Auction Law & Ethics
“Please Mister Postman, look and see if there’s a letter in your bag for me.”
The Marvelettes, 1961.
Mr. Postman delivered the following letter from a reader:
“Hi, Steve, I am writing about an issue that has bugged me for a while. Sometimes bidders can bid on line in ‘live’ auctions. My complaint is that many of the auctioneers who offer this option have terms that are inconsistent with the reality of absentee or on-line bidding, because there is no ability to personally inspect what is being offered. For example, one auction house states in its terms, ‘All items are offered as is, where is, with all faults, and there are no warranties or representations of any kind, including but not limited to merchantability or fitness for any particular purpose, whether expressed or implied. Any written or oral description given is merely auctioneer’s opinion and is not to be interpreted as a guarantee of any kind whether as to age, condition, materials or any other fact or feature of the item being offered.’
“Another house uses these terms: ‘All lots are offered for sale as shown and as is, where is, with all faults and imperfections existing, and subject to all errors of description. Neither auctioneer nor its agents and/or employees are responsible for the authenticity or genuineness of any lot, nor for any defect or fault affecting a lot, nor for any error of description. No representations or warranties of any kind are given by auctioneer, its agents, and/or employees to any bidder or buyer with respect to any lot offered for sale.’
“My question: what is the on-line or absentee bidder supposed to rely upon in order to bid when such broad and sweeping disclaimers make an item’s description worthless to the point that it cannot be relied upon? If the auctioneer can’t, or won’t, stand behind the descriptions it gives of the items that it offers, why should the buying public participate? By example, what is to prevent an auctioneer from ‘overlooking’ damage or other issues in giving a description for an item, if doing so creates no adverse consequence for it whatsoever?
“I contacted one auction house about its policy and was told that it is just standard language and that the house stands behind the descriptions and conditions they give for what they offer. Even this assurance is legally worthless, however, because the firm’s policy states: ‘No warranties or representations whatsoever are given by auctioneer, its agents, and/or employees to any bidder with respect to any lot offered for sale.’ So what the firm’s employee told me was really no assurance at all, because it was a direct conflict with the auctioneer’s published policy, which states I cannot rely upon an employee’s representations.
“If there is another trade on this planet where the professionals involved are able to absolve themselves from any and all responsibility with regard to performing their trade, I would like to know what it is. ‘Not responsible for any error of description,’ say these auction houses. If they are not responsible for their own language, then who should be? Can you imagine a plumber, auto mechanic, or doctor having a policy that shields them from all responsibility and liability for their work? In my opinion, anyone would be a fool to bid in an auction under these conditions.”
The writer’s points are cogent. We will take a closer look at several of them.
Have you noticed how many disclaimers auctioneers customarily use? They love disclaimers almost as much as they love calling the next bid. Why is this? There are several reasons.
First, auctioneers commonly do not sell new goods. They trade in a smorgasbord of goods of different qualities and conditions, with the bulk having been previously owned and used and reflecting wear, tear, blemishes, defects, and other issues that could be points for complaint by some buyers.
Second, auctioneers typically deal with a variety of sellers who span from novices to professional dealers. The character, intentions, and practices of these sellers vary from honest to the opposite. The information that sellers give to auctioneers about consigned property runs from fact to fiction—from accurate to fraudulent.
Third, auctioneers typically have no one to back them up. Unlike other sellers, they lack the luxury of having manufacturers or distributors behind them that they can look to should a problem or legal claim arise from a sale.
Fourth, if not kept in check, buyer’s remorse would torpedo numerous sales. Disclaimers serve to block many potential exits from sale contracts that wishy-washy buyers would otherwise be looking to take.
Fifth, as selling agents, auctioneers must shoulder a lot of responsibility in the marketplace, but they are often undercompensated. Auctioneers are ordinarily paid only a small fraction of what the property they sell ends up bringing for their sellers. Risk can far outpace reward.
All of this adds up to considerable exposure for auctioneers. The smart ones are mindful of the dangers that lurk and are keen on trying to avoid the tiger sharks of commerce—lawyers and the litigation that they bring. Auctioneers understand that costs and losses can quickly spiral out of such encounters. Sidestepping errors, omissions, breaches, and the like is a sound strategy for ducking liability, and auctioneers are taught early to use every disclaimer that they can conceive for this purpose. This is why auctioneers prefer to offer everything that crosses the auction block “as is, where is”; why they want no obligation for the statements they make; why they want not to be bound by the descriptions they give; and why they claim to be “not responsible for accidents.” Many auctioneers want to do business from within a bomb shelter, but they cannot afford to overdo it lest they lose prospective bidders and sales. The challenge is to find a reasonable balance between an auction’s attractiveness to bidders and its protections for the auctioneer.
The writer asked a compelling question: “What is to prevent an auctioneer from ‘overlooking’ damage or other issues in giving a description for an item, if doing so creates no adverse consequence for it whatsoever?”
The fact is that auctioneers are prone to putting a lot more stock in disclaimers than the law allows. Many believe that declaring the lots will be sold “as is” allows them free rein to say anything and everything that comes to mind about the lots crossing the sale block, and they attempt to take advantage of this. The truth is far different.
Another unpleasant truth is that any perceived lack of accountability is an open door that tempts some auctioneers to abuse the marketplace and the bidders that come to buy. This potential extends the threat of harm beyond accidental error to include intentional wrongdoing, so the writer’s concern is well founded.
Under the commercial code, an “as is” disclaimer accomplishes no more than blocking implied warranties (such as merchantability, fitness, and suitability) from forming and attaching to a transaction. This disclaimer does nothing to block, diminish, or defeat an express warranty. So with regard to factual representations made and descriptions given, section 2-313 of the Uniform Commercial Code provides in part:
“(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
“(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.”
These code provisions show that an auctioneer’s desire to “absolve (itself) from any and all responsibility with regard to (what it does)” might be a goal but is not a reality. It should be noted, however, that a clear and unambiguous disclaimer that an auctioneer’s statement about an auction lot is purely the auctioneer’s opinion will not create a warranty. Such an opinion would fall within the bounds of the “puffery” that salespeople commonly use when trying to promote what they are selling, even to the point of exaggerating characteristics, conditions, qualities, values, etc. Nevertheless, opinion statements do not cross the line into the misrepresentation of material facts that sparks actionable fraud.
The writer wonders how bidders can have certainty about what they bid on in auctions. Two words answer that question—caveat emptor—“let the buyer beware.” Prudent buyers must perform the inquiries, inspections, and other research to be adequately informed before deciding to pay good money for the “pig in a poke.”
Bidders and buyers must realize (and not forget) that they participate in auctions at their own risk. Where physical separation and distance from the auction and goods are inserted into the transaction, the risk to bidders is ratcheted higher. In such a case a bidder is left to bid to an unseen representative of the auctioneer by telephone or by tapping on a computer keyboard. Only a fool would sail blindly into the dark, and that is what bidders do when they bid in circumstances where the material facts of a transaction are beyond their knowledge and shrouded from their determination. Prudent bidders must exercise extreme caution.
One point in the writer’s letter really perturbs me. When the auction house said that the disclaimer language it uses essentially means nothing, and that it stands behind all that it represents, I am reminded of a fool’s game where bidders are asked to play the fool. I have heard such poppycock repeated many times in commerce, and I strongly dislike it. I deem it to be “stupid talk,” which is directed by the speaker at the recipient’s hoped-for stupidity. My response is always the same: “If the language means nothing, and you don’t enforce it, let’s just remove it so there’s no chance of any misunderstanding and nothing for me to worry about.” The answer you get to that will provide a window into what kind of dealing you are facing.
There are plenty of auctioneers that operate on the high end of legal compliance and ethical conduct. They work hard to learn about the lots they handle in order to inform bidders accordingly. When errors, omissions, or other problems occur, these practitioners stand behind the representations they made and descriptions they gave and work to make sales transactions equitable for both sellers and buyers. These are the straight-down-the-line auctioneers that sellers and buyers should patronize.
There are sound reasons for auctioneers to use disclaimers. As with most anything, however, they can be overused. When this happens, it can deter prospective bidders from participating in auctions, and this can lead to decreased demand for the goods and lower selling prices. This result would be counterproductive to the interests of auctioneers and their sellers. When an auctioneer’s desire for security thwarts sales, it is time to consider whether too many precautions have been implemented. The best auctions are safe for all parties, but they cannot be conducted from within bunkers.
That’s it until the April issue of MAD. Until then, good bidding.
Steve Proffitt is general counsel of J.P. King Auction Company, Inc., Gadsden, Alabama. He is an auctioneer and instructor at the Reppert School of Auctioneering in Auburn, Indiana, and at the Mendenhall School of Auctioneering in High Point, North Carolina. The information in this column does not represent legal advice or the formation of an attorney-client relationship. Readers should seek the advice of their own attorneys on all legal issues. Proffitt may be contacted by e-mail at <firstname.lastname@example.org>.