Here’s an all too familiar story –
Auctioneer is called to look at a possible sale. After inspecting the property, the auctioneer calculates that this will likely be a profitable sale, and well worth the auctioneer’s time and efforts. The auctioneer and seller enter into a written contract providing that the auctioneer will sell all of the personal property on-site, and will receive both a commission and buyer’s premium, each calculated as a percentage of the hammer price for the lots struck off at the auction. The auctioneer sets the date for the auction and advertises in print and online. A successful advertising campaign generates significant interest and a large number of potential bidders – both online and in person. On the day of the sale, the auctioneer arrives on-site to discover that the seller has removed – and sold privately – the most valuable and sought after items, leaving two hours worth of box lots and some stray furniture odds and ends. Essentially, the potentially profitable auction has turned into a dismal cleanout. The auctioneer’s anticipated revenues (including commission and buyer’s premium) plummet, and prospective bidders are – in a word – unhappy. There are even allegations by disappointed bidders that the auctioneer engaged in bait and switch advertising. Adding insult to injury, it turns out that the missing property was sold to buyers who saw the auctioneer’s advertising and contacted the seller directly.
So, how do you deal with this situation? The best way is to start with a good contract.
Contracts establish rights and obligations between the parties, and each party is entitled to receive the benefit of the bargain embodied in the contract. When one party to a contract fails to perform his or her obligations, that is a breach of contract. The legal remedy for breach of contract will, typically, be damages (measured in dollars and cents) that are intended to put the non-breaching party in the position that he or she would have been but for the breach by the other party. In the scenario described above, the auctioneer has lost the benefit of the bargain with respect to the property that was privately sold by the seller. Assuming a 30% commission and a 10% buyer’s premium on the personal property, and assuming, for the sake of discussion, that the withdrawn property was sold for a total of $50,000 in arms’ length transactions, the seller has deprived the auctioneer of $15,000 in commission, plus $5,000 in buyer’s premium. The auctioneer’s damages may also include reimbursable costs and expenses allocated to the missing property. Add it all up, and that is what it will take to put the auctioneer in the position that she would have been in but for the seller’s breach. Of course, that doesn’t address the possible hit to auctioneer’s reputation.
In order to protect the Auctioneer (both financially and in terms of reputation), and to get the seller and auctioneer on the same page from the beginning, the seller’s contract should clearly establish a prohibition against the seller’s withdrawal of property, and the consequences for seller’s breach.
While that seems to make sense, I was recently told by an Auctioneer that she had been advised by an expert that such provisions are unenforceable and, at most, constitute an ineffectual "bluff" that, if challenged by the Seller, would fail. Hmmmmm, let’s try to understand that. It appears that the advice previously given to the Auctioneer was based on a faulty interpretation of Uniform Commercial Code Section 2-328. As that analysis goes, Section 2-328(c) provides that in an auction with reserve the seller may withdraw the goods at any time until the fall of the hammer. According to this theory, the seller has an absolute right to withdraw property, and the auctioneer has no recourse under those circumstances. That analysis fails for several reasons. Section 2-328 doesn’t say that the "seller" can withdraw the goods prior to the fall of the hammer – it says, specifically, "[i]n an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale." Granted, the Auctioneer is the agent of the seller, and it should be expected that the withdrawal of a lot after it is put up at auction would be for the benefit of the seller (although there may be other reasons), the UCC does not contemplate the seller scampering across the hall to pull property off the block while the auctioneer is calling bids. Moreover, Section 2-328 says nothing about withdrawal of property before it is put up at auction, which leads to a more fundamental flaw in this analysis – UCC Section 2-328 talks about the transaction between the seller and the buyer; it does not speak to the contract for services between the auctioneer and the seller. Simply put, Article 2 of the Uniform Commercial Code addresses the sale of goods. Because the contract between the auctioneer and the seller is a services contract – not a contract for the sale of goods – it is not governed by the Uniform Commercial Code. As such, the UCC should not be held up as a reason to deprive the auctioneer of the benefit of the bargain in the contract between the auctioneer and the seller.
In the contract between the auctioneer and the seller, the auctioneer ought to be able to include reasonably favorable terms that protect the auctioneer’s interest. Such terms may address the withdrawal of property (or, more specifically, the non-withdrawal of property), and the auctioneer and the seller should be able to agree that property cannot be withdrawn by the seller, and, if withdrawn, that the auctioneer is entitled to an amount equal to commission, buyer’s premium, and expenses (or any other reasonable consequences). There may be special circumstances under which you are willing to waive such a provision, but you should also be able to enforce it, as well. Arguing that UCC Section 2-328 precludes an auctioneer from including such terms in her seller’s contract is like trying to cram a square peg into a round hole.
As far unenforceable bluffs, I don't use them when I draft contracts, and it is generally not a good idea to knowingly put unenforceable bluffs in your contracts, particularly a consumer contracts.
This post is for informational purposes only and does not constitute, and is not intended to constitute, legal advice. No attorney client relationship is created.