Auctioneers and people selling at auction sometimes have problems with bidders and buyers. Specifically, sometimes a bidder retracts his bid prior to the completion of the sale, and likewise sometimes a buyer refuses to close the deal.
Our discussion today regards what can — or should — auctioneers do in such instances. Is there anything they can do? If you’re not familiar with bid calling contracts, here is a primer: https://mikebrandlyauctioneer.wordpress.com/2009/11/21/does-bid-calling-form-contracts/
First, when a bidder retracts his bid before the completion of the sale, the prior bidder is not automatically the high bidder again. Rather, nobody is the high bidder. Auctioneers will often endeavor to find a prior bidder to bid their bid again, but ultimately the auctioneer may have to essentially start over.
What are the damages to the seller in bidder retraction? Actually, the bid calling contract as formed allows the high bidder to retract, as a contingency, so there are likely no damages unless the seller can prove the original bid and retraction was performed without the genuine intent to buy/not buy.
For example, bids between Bidder A and Bidder B start with a bid from Bidder A for $100, Bidder B bids $200, etc. until ultimately Bidder B is the high bidder at $1,000. Then, Bidder B retracts his bid. As we’ve noted, Bidder A is not obligated to again be the high bidder at $900 so unless he (or some other bidder) acquiesces, the bidding is completely restarted. The seller’s damages? None.
Looking at this in another way — if you wish — take a look at the two above airplanes … if you fell out of the former, what are the odds you could land safely in the latter? It’s certainly possible to get prior bidders to agree to bid again at their prior bid, but the more astute they are, the less likely it becomes.
Some argue that the auctioneer/seller terms and conditions can say that high bidders cannot retract their bids. The issue here is … this is inherently inequitable, in that the auctioneer/seller can void the contract with a higher bid, but the bidder cannot void by retracting. Such inequitable contracts can be viewed as counter to state law or otherwise abhorrent.
We wrote about contract terms which counter local/state/federal law and suggested that is not where any auctioneers/sellers want to find themselves: https://mikebrandlyauctioneer.wordpress.com/2014/06/09/contract-terms-counter-to-law/ Too, the UCC 2-328 can be modified per the UCC 1-302 but not if such adjustment is manifestly unreasonable; we discussed more on that here: https://mikebrandlyauctioneer.wordpress.com/2017/03/01/auctions-that-are-manifestly-unreasonable/
Nonetheless, if the auctioneer/seller can prove that the retracting bidder is bidding without the genuine intent to buy (not buy) then there may be a case of fraud. At best this is a difficult case to prove and further if the possible damages are nominal, the cost of litigation or other action will outweigh the possible gain.
Otherwise, if a buyer wants out of the contract formed by the completion of the sale, it is a different matter. In what is typically a breach of contract (lacking a contingency) the seller can pursue damages, but not quite yet. As we wrote, sellers really can’t force a buyers to buy, but rather sell the property to someone else and if a loss is sustained, pursue damages otherwise.
Our prior treatise on forcing sellers to sell or buyers to buy is here: https://mikebrandlyauctioneer.wordpress.com/2017/11/16/at-auction-can-we-force-sellers-to-sell-buyers-to-buy/
For example, bids between Bidder A and Bidder B start with a bid from Bidder A for $100, Bidder B bids $200, etc. until ultimately Bidder B is the high bidder at $1,000. With no further bids, the auctioneer says, “Sold!” Then later, Bidder B doesn’t perform his obligations under that purchase contract. When a seller resells the property and this time gets $800, he can pursue this original Bidder B for $200 or more in damages.
However here as well, if the damages are minimal or if the property sells subsequent for more than $1,000, the cost of litigation or other action will outweigh any possible gain.
So, bidders will retract their bids and buyers will refuse to buy and in both cases, the seller still has their property, and mitigation (self help) is the first step. Thereafter, pursuing a bidder is difficult at best, and pursuing buyers is possible, but can be prohibitively expensive.
As an auctioneer, what’s our default position? If there is bidder retraction or buyer default, sell the property again (with the seller’s knowledge and consent) and move on. Only in particular and unusual circumstances, is it reasonable to pursue damages.
Mike Brandly, Auctioneer, CAI, CAS, 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 Texas Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.