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Thoughts on Auctioneer Discretion and Control in Registering Bidders and Conducting an Auction

· Auction,Bidder

When I speak to auctioneers, I routinely stress the importance of contracts in (i) establishing rights and obligations and (ii) identifying and allocating risk among the contracting parties. I often say that it’s all about allocating risk. Understanding that basic tenet of contract law is critical to an appreciation of the relationships among the auctioneer, the seller, the bidders, and the buyer. In this regard, it cannot be overlooked that in auction-related contracts – just like all other contracts – certain provisions benefit specific parties and the party benefitting from a particular provision generally has the ability to waive that provision in whole or in part.

For example, when bidder terms and conditions provide that – in order to register to bid – a bidder must show the availability of funds, or must have a pre-approval for financing, or must meet other requirements giving comfort to the seller and the auctioneer, the beneficiaries of that provision are the seller and the auctioneer (acting as the seller’s agent). This is because showing the availability of funds provides some reasonable assurance (but by no means a guaranty) that a pre-qualified bidder should be able to close on the purchase, thus reducing the possibility that the seller and auctioneer may have to re-list and re-sell the property at a later date. While requiring the pre-qualification of bidders may limit the pool of potential bidders, pre-qualification provisions are, typically, not intended for the benefit of other qualified bidders. As such, should the seller and the auctioneer have a tolerance for risk that allows for the modification or waiver of certain protective provisions, then, arguably, the seller and the auctioneer ought to be able to waive or modify those provisions, even if such waiver increases the possibility of the winning bidder not being able to close. Of course, balance and reason should be applied.

A recent jury verdict in the Superior Court for Orange County, California seems to support the auctioneer’s discretion and control in registering bidders and conducting auctions. In Janger v. (Orange County Superior Court Case Number 30-2015-00777483), the winning bidder at a real estate auction sued the auctioneer, claiming, among other things, that the auctioneer improperly waived certain pre-qualification requirements in order to permit the prior owner of a foreclosed property to bid. The plaintiff filed a multi-count complaint, including a claim for breach of contract based on the bidder terms and conditions. While there were other issues raised in the California case, the reference in this post is only to the breach of contract issue with respect to which the plaintiff claimed that by waiving or modifying the pre-qualification requirements for one bidder the auctioneer treated other bidders (including the winning bidder) unfairly and allowed an unqualified bidder to elevate the hammer price. After receiving evidence and hearing competing opinions from auction experts on both sides of the case, the jury rendered its verdict in favor of the auctioneer, finding no liability and no damages. The plaintiff has a right to appeal. In looking at that case, it is important to keep in mind that litigation outcomes are dependent on applicable local law and the specific facts and circumstances of each case.

By way of another example, I received a call from an auctioneer about a complaint made by a back bidder at a recent auction. The issue, there, was that the winning bidder asked if he could pay for his purchase the day after the auction and, with the seller’s consent, the auctioneer agreed. The back bidder thought it was unfair because the bidder terms and conditions provided for payment of all purchases on the day of the auction. However, the term that was modified was a term that benefitted the seller and the auctioneer, and, if they have a tolerance for the risk, the seller and auctioneer ought to be able to waive or modify conditions put in place for their protection.

Arguing that a bidder at a typical auction may freely challenge the auctioneer’s use of reasonable discretion and control over the auction ignores the legal relationships among the parties and seeks to artificially restrict the auctioneer’s skill, expertise, and judgment.

This post is for information and discussion purposes only; it is not intended as legal advice and should not be relied on as such. No attorney-client relationship is created or intended.