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tiebidAs an auctioneer, it’s always been tempting to put lots of things in the “terms and conditions” of an auction. For instance, “You must register.” “You must bid by number.” “You must pay for property you purchase.” “You must take complete possession within 48 hours of the auction.” The list goes on …

Interesting that auctioneers (and attorneys advising auctioneers) are talking about putting terms addressing “tie bids” in their terms and conditions. For instance, “The auctioneer may at his discretion reopen any disputed or tie bid in order to resolve any such bid.” or the like.

As I have said previously, for an auctioneer to reopen a tie bid, there would have to be such a thing as a “tie bid.” For many in the legal profession this would equate to terms which said, “Auctioneer reserves the right to accept bids from martians, ghosts, goblins, witches, warlocks or similar notations.”

At the moment an auctioneer accepts a bid — there is only that bid. If another bidder bids at the same time, but his bid is not accepted, or if after “Sold!” another bidder holds up his bidder card, that isn’t a tie — those bids are hardly simultaneous, but rather specifically ordered (sequenced) by the auctioneer’s recognition (or non-recognition) and acceptance (or non-acceptance.)

Further, if an auctioneer (or attorney) claimed to have a tie bid — and was to then reopen the bidding — which of the “tied bidders” would be required to raise the bidding? If A and B are tied, does A have to bid more or does B have to bid more? What if both refuse to bid more? By an auctioneer saying, “Well I had A so B, you must bid more” suggests A was in and B was out — which is hardly a tie.

Likewise, if A and B both hold up their bid cards at, “Sold!” and the auctioneer says he has a “tie bid,” I wonder if only A had held up his bid card … would A be deemed the buyer? If only B held his bid card up, would B have been the buyer? Looking back a bit … who did the auctioneer take the final bid from? Was it A or B? If A, and B claimed it, wouldn’t the auctioneer say, “Sorry B, I had A” or similarly “Sorry A, I had B?”

And we’ve previously asked, “What if everyone in the room held up their bid card at, ‘Sold!'” So we’ve got a tie bid from 172 people? Really? Which one of those 172 people have to bid higher to resolve the so-called tie? What if none of the 172 people are willing to bid more? Does the auctioneer then just designate someone as the buyer? Sounds more like a retail store than an auction.

I’ve wondered if an auctioneer had a bid, for example, of $5,000 on a car, and said, “Sold!” and then reopens the bidding — would there be any bid in place at that point? If the auctioneer said, “Okay, I have A at $5,000 and I need $5,100 from B,” what if A says, “I’m not on at $5,000 … you reopened the bidding after you said, “Sold!” so I don’t know how I’m on at $5,000 …?” And of course, A could retract his bid no matter unless (and until) “Sold!” is firmed.

The Supreme Court of the United States held from 1905 to 1934 (known as the Lochner era) [Lochner v. New York, 198 U.S. 45 (1905)] that liberty of contract was implicit in the due process clause of the Fourteenth Amendment. In other words, basically anyone could contract for anything so long as the parties agreed to the terms.

In 1934 (and further in 1937) as a result of Nebbia v. New York, 291 U.S. 502 (1934) and West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), the liberty to contract was held to not be implicit nor guaranteed by the Fourteenth Amendment. Quoting Professor David E. Bernstein, George Mason University School of Law in 2003: “Freedom of contract is almost entirely unprotected under modern constitutional law.”

This “terms and conditions can say anything … and can address tie bids” argument typically cites the UCC 2-328 and UCC § 1-302 which I’ve studied extensively. However, it’s as much contract law — and common law — and customary practice in the United States which helps clarify this issue.

And since we now live in an era of having no particular right to contract protected by The Constitution (and in particular the 14th Amendment,) contracts (terms and conditions) are judged by the courts, judges, juries, state regulatory agencies and federal/state attorney general offices. One way to ensure terms and conditions are held in a dim view are to have them reflect a one-sided, adhesionary, unfair, unreasonable, inequitable stance.

And while we’re talking about court cases, the case of Callimanopulos v. Christie’s Inc. (621 F. Supp. 2d 127 (S.D.N.Y. 2009)) is often cited as evidence terms and conditions can override the UCC 2-328 in regard to tie bids. Yet, the court ultimately ruled that the disputed bid was made while the hammer was falling and the bid could be reopened: Just as the UCC 2-328 prescribes.

As we’ve noted before, the standard today is “fair dealing” in contract formations, and to avoid bad faith. In the Restatement (Second) of Contracts § 205 [1981] (Duty Of Good Faith And Fair Dealing,) section D notes that bad faith can involve, “Evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.”

It would seem for the auctioneer to reserve the right to reopen so-called tie bids, the high bidder would have to be afforded the right to rescind the award of being designated the high bidder. How does this sound? “Sold! for $7,000,000 to bidder number 134 … oh, you don’t want it? Okay, we’ll start over.” What auctioneer would want so desperately to reopen tie or disputed bids only to have bidders decline to accept the award of the final bid and have to resell property?

I’ve consulted on numerous auction cases throughout the United States, and some have dealt with this very issue — and every time, without exception, the court and attorneys involved held the UCC 2-328 as the equitable standard, and one-sided terms and conditions were the reason one side lost, and the side other won.

As an auctioneer you can “bluff” and create adhesionary terms your bidders must consent to … and you’ll be fine most of the time. Yet, get into litigation and be forced to argue your one-sided terms are equitable and you’ll find the courts are largely unforgiving and the costs can be significant. And as I’ve sat and watched in courtrooms, the benefits of reopening a “disputed bid” (and interfering with the other party’s performance) can be far outweighed by the costs of defending it.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.