher than my bid. At that point I stopped bidding. The bidding had passed the reserve price. The item did not sell that day. The more I think about this the more irritated I am. Was this ethical and/or legal?

Another great topic from one of our readers! So, Terry Hagen receives the honor of having the question answered in its own topic on the Auction Law Weblog.

First, I must note that Terry did not state that this auction was advertised as “Absolute” and insinuated that the “bidding had passed the reserve price,” so it implies that this was an auction “With Reserve.”

Of course, now I might ask a few questions. How did Terry know that the “bidding had passed the reserve price?” Did the auctioneer announce the reserve price? Did the auctioneer state that it had met its reserve? Do these questions really have any effect on the manner in which the auctioneer handled this? Nope!

Of course, while sometimes it might not look good upon the auctioneer (by a misinformed buyer), in an “auction with reserve” the Seller/Auctioneer does have the right to withdraw any item, regardless of whether it has a reserve price or not. This is where most people are misinformed about auctions “with reserve.” Most people think that an “auction with reserve” means that one or more items have a minimum reserve price. However, this is FALSE.

It really means that certain “rights” have been reserved which may be outlined in the Terms & Conditions of the auction, as well as other factors concerning the sale of the items offered, which are determined by law and not required to be specifically announced. In any case, only one of those “rights” is the right of withdrawal, which is predetermined under the law and does not require any specific announcement (remember that old phrase, “ignorance of the law is no excuse”) and the bidders are presumed to be knowledgeable and acting with such knowledge. There may be many other rights also reserved, which is why the bidders should always read the Terms & Conditions and/or listen very closely to the opening statements at an auction.

Take a quick look at the U.C.C. and see what it says about an “auction with reserve.”

2-328. Sale by Auction.
(3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale.

You will note that the U.C.C. does not say anything about an item having a reserved minimum, nor does it address items without a reserved minimum. Therefore, it is implied that any item may be withdrawn at any time prior to the call of “sold,” regardless of any other minimum or whether it even had a minimum. So, it is certainly legal.

Now, one might ask why this section of the U.C.C. was drafted in this manner. To answer the question would require reading the history and opinions of those that drafted the document. However, since I’ve already read about such things, I’ll try to summarize those reasons to save everyone the time and effort.

The primary reason was to protect the seller on a “bad day” (in case the “right bidders” were not in attendance) so that they would not be subjected to an unreasonable loss. Therefore, an auctioneer with the appropriate knowledge of an item and its value would still have the right to withdraw an item if it did not reach a reasonable price, whether the Seller specifically instructed him/her to do so or not.

Now, to address the question of ethics – First, it should be noted that the auctioneer’s fiduciary (that’s a fancy, legal word for “primary”) duty is to the Seller. Would it be ethical for the auctioneer to sell their item for less than a “reasonable” value? Of course, “reasonable” is a relevant term (depending on the individual), but that should be an easy one to answer, especially if you put yourself in the Seller’s shoes and those were your goods being sold. By the same token, since the auctioneer is working for the Seller, if the Seller decides to withdraw an item, then the auctioneer has little choice but to abide by their wishes.

Now, on a side note, the Seller should be aware of any contractual obligations that may be noted in their contract, as most auctioneers will include a “penalty for withdrawal” and the Seller may still be required to pay commissions or a fee for exercising their right of withdrawal.

The auctioneer has no duty to the buyer (except equal fairness to all buyers present) or to sell an item at any price, just because someone bid on the item. After all, while the purpose of the auction is to put items up for competitive bidding, there is no guarantee that if you bid, you will win the item. If another bidder outbids you, you have still lost the desired item, just as if the Seller decides to withdraw it. In either case, there is no contract between you and the Seller, until the auctioneer announces a completion of the sale.

So, when the issue of ethics arises, it is only subject to which side of the bargaining table you were seated and whether you were actually treated fairly, which is the only ethics consideration.

As a buyer, you are at opposing interests with any seller, since you are wanting to get the lowest price and the seller wishes to obtain the highest price. The only time that you are not being treated fairly in this case, is if the seller favors another offer over yours, based on factors other than receiving the highest price. Therefore, as the Seller’s agent, the Auctioneer was most likely treating you ethically and also complying with the wishes of his/her fiduciary, the Seller.

Now, I would emphasize that such withdrawals in an auction should be minimal, in most cases. After all, the lure of the auction holds the possibility that deals can be had at auction and in the hopes of retaining the buyers, the Seller should expect some items to sell for less than they might have hoped, yet they may also find that there will be many other items that will sell for more than expected. So, in the end, it all balances out.

Of course, I’ve rarely heard a Seller complain about an item that brought a lot more than they expected. However, I’ve had a few that look at each item on the list and make note of their disappointment in those items that didn’t do as well as they hoped.

The informed Seller will look at the bottom line to determine the success of their auction and basically disregard the individual price that each item brought.

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Auctioneer Bidding… Is it Legal?

February 6, 2011

The answer is…  YES…  er, NO…  well, It Depends!

Since this type of question arises quite often from both sides of the aisle (bidders and sellers), it warrants being posted here. Below is one of the more recent responses I replied to and hopefully it will help everyone to understand this often misunderstood part of the law.

neil Says:
February 4, 2011 at 9:02 pm

In an earlier response, you said, in reference to an auctioneer bidding on its own behalf, that “the MAJORITY of states allow an auctioneer to do so, IF it is DISCLOSED to the buyers that the auctioneer reserves the right to bid, whether it is on behalf of any minimums, reserves or for their own personal purchase.
If such bidding has not been disclosed, then it is illegal.” I’m not disagreeing. I just want to know what the basis is for your statement that disclosure is required.

While I’ve responded to similar questions in this blog on numerous occasions, I’ll give it another shot. I’m making a guess that you may have read the post Auction House Bidding & Selling which led to your question.

First, I’ll clarify the statement “the MAJORITY of states“:
I used this phrase as a sort of “disclaimer” because I know of one particular state (off the top of my head) that does not allow an auctioneer to bid for any reason. That state is Pennsylvania, although there could be another one or two that I’m not currently aware of, so it’s possible there could be others.

Second, I must also clarify another of my previous statements to insure it’s not misinterpreted.
An auctioneer may bid on behalf of the seller (i.e. to protect a minimum reserve) if such bidding is disclosed to the bidders.
There is no such requirement of disclosure (in most states that I’m aware of and with the exception of PA, of course), if the auctioneer is only bidding for his/her own personal purchase. In such cases, they are just another bidder for the merchandise. [However, it’s just a good idea to include/disclose such things in your terms, just to help the bidders understand and keep the questioning to a minimum, whether the auctioneer is required to do so or not.]

NOW to answer the question… “the basis for my statement that disclosure is required.”

The statement is based on the fact that almost all of the 50 states, incorporated all or most of the Uniform Commercial Code (U.C.C.) Section 2-328 into their own Business and Commerce codes/laws. You can view that section of the U.C.C. at U.C.C. § 2-328. Sale by Auction

You will note that (the first part of) Paragraph 4 states:

(4) If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved,

Now, keep in mind… you have to think like a lawyer! In other words, you have to read that statement very carefully to determine what it is stating, as it’s written in sort of a “reverse logic“.

The KEY STATEMENT is “and notice has not been given that liberty for such bidding is reserved“.

Therefore, to reverse this statement into layman’s terms, it is stating that if an auctioneer receives a bid on the seller’s behalf, then they must first give notice that such liberty of bidding is being reserved to do so.

OR more simply… Such bidding must be DISCLOSED (i.e. give notice) to the bidders, prior to doing so.

Now, to take this one step further… there is no requirement for an auctioneer to disclose each individual bid being made on behalf of the seller (i.e. the actual act of such bidding at the time it is being done).

There is also no requirement for the auctioneer to disclose whether or not a particular item has a minimum reserve.

The only requirement is that the auctioneer must disclose that such bidding may take place during the course of the auction. This disclosure may be made during the opening announcements or it may be in the form of a written Terms & Conditions. So, bidders should read the Terms & Conditions and pay close attention to the opening statements. Bidders should also keep in mind, even if you were not present during the opening statements, when you bid at an auction, you have agreed to be bound by those terms even if you didn’t actually hear them spoken. So, it’s always a good idea to arrive early and listen closely.

OH! One more thing… as I stated that most of the 50 states incorporated the U.C.C. into their laws, Louisiana did not incorporate the U.C.C. as written (they just used parts of it) and a few others have also modified the code to some extent. Since other states may have added additional requirements or modified their auction laws, check the laws of your own state and if you’re an auctioneer, you should already know what those laws are to begin with. In any case, if in doubt… Don’t bid or allow the seller to bid on their items and you’ll have nothing to worry about.


Auction House Bidding & Selling

March 16, 2009

In the comments on the article Auction Laws in the U.S.A., a couple of great questions have been asked by Frank Ceresi. While I posted a response in the comments, I thought this would be a good topic and may generate its own comments and questions.

Frank asks:
Is it lawful for the principal owners of an auction house to consign items in their own live and/or internet auction?
Is it lawful for the principals in an auction house to bid in their own live or internet auction?

Response:
I’m not aware of anything unlawful with an auction house selling items they have purchased to resell. Why should it be? This is how most resellers operate in the first place, from flea markets to major department stores, whether they sell used or new goods. I wouldn’t understand why anyone would consider this to be an unacceptable practice. The auction house purchases items and sells them to the highest bidder. This is the purest form of capitalism and free enterprise. After all, companies sell their own stocks and commodities by auction everyday, through the New York Stock Exchange.

Now, the second question requires a little clarification. Of course, while the laws can vary from state to state, I would also recommend that you carefully read the laws for your particular state to determine any variances from most other state laws. So, keep in mind, my following comments are for majority of state laws, but there could be the possibility of a few states that may indicate otherwise. Keep in mind, at auction, the buyer must perform their own due diligence and know the laws, as well as the terms of the auction.

In most states, the seller or their agent (which can certainly include the auctioneer) may be allowed to bid on behalf of any minimum reserve prices set by the seller, as long as “SUCH BIDDING IS DISCLOSED” to the bidders. This is also the primary difference between “shilling” and “protecting the reserve”.

There are basically two ways to “protect the reserve”. One method method is to “Pass” the item, if it does not meet the reserve. The other is “bidding on behalf of the reserve” and may only be done if DISCLOSED to the bidders (note the emphasis). Some auctioneers may also use a consignor bidder number or “house number”, in such cases that the reserve is not met, to keep things flowing smoother and allows for tracking during settlement of the auction.

The key point is “DISCLOSURE”. If the auctioneer has not disclosed that such bidding may be allowed, then it would be considered “shilling” and would be considered fraudulent bidding.

This disclosure may be in the form of written “Terms and Conditions” which may be posted or otherwise made available to the bidders, or may be statements made during the “Opening Statements” of the auction, which is why it is always a good idea to be present at the beginning of an auction and listen closely to everything the auctioneer says, at that time. If you arrive late, you are still bound by those oral statements, even though you may not have actually heard them being made. This falls under the same basis as you’ve probably heard before, concerning your responsibilities to know the law prior to any actions you take… “ignorance is no excuse”. So, if they have written terms and conditions, you should read them carefully, in their entirety. However, there is no requirement that the terms must be written. For that matter, the auctioneer is also allowed to set forth the conditions of each sale, as each item is being offered, which may also superceed any previous statements made or modify the terms for that particular sale.

It should also be noted that the auctioneer is not required to state whether any item has a reserve or not, much less how much the minimum reserve price may be for any item. In fact, at most auctions, any reserve is kept secret and is not disclosed. There are several reasons for this and experience has certainly born out a couple of those most prominently… one is that it “sets a maximum price in the mind of the buyer” and we all know that an item is worth what the highest bidder is willing to pay on a particular day.

This is not to say that the item may not bring more on a different day, with different buyers and the seller is not required to sell their item for less than they are willing to accept. This goes back to the definition of “Fair Market Value” which is “the price a willing buyer and willing seller agree on”. Therefore, this is the basis of the “reserved minimum” which must be met, before the seller agrees to sell.

Another reason why most auctioneers don’t disclose reserves, is due to another element of human nature… if the minimum amount is disclosed, most won’t even offer a starting bid at the reserve price. It’s as though they automatically deem the price to be “too high”. (Of course, then there are those that don’t understand auction laws and think everything has to sell regardless of price and think that if it starts lower, they might get it anyway.) However, from experience, if the item has a “reasonable” reserve, the bidders will usually meet or exceed it, if there are two or more truly interested bidders and they are allowed to start the bidding where ever they wish and bid accordingly. Of course, if there is only one interested bidder, the seller’s agent may bid against them until it reaches the reserve (if such bidding was properly DISCLOSED, as discussed above).

Of course, if you have attended auctions, you also know that you may set your own price prior to bidding, only to find yourself bidding more than you initially intended, as you felt it was worth more than you hoped someone else would pay.

Unfortunately, one of the myths that many people have about auctions, is that “everything must sell regardless of price” and they go looking for a “steal of a deal”. While there are often plenty of great deals to be had, there is no requirement that everything must be sold regardless of price. The U.C.C. states that “all auctions are considered to be WITH Reserve, UNLESS stated to be Absolute”. Therefore, the auctioneer may still cancel the sale of any item prior to announcing ’sold’, if he/she feels that the item has not met a reasonable value, even if it does not have a minimum reserve price. However, the ethical auctioneer would not bid against you in such cases (since there is no specific reserve), but only ‘Pass’ the item if a reasonable value was not reached.


Iconic House sells for $1

March 13, 2009

Of course, this headline caught my eye and I had to read the story, but figured there had to be a catch. Of course, my intuition was correct. Yes, the house was sold for $1 (and other due consideration, as the deed likely reads), but it is going to cost the new owners $100,000 to have it moved! However, considering the house, they are probably still getting a “good deal” on it. Read about it here:
Iconic House Sells for $1
Or Here:
Iconic NJ beach house ready to sail to NY

Everyone has heard the tales of buying a Mercedes (Jaguar or which ever model was used in the tale) at auction for A STEAL OF A DEAL! Of course, they only hear part of the story… what they don’t hear, is that is was a burned-out car or it was at the bottom of a river and they had to pay to get it dredged out.

While the actual story may not be a “myth”, such things usually reach mythical proportions as the story evolves into those “Buy for Pennies on the Dollar! Go To Auction” books, DVDs, and other such information being offered for sale to unwitting buyers looking for those “STEALS of a Lifetime”.

While you may find some great deals and occasionally someone may get a “steal” on something, most items typically bring what they are worth at an auction. This is the reason that auctions have been used for over two-thousand years (auctions have been traced back to as early as 500 B.C.). Of course, it’s also why the Stock Exchange is the biggest daily auction, as commodities and stocks are sold for their current value. Now, if you bought stock when prices were skyrocketing and it was selling at $50, but now it’s sitting there, selling for only $25, you might be asking yourself one of two questions… 1.) did I pay too much? or 2.) should I buy now? It all depends on which side of the fence you’re sitting. What if you buy it now and the price falls further? Did you get a good deal?

Auctions are the best method to determine the current market value. However, it doesn’t matter what you paid for it or what you think it’s worth, the free market will let you know what it’s actually worth today. So, you may think that if you hold on to it, it will go up in value… well, almost everyone bought newspapers, magazines, etc., when JFK was assassinated, with that same thought. All it means, is there are a lot of old newspapers and magazines collecting dust, somewhere. I probably find at least one or more, at almost every estate I’ve ever cleaned out. So, what do you think they are worth? How much would you pay for another one? What do you consider a “bargain”?


Can I be Sued over an eBay Auction?

July 17, 2008

One of the great features of the Weblog is, you can see search terms that people use, to find your blog. While this is not a blog about online auctions, and since there are plenty of those all over the web, I don’t plan on this becoming another one of those. However, this seemed to be a fitting subject, regardless of the type of auction.

Of course, the short answer to the question is YES. Why, of course you can. Especially in today’s litigious society, where people sue anyone for anything at the drop of the hat, or should I say, hot coffee spilled in your lap, as one seeks to blame the restaurant for serving coffee that’s “too hot” and causing light scalding on their leg when the clumsy individual caused the injury to themselves. Why do people always seek to blame others for their own faults? Money and greed are usually the culprits that answer that question.

However, if someone does cause real problems and losses to someone else and the individual at fault refuses to provide relief to the damaged party, then that was the intention of providing legal recourse for addressing the situation. I don’t think it was ever meant to be used by crooks to sue the victims for hurting them when catching the crook in the commission of a crime or other silly actions that should never waste our taxpayer’s dollars to misuse our legal system.

So, I have to wonder, what did this person do to have someone consider bringing a lawsuit against them? We continually hear of the seller’s that scam buyers and buyers that scam the sellers. There are also those that think they can run an eBay style auction and claim “as-is, where-is” and be absolved of all legal responsibility for what they represented. While Live Auctioneers also use those terms, at least the buyer can see what they are buying and determine their own suitability. But that may not even be a viable defense if the auctioneer made a specific claim about an item.

I had a friend that bought a motorcycle on eBay from a seller in a different state (well over 1000 miles away). When he received a box of junk parts, he contacted the seller and the battle was started, as the seller claimed it was all there in the box. Well, this certainly wasn’t what was envisioned from the description and the seller wanted to make things difficult, so my friend found a lawyer in the seller’s home state and filed suit. Now, that’s the bad part, as you normally have to file suit in the other person’s jurisdiction, at least in most cases (there are exceptions, like when it’s spelled out in a specific contract, for one). Of course, now the seller wants to try to negotiate and refund his money. Well, this is likely to cost the seller a whole lot more than he was going to make on the scam, as my friend is going to pursue him in court, even though it means he will have to take off work and travel over 1000 miles when it’s scheduled for a court date. I’m sure he’ll be seeking reimbursement for those costs, as well, not to mention his lawyer’s fees.

The best way to avoid a lawsuit is to be as honest as you can, with those you deal with. While it’s no guarantee that someone won’t find something as a perceived wrong and try to sue you, it should lessen your chances.


No Warranty Or Guarantees at Auction, EXCEPT…

June 2, 2008

I was presented the following scenario in the comments here

Here’s a basic summary of the comments:
I was recently duped into buying a painting supposedly from a valuable artist only to find out later that it was not. In this case, the auctioneer’s homepage posted all the items for sale and had the artist’s name and year the painting was done. The day of the sale, he said that he was told by a colleague that it was probably the work of the artist in question.

When a buyer attends an auction, there are “Terms & Conditions” that the Auctioneer usually gives at the beginning, although they may also be posted in written form. In most cases, these Terms & Conditions have a statement such as, “All items are being sold “As-Is, Where-Is, with No Warranties or Guarantees Expressed or Implied.”

Many Auctioneers think this gets them “off the hook” in case there is something wrong with the item, as buyers are also told to look things over and know what they’re bidding on. So, in this context, it appears that it rests solely with the buyer’s own judgment. And it Does… UNLESS, the Auctioneer makes a statement of the items’ condition, authenticity, value or other similar statement. Now, I know that there are some Auctioneers that may try to argue this point, but those are the ones that may find out the hard way… in front of a judge.

As long as the Auctioneer says, “I’m selling this nice painting of a farm house by a lake” and you can see that it is just that, but you know there’s a small rip in the painting, then it is up to your judgment of value for this painting. Caveat Emptor, as the saying goes or “Let the Buyer Beware”, which means it is solely up to your own knowledge and judgment. If you didn’t notice the rip, and you’re the high bidder, it’s still YOURS, when the Auctioneer calls “SOLD.”

But, what if it was a print and not a painting? What if the Auctioneer said it was by a particular artist and it wasn’t?

My first question is, “Was the Auctioneer kidding around?”, as we all know that most Auctioneers may use a bit of tongue-in-cheek humor to entertain, as well as sell stuff. This would certainly be a gray area and may depend on the reaction of the crowd. After all, if it was picture of a mallard swimming on the lake and the Auctioneer referred to it as a Walt Disney Painting of Donald Duck, then it probably wouldn’t change anything… Yes, I know that’s the extreme, but more subtle forms of humor and conjecture may also be used and if most of the crowd knows better, then it may still be hard to hold him to his word.

However, if you are bidding on something that has been held out to be much more valuable than it actually is, and the Auctioneer knowingly or not, tells you that it is “likely a Picasso”, then he may have a lot more problems trying to convince a judge that he was just “kidding around”.

If the auctioneer states “I have a Picasso”, then it may be assumed to be genuine. However, if he says, “I have a painting that is signed Picasso”, then it is up to the bidder to determine if it is real, as he has not claimed it to be genuine. However, the wording of a statement can be difficult to ascertain what he may be implying. If in doubt, stop the auctioneer and ask… “Is this a genuine Picasso?”

To state that a “colleague said that it was probably the work of the artist in question”, does not relieve the auctioneer from his obligation, as he is an agent of the seller. So, if the “seller” misrepresented the item, it may still be an invalid sale. To state “probably” is not necessarily a good defense for the auctioneer, as it may still be considered a misleading statement. I know that if I heard an auctioneer say “probably”, I am going to consider that it was not verified and unless I know that, it IS what it’s supposed to be, then I’m not going to bid very much (if I bid at all). But, that is not to say that you were not misled into thinking that it was an original… so, the actual wording of his statements may actually determine his liability.

However, if the auctioneer stated something like, “A colleague said that it was probably the work of the artist in question, but I can not guarantee it, so please bid accordingly“, then he has basically left it to the bidders to decide for themselves, as to its’ authenticity. If I made such a claim, I would make sure everyone heard me, by repeating the “no guarantee… bid accordingly” and I may also add “I have not verified this”, just to make sure there was no misunderstanding by the bidders. It’s not unusual for a seller to bring something to auction, who is also misinformed about their goods. Often, the auctioneer is only repeating what he has been told by the seller, however it still makes both, the seller and the auctioneer responsible, should the item not be as the seller believed. This doesn’t make them bad people, just misinformed… but the seller should still be held to his claim. However, if either KNEW it was a fake, then it is a serious offense, as that gets into fraud and may be a criminal offense.

As I previously pointed out, sometimes, it’s all in the way it is said and some bidders will try to use the line, “but I thought he said…”

In these types of cases, it doesn’t matter what you thought he said, as it is each individual’s own responsibility for determining the authenticity and to pay close attention to the Auctioneer. If you only heard the part when he said “Picasso”, if you aren’t sure, then you should stop him and ask for clarification before bidding.

Now, back to the original comment that was left. This Auctioneer posted this picture on his website and put the “Author’s Name” under it. This could clearly indicate to the consumer that he is claiming it to be authentic. Since this Auctioneer went on to say that “a colleague said that it was probably the work of the artist in question” is only putting additional authenticity to what was already published and he may actually be considered to be holding this out to be authentic. To put the “question” on the end of the statement may not get him off the hook in this case, without further statements to make clear that he is not sure of the authenticity that was previously claimed on the website. If I had an interest in this item, I certainly would have stopped the Auctioneer and questioned his “appraisal” of the painting. If he continues to assert that it is was probably authentic, then he would likely be held to a guarantee that he has just expressed, otherwise he may be found to have violated FTC laws for fraud.