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.