, , , , , , , , , , , , ,

painting-1825855_1280It happens. A seller hires an auctioneer who will utilize an online provider to allow bidders to bid online — and that online provider software malfunctions or “goes down” at a critical moment.

There are likely four parties involved in such situations: (1) the seller, (2) the bidder(s,) (3) the auctioneer & (4) the online provider.

For instance, a seller has consigned a (thought to be) $10,000,000 painting to an auctioneer, who will utilize live bidding as well as an online provider for online bidding. The auction begins with several in attendance and others registered to bid online.

The bidding begins at $1,000,000 and an online bidder bids $2,000,000. A live bidder bids $3,000,000 and the same online bidder bids $4,000,000. This same live bidder bids $5,000,000. Just then, the online provider goes down — malfunctions — with the live bidder on at $5 million dollars.

With no other live bids, the auction ends with the painting selling in the room for $5,000.000. Is this the end of the story? Likely not, as the seller likely feels harmed, the online bidder(s) likely feel harmed, and the auctioneer likely feels harmed.

The two questions at this point are, “Who has sustained some actual harm?” and “Who is responsible for that harm?”

In our story, the painting sold to a live bidder for $5,000,000 presumably because this auction was without reserve. And it’s worth noting that the auctioneer/seller would have little choice but to sell it in such an auction. However, what if the auction was with reserve?

In a with reserve auction — even with a $5,000,000 bid on this painting, the auctioneer/seller could withdraw the lot in the event the online bidding went down. In that case, basically, the bidders(s) sustain no harm, the auctioneer sustains no harm, and the seller still owns the painting.

On the contrary, in a without reserve auction, it would be prudent for the online bidders to have some alternative method of bidding ready in the event of online bidding failure including maybe a phone number to call, or pre-auction absentee bid to be placed contingent.

Otherwise, it’s likely that potential harm would be litigated, and courts would look to see if parties acted prudently — reasonably given the circumstances largely independent of disclaimers of liability to gauge if they caused any actual damage to any party — buyer, seller and/or auctioneer.

We’ve all seen those gravel trucks with the sign, “Not responsible for falling rocks.” Yet, a rock falls off the truck and breaks a just-behind-in-traffic windshield. Who’s responsible? Was the car driving too close? Was the load properly secured? Does that sign really matter?

What this sign does do is suggest no liability in an effort to keep injured parties from pursuing damages. Outside of that, while disclaimers may save an auctioneer from legal liability, actual behavior matters more than any repudiations.

Here’s our suggestions for minimizing risk when selling online/simulcast:

    1. Conduct a with reserve auction to allow more flexibility to withdraw lots from the auction.
    2. If selling without reserve, ensure that any pre-bidding is just that — “pre-bidding” only to be executed once the [live] auction starts.
    3. Offer your bidders alternate ways to bid in the event of Internet/platform outages.
    4. Have your terms and conditions with the bidders note that you are not responsible for Internet nor platform outages — to discourage bidders from thinking you are responsible.
    5. Have your contract with your seller note that you are not responsible for Internet nor platform outages — to discourage your seller from thinking you are responsible.
    6. As the auctioneer, partner with historically reliable online bidding platforms and provide the best service you can to your seller and your bidders.

Talk with a really good attorney about prudent disclaimers in your contract and terms and conditions, and plan for Internet/platform outages so that possible damages can be mitigated.

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.