Auctions involve an auctioneer putting a seller (client) in contract with a buyer (customer) concerning the purchase of some property. That property could be a coin, gun, car, horse, real property or a myriad of other things.
Our subject today involves when there is a breach of contract (as an auctioneer has announced, “Sold!” — for instance) and then the seller refuses to sell or the buyer refuses to buy. What happens next? Can the seller pursue the buyer for civil or criminal damages? Can the buyer pursue the seller for civil or criminal damages?
Assuming that no money has been paid and no property has changed hands … yet, basically a good rule to remember is “A buyer can force a seller to sell, but a seller can’t force a buyer to buy.”
Here’s a list of [the most important] five things to keep in mind as the auctioneer. If the buyer won’t pay and the seller still has the property …
- There is no need to call the police, sheriff, prosecutor, mayor or an attorney; at this point there has been no harm to the auctioneer/seller.
- The auctioneer is in no way obligated to pay the seller nor does the auctioneer take title to the subject property.
- A lawsuit naming the buyer as a defendant has no merit (unless there’s no reasonable prospect of reselling to some else) — so suing the buyer is a waste of time.
- Only if the subject property is resold for [materially] less can the seller [successfully] sue the buyer for any difference in addition to holding/marketing costs.
- Talk to your seller before you do anything — it’s the seller’s property and decision, not yours. We outlined all the big client duties here: https://mikebrandlyauctioneer.wordpress.com/2009/11/18/what-do-auctioneers-owe-their-clients/
Overall, this basic tenet in law comes from the concept that all property is unique in some way, and so a buyer can claim that he is entitled to that subject property after a seller agrees to sell (and is intrinsically damaged if refused title.) Yet, not all buyers are unique and a seller can’t really make a buyer buy nor pursue a buyer for damages at the initial breach.
What a seller can do is resell the subject property and then pursue the original buyer for any damages sustained in such a loss from the original purchase price and any other holding/marketing costs. Until there is a subsequent sale, the seller still has his property, and hasn’t really sustained any damages. Too, a follow-up sale could result in more money.
For instance, if a seller and buyer contracted to sell/buy a collector car for $540,000 and then the buyer refused to buy (incidentally, auctioneers who accept and/or execute absentee bids do not become dual agents, nor represent the bidder/buyer; auctioneers only represent sellers,) a subsequent sale to another buyer for $500,000 would indicate the seller was damaged for at least $40,000. However, if this same $540,000 car was in contract and the seller refused to sell, the buyer could pursue the seller for title — specific performance.
This is a distinctly different question than if we can force a seller to sell prior to entering into a sales/purchase contract with a buyer. Prior to that contract being formed (in an absolute auction prior to the collateral contract and associated bid calling contract is formed with the buyers, read here: https://mikebrandlyauctioneer.wordpress.com/2009/11/21/does-bid-calling-form-contracts/) the seller can’t be forced to sell.
An absolute (without reserve) auction is markedly different than a with reserve auction in that after the auction is opened up for bids and a bid is made within a reasonable time, the buyer and seller are in contract with the only contingencies a higher bid or bidder retraction; lacking either, the buyer and seller are in contract at that point even before the auctioneer announces, “Sold!”
On the contrary, in a with reserve auction, the seller can refuse to sell up until the completion of the sale (Sold!) After that, a buyer could force a transfer. However, as we’ve noted, the seller could not do the same. As can be seen here the type of auction is material — and we discussed the two types of auctions here in more detail: https://mikebrandlyauctioneer.wordpress.com/2009/11/15/different-types-of-auctions/
Lastly, there is the Statute of Frauds which dictates that contracts for the purchase of real property must be in writing to be enforceable. In other words, even a buyer may not be able to force a seller to sell real property lacking a written contract. It is worth noting some courts have forced auction sellers to sell lacking a written contract, but it is not necessarily the norm.
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, an Instructor at the National Auctioneers Association’s Designation Academy and Faculty at the Certified Auctioneers Institute held at Indiana University.