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We’ve seen it more than once. Property sells for millions of dollars at auction, and the buyer (the high bidder) breaches the contract and refuses to close. The seller holds a “second auction” in order to mitigate his losses, and then sues the first buyer for the difference, constituting his damages.

Basically, that’s the proper procedure, but too often this second auction is not conducted in good faith. The seller apparently thinks, “It doesn’t matter, as I can sue for the difference anyway …” If this first buyer has lots of money, it’s maybe less expensive to sue him than properly market the property for this subsequent sale?

For example, a property sells at a first auction for $25 Million, but the buyer doesn’t close. The auctioneer holds a quick non-publicized more-or-less private auction a couple of weeks later and sells this same property to his friend for $1.2 Million. Then, the seller/auctioneer sue the first buyer for $23.8 Million plus costs.

But you see, in order to mitigate one’s damages, this seller/auctioneer must hold this second auction in good faith — in other words endeavoring to maximize price and minimize damages. Just because Buyer #1 has lots of money doesn’t relieve this seller/auctioneer of this obligation.

To make matters worse, we’re privy to more than one auctioneer who ran the bid (took fictitious bids) at the first auction putting the buyer into a voidable contract, and then basically holding a second auction which was more like a “discussion” with his friends — not anything even resembling a “good faith” effort and likely “self-dealing.”

I can assure anyone reading this … if you hold a second auction in order to [properly] mitigate your damages, hold it with the same energy and enthusiasm as the first auction and you’ll have much more chance of succeeding in court. Conversely, conducting the second auction with any less fervor may result in being awarded no damages at all.

Here are the UCC § 2-706‘s procedures for reselling in case of buyer breach, likely even if your terms say title transfers on the word, “Sold!” https://mikebrandlyauctioneer.wordpress.com/2020/11/25/auction-buyer-didnt-pay/. Always a good idea to consult appropriate legal counsel.

Relatedly, when you hold a second auction in good faith, you may be able to recover the associated additional costs in that subsequent lawsuit. Who knows, you might even get more (or enough) the second time, and not need to sue at all? What a concept … staying out of court, rather than spending time in court … https://mikebrandlyauctioneer.wordpress.com/2018/07/26/auctioneers-you-want-win-in-court-or-stay-out-of-court/.

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, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.