Generally speaking, an auction contract, whether Internet or
otherwise, should be a legally binding contract which both the buyer
and the seller should have the legal right to enforce. You should
ordinarily have the right as a buyer to that for which you were told
you were the successful bidder. As a seller you should be paid for
what you have accurately disclosed.
Auctions such as eBay maintain detailed bid information; in other
words, there is a paper trail as to the bidder, and the successful
bidding and backup bidding, as well as a paper trail concerning the
seller's descriptions, representations, and the terms and conditions
of the sale.
An auctioneer is ordinarily considered, under the common law, an agent
of the seller with authority to sell and convey the subject property,
and the right to obtain and distribute the proceeds of the sale.
Internet auctions often allow the parties to complete the payment as
The seller's remedy on a buyer's refusal without good cause to pay can
potentially include suit for the price, or a seller may be entitled to
re-offer the item, resell it and in the event of a lower price, recover
the difference between the initial buyer's successful bid and the
ultimate bid at a similarly conducted auction, plus the transaction
costs of reselling.
From the seller's standpoint, damages are usually readily calculable
and easily determined; also, the problem in disposing of the property
can be eliminated through a resale. Sellers must be mindful not to act
too hastily though, because in the absence of a clear breach or failure
to pay by the buyer to an otherwise enforceable sale, if the seller
gets rid of the object, he may be responsible to find a replacement
regardless of cost or to pay the buyer such additional purchase price
and expense as he incurs to procure another item elsewhere. With rare
or unique items or instruments the cost to cover could be extraordinary.
There may be potential problems when purchasing expensive items sight
unseen (or in reliance of the seller's description and movies). For
instance, the seller may not own the item, the picture and description
may be of some other item than that the seller contemplates tendering,
the item may not exist or no longer be in the seller's possession or
the seller may no longer have agency to sell the item. The property
may not be accurately described, there may be concealment by omission,
there may be material (meaning important) non-conformities to the
The foregoing are examples of fraudulent activity actionable in contract,
tort and perhaps under state consumer protection acts. These problems
also may give rise to a buyer's right to "repudiate" or cancel his bids
or to cancel and go elsewhere to find the item and turn around and sue
for the difference in price if he must pay more for a similar item.
The seller may try to avoid the contract by, after offering the item
without reserve and being unhappy with the winning bid, refusing to
complete the sale. In such a case a bidder's damages may well include
the difference in price if cover requires a higher payment and
foreseeable expense. If a seller intends not to sell unless he gets
a certain rock bottom price, the seller must announce the sale as "with
reserve" or "subject to reserve."
If you are offering property subject to conditions, such as agreements
concerning use (common in government surplus sales of decommissioned
military equipment) or other conditions, you must disclose those
clearly before the sale commences. It is easy to do so in Internet
auctions. Buyers in bidding for your item are agreeing to the
conditions (so long as the conditions are lawful)and are stated.
You are not required to sell below the reserve price established, and
you don't have to tell buyers what your reserve price is. One way you
can do so is to simply place a minimum opening bid requirement.
There is no excuse for a seller not protecting their minimum selling
price. The use of a reserve or minimum opening bid accomplishes that.
"Not enough money" is not a legitimate defense to the sale if the
item was offered "absolute" or "without reserve." State law may vary
as to whether or not there is an implicit reserve. While a seller has
a right to establish a bottom dollar price, how they go about securing
it may be open to question.
If the property is lost, destroyed, damaged or changed prior to the
commencement of bidding _and_ in the Internet situations prior to the
close of bidding, the seller should announce the change and allow
bidders to be fully informed in advance or to withdraw their bids.
One must remember that an auction contract is essentially a bi-lateral
(two-way) promise. It is supported by consideration, the promise of
the seller to tender the property as described in exchange for the
promise of the purchaser to pay for it.
Upon the "fall of the hammer" or a declaration of "sold" the buyer
actually becomes the owner and assumes the risk of loss, damage and
liability arising from the ownership of the item. The seller remains
entitled to possession of the item until it is paid for and may be
entitled to sue the buyer for the purchase price if the item is
destroyed, stolen, etc., before payment is even made!
That's right, folks! Insure valuable items as soon as you learn you
were high bidder, or you may not only wind up losing the item to
casualty or theft but you'll have to pay for it as well.
So when I hear a complaint, "Even though I was the high bidder they
wouldn't sell it to me," the truth of the matter is they _did_ sell
it to you -- you now have an ownership interest in it subject to their
seller's right to be paid (possessory lien) and if it is a unique item
you have the right to ask a judge to force them to tender it to you in
exchange for the payment established by your bid or to find an
equivalent at whatever cost.
The property must be presented in a factual manner or defenses to
the obligation to pay arise, including but not limited to fraudulent
inducement, mistake, misdescription. Disclaimers by vendors in the
business of selling such items may or may not be appropriate under
state consumer protection laws, violations of which can be onerous,
including but not limited to fines, punitive damages, attorneys fees,
injunction, and even criminal prosecution. A misdescription can also
trigger the seller's obligation to cover with goods conforming or the
additional cost to the buyer in acquiring the same.
One must exercise common sense when purchasing items from sellers with
whom you are unfamiliar, relying on a description which you can't be
sure is full or accurate, and incurring the expense of shipping, not
to mention the cost of the item, potential lost profits, and sheer
disappointment, waste of time and frustration. Consider viewing and
inspecting the item or having someone who is insured for errors and
omissions doing so for you if the item is out of town.
Make sure they have sufficient insurance to cover the purchase price
if they overlook something that needs to be fixed, etc., and make sure
you have an understanding that they won't be bidding against you!
A buyer obtains an insurable interest in the item at the declaration
of "sold" or equivalent. In the case of an expensive item, one should
immediately consider scheduling inland marine coverage to protect the
item from the fall of the hammer onward. "Inland marine" doesn't mean
a boat on wheels, it means protection of the asset where it is located,
usually subject to limitations such as "within the continental U.S."
unless otherwise agreed by the insurer.
There are remedies in commercial law governing auction sales under your
state's UCC (Uniform Commercial Code), under contract law and tort law.
I would encourage you to seek legal advice from a lawyer who handles
auction related issues if you are disappointed when you believe you
just bought advantageously and are confronted with a refusal to sell,
or the item has been misdescribed, or you though you had it sold and
the buyer backed out without just cause. There is plenty that you can
do -- the question usually is one of finding someone who can help and
the degree to which you incur expense.
In other words, resorting to legal help over a small dispute may not
make sense, but if you have a disagreement involving thousands of
dollars, you might consider whether a lawyer can informally get it
resolved without litigation through negotiation, or, if a substantial
sum is at stake, whether you should litigate.
I am a trial lawyer and auctioneer but nothing contained in this memo
should be considered legal advice to the reader. Your rights and
obligations respecting auctions may vary greatly depending upon the
state in which you reside, the state where other party to the
transaction resides and may also be affected by the terms of the
auction service itself and the state law selection it has chosen in its
terms and conditions, or otherwise under the state where the auction is
conducted. The law pertaining to auction sales differs from state to
state, but there are some uniform laws such as the UCC, and those are
subject to variation somewhat as well.
The information set forth above is basic and not specific to any
particular dispute, auction agreement or set of facts. If you believe
you have a need for legal service related to auctions or automated musical
instruments, you should contact a lawyer to obtain advice specific to
your situation. You may feel free to contact the undersigned if you
have any questions concerning the foregoing. It has been a pleasure to
provide this general information.
Stephen B. Small
Small Law Office
Kansas City, Missouri
P.S.: By the way, does MMD maintain an auction related database where
one can search for historical data as to sales, instruments, rolls, etc.?
I'm curious what Violanos have brought recently.
[ Thanks for your memo reviewing the law, Stephen, and I would
[ love to hear you sing an old-tyme auctioneer's patter for the
[ judge and everyone in a law court. ;-) How 'bout something
[ like this for a Violano:
[ "Four strings flayin' on a fiddle layin' down,
[ Whad-da-ya bid, whad-da-ya bid?
[ If no more clamor then the hammer's goin' down,
[ Whad-da-ya bid, whad-da-ya bid?
[ The MMD Archives has market price information sent to us by
[ our readers. Visit http://mmd.foxtail.com/Archives/ and search
[ on key words and phrases such as "Value of" and "Price paid".
[ Prices paid at public auction, furnished by cooperating auction
[ houses, are presented at http://mmd.foxtail.com/Auctions/
[ -- Robbie