We continue to hold that the Alex Lyon & Son, Sales Managers and Auctioneers, Inc. v. Leach, 844 S.E.2d 120 (W.Va. 2020) case was correctly decided. First, we find numerous references to the following concept, including articles published by the American Bar Association:
In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract.
We also find this court case from 1933 which confirms such:
In every contract there is an implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract. In other words, every contract has an implied covenant of good faith and fair dealing.Kirke La Shelle Company v. The Paul Armstrong Company et al. 263 N.Y. 79; 188 N.E. 163; 1933 N.Y.
In this case of James R. Leach registering for this auction with his 10% deposit and bank letter (as advertised,) he entered into a contract with Alex Lyon & Son, Sales Managers and Auctioneers, Inc. We have previously written about the three basic contracts at any auction: https://mikebrandlyauctioneer.wordpress.com/2009/12/29/the-three-3-types-of-auction-contracts/.
As such, Mr. Leach would rightly expect that all bidders would be held to the same registration requirements (10% deposit and bank letter.) As Mr. Lerch was allowed to bid against Mr. Leach without the 10% deposit and bank letter, Alex Lyon & Son, Sales Managers and Auctioneers, Inc. injured Mr. Leach and did not treat their [registration] contract with good faith and fair dealing.
If you are an auctioneer and you are not setting your registration requirements prior to the auction, and sticking to them for every bidder, you are taking on unnecessary risk for yourself and your seller/client. Further, ask yourself — why would you not treat every bidder to the same registration requirements?
Yes, Bill Gates might show up … a multimillionaire in town arrives … your old high school football buddy just drives up … and forgets the 10% and bank letter? Really? Of course, you might design your entire business around anomalies, which do happen very infrequently if at all, instead of insulating you and your seller/client from unnecessary risk.
Here’s another consideration. How would anyone (including Mr. Leach) know for sure if this other bidder (Mr. Lerch) was actually permitted to bid because he is known by the seller (or auctioneer) or had lots of money? An auctioneer could certainly claim that, but Mr. Leach could just as well be a shill bidder with no money and no ability to close.
A policy that “We can register anyone”— especially counter to what we’ve advertised — is certainly going to suggest to some auctioneers that we can “help the bid along …” with a seemingly legitimate bidder thus, of course, acting without good faith nor fair dealing with those who did comply to the terms.
Too, what about anyone else who doesn’t register given the terms, only to find out later they could have registered? A policy such as “10% or bank letter” or “known by the auctioneer” is destined to result in misunderstandings. How well known? For how long? In what regard? How are bidders to know for sure they can register, or not? Why would we make it more muddled (perilous) than we need to?
The larger issue? This is what auctioneers have to be on the outlook for … taking on undue risk for limited or no benefit. Here’s the more reasonable (good faith, fair dealing) approach:
- Require all bidders to abide by the same terms
- Say “Sold!” and mean it; don’t reopen the bid
- Provide a reasonable opportunity for preview
- Make your terms and disclosures in easily readable print
- Invite bidders to your auction site with precautions for safety
- Print all of your important disclaimers conspicuously
Remember that you and your attorney’s view of what is reasonable won’t matter. What matters is what your sellers, bidders, buyers, and their attorneys think are reasonable. We as auctioneers need to keep in mind that an unhappy seller, bidder, and buyer can (obviously) turn into a plaintiff — with you as the unfortunate defendant.
Alex Lyon & Son, Sales Managers and Auctioneers, Inc. v. Leach, 844 S.E.2d 120 (W.Va. 2020) apparently thought their auction registration policy was “fair and reasonable” but not just one — but two courts found their policy was not. How is the next court going to find your arbitrary registration policy? Any guess?
I’m admittedly a fan of “fair and reasonable” and I’m proposing that this would explain — along with many auctioneers’ thinking — my view. I can assure every auctioneer a “fair and reasonable” approach tends to avoid litigation, and “fair and reasonable” is a much better philosophy to bring into any courtroom in the United States.
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.