Business Practices Auctions with unintentional outcomes

Question: How can an auctioneer be prepared to try to avoid unintentionally causing an otherwise reserve auction to be converted by a court into an absolute auction long after the auction has closed?

Such an issue can have significant legal ramifications for the parties and the auctioneer if a dispute arises after the auction. The law is clear that, for legal purposes, the words used in an auction must be “explicit” for the sale to be classified and characterized as an auction without reserve. The presumption in contract law is that auctions are held “with reserve” unless otherwise specified. (See Pyles v. Goller.) There was a recent decision from the Appellate Court of Illinois that had to consider the issue of whether an art “auction” (as used by the court in that case) was with reserve or without reserve.

Prior to reviewing the case, below is a brief review of these issues for new readers and auctioneers. There are generally two methods to sell property at auction, either with reserve or without reserve. In an auction with reserve, an auctioneer calling for bids is making an invitation to enter into a contract, but is not making an offer to contract. In an auction with reserve, the seller retains the right to not sell the property and can withdraw the property from the auction prior to the acceptance of an offer. In an auction “without reserve”—commonly known as an absolute auction— the opening of bids by the auctioneer constitutes a firm offer, rather than an invitation to make an offer. The seller does not establish a minimum bid amount or retain the right to withdraw the property. In other words, an absolute auction is an auction where the property is sold to the highest qualified bidder with no limiting conditions or amount. With this in mind, we will now consider the specific case referenced earlier.

This recent Illinois case was about the potential sale of the painting known as Pommiers en fleurs (Apple Trees in Blossom) 1872 by Claude Monet. A Club that owned the painting was considering the possibility of selling it. An email was sent to an individual entitled “Request for Proposals” and stated:

“Good afternoon:

The … Club Board is meeting this week to review and consider proposals for the purchase of the ULCC’s Monet.

You have indicated that you or a party you know have an interest in purchasing the Monet. Due to various time constraints, we are asking you to submit your best and final offer on Thursday, January 14th by 5pm CST.

Include in your offer the following information:

• Amount of offer and net proceeds to the Seller

• Timetable for consummating sale and transfer of funds

• Caveat: * * * [this was a statement about when the buyer would be able to take possession of the Monet].

• Does the buyer have adequate readily available funds to consummate the purchase? If so, provide supporting information.

• Any other buyer conditions.

Please submit the proposal to President Nancy Ross with a copy to me. We may have follow up questions and ask for the best way to reach you.”

The Club subsequently received a letter from a bidder that stated:

“Dear Nancy, Thompson Fine Art Limited offer of purchase from Chicago Union Club Claude Monet (1840-1926)— Pommiers in fleurs (Apple Trees in Blossom) 1872

We act for Thompson Fine Art Limited.

We are instructed to make an offer on behalf of our client for the purchase of the following work of art (the “Work”):

Artist: Claude Monet (1840-1926)

Title: Pommiers en fleurs (Apple Trees in Blossom) 1872

Medium: Oil on canvas

Dimensions 57.5 x 69.5 cm

Our client has a written offer to purchase from a credible purchaser whom our client has transacted with on numerous occasions and who has a significant private collection that is on public display. Our client has verified that the necessary funds required to purchase the Work are readily available. The offer of purchase is as follows:

1.Purchase price of USD $7,200,000 (Seven Million AND Two Hundred Thousand United States Dollars);

2. If the offer is accepted, the purchase is subject to the parties entering into a written sale and purchase contract in relation to the Work;

3. Our client’s purchaser does not require a viewing of the Work; and

4. * * * [A statement about when the possession would be desired.]

The offer is open for acceptance until 5 p.m. CST Friday 15 January 2021 and request that a response to our offer be provided prior to this time.

If the offer is acceptable and you agree with [the] terms offered, please counter sign below and return this document to us.”

The Club later informed the bidder that it did not intend to proceed with the sale. The Club never formally responded to the letter or signed the letter from the bidder. Afterwards, the bidder filed a lawsuit alleging breach of contract seeking to force the Club to sell the painting. The bidder argued that the email constituted an offer and that the letter was an acceptance of the offer. The bidder argued that the documents taken together constituted an enforceable agreement. The Club responded that it had not made an offer and the letter is received did not constitute an “acceptance” of an offer. The Club pointed out the letter used the terms “offer” or “offered” ten times and invited the Club to accept by requiring a countersignature and return. The trial court agreed that there was no contract formed and ruled in favor of the Club. The bidder then appealed that decision.

The Appellate Court of Illinois agreed with the trial court and found that the email and letter response did not constitute an enforceable agreement. For there to be a binding contract, there must be an offer, acceptance, consideration, and meeting of the minds. It decided that the statements made to the bidder and the email were not an offer. The Court reasoned: “The email contains numerous hallmarks of an invitation to deal. The subject line of the email stated, ‘Request for Proposals,’ and Tunney asked that any interested party ‘submit [their] best and final offer.’ Tunney further stated that the board was meeting during the week to ‘review and consider proposals for the purchase of the ULCC’s Monet.’ As with Ross’s statements, no ‘power of acceptance’ was created in Thompson because the Club would need to ‘review and consider’ any proposal. Finally, Tunney requested the interested party’s contact information in the event the Club had questions.” Instead, the Court reasoned that the letter from the bidder made an offer to purchase. It stated “The letter is described as an offer numerous times. The letter speaks of the potential for the Club to accept the offer. The letter concluded that if ‘the offer is acceptable and you agree with [the] terms offered, please counter sign below and return this document to us.’” The bidder’s letter was also the first time a definitive price was proposed, which is an essential term of a contract. The Court said: “At best, the communications jointly could be viewed as the solicitation of an offer.”

The bidder argued that the email and other statements (to the effect that the Club would sell to the “highest and best” bid) created an auction without reserve, where the Club would be bound to sell the painting to the highest bidder, regardless of whether the Club found the bid satisfactory. The Court disagreed and relied on Section 2-328 of the Uniform

Commercial Code that was adopted in Illinois. The Court stated: “The statute provides that an auction sale is ‘with reserve unless the goods are in explicit terms put up without reserve.’ ‘In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale.’ ‘In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time.’ Thus, the general rule is that a seller can withdraw an item from sale either before or during an auction.”

In conclusion, auctioneers need to be aware of this issue and be careful to avoid language that could unintentionally convert an otherwise reserve auction to an auction without reserve. The presumption is that the auction sale is with reserve unless there is explicit language that the goods are being put up without reserve. Auctioneers should exercise caution in their communications with bidders and be consistent.

Kurt R. Bachman and Beers Mallers Backs & Salin, LLP appreciate the opportunity to review and answer legal questions that will be of interest to Auctioneers. The answers to these questions are designed to provide information of general interest to the public and are not intended to offer legal advice about specific situations or problems. Kurt R. Bachman and Beers Mallers Backs & Salin, LLP do not intend to create an attorney-client relationship by offering this information, and anyone’s review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention.

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Contact Kurt Bachman: (260) 463-4949 krbachman@beersmallers.com