Over the Phone Auctions – A Missed Connection

October 29, 2013

Phone bidding at auctions is nothing new (the image on the left dates back to a 2006 sale); however, the practice has grown in recent years.[1]  For many buyers and collectors phone bidding is more convenient, it allows for anonymity, and some choose it because they do not want their governments knowing how much money they are spending.[2]  Regardless of the reasons, the popularity of over the phone bidding is evidenced by the amount of business several well-known auction houses have recently done using this method.[3]

However, phone bidding creates many problems both logistical and legal.  Logistically, phone bidding usually requires that the auction house have multiple landlines available during the sale.[4]  As for the buyer using a cell-phone, he or she needs to remain in an area where there is a strong signal and have an additional line available in case the call gets dropped.  If a call does disconnect, the one bidding on the buyer’s behalf must quickly call back and inform the buyer of what is happening at the auction simultaneously as events occur.

Legally, over the phone bidding implicates enforceable fiduciary duties.  Fiduciary duties are owed as between the one bidding on the buyer’s behalf (agent) and the buyer (principal).  These are not specific statutorily enumerated duties but require that the agent act in the principal’s best interest.[5]  Depending on the circumstances, this would likely require the agent to inform the buyer of any bids placed, place bids when the buyer authorizes the agent to do so, not place bids the agent is not authorized to, and any other duties a court may determine proper in that circumstance.

A prime example of the legal problems arising from over-the-phone bidding is the 2009 case involving a dispute between art collector Gregory Callimanopulos and Christie’s over the sale of a Sam Francis painting titled Grey.[6] In Callimanopulos v. Christie’s Inc., 621 F. Supp. 2d 127 (S.D.N.Y. 2009), plaintiff bid on a lot over the phone via his agent April Richon Jacobs, Christie’s Co-Head of Evening Sale.  He made a bid for $3 million, and the auctioneer Christopher Burge declared the Francis painting was sold to him as the hammer dropped.  The dispute arose because seconds later the bidding was reopened and Grey ultimately sold to another bidder, Joanne Heyler, Director and Chief Curator of the Broad Art Foundation for $3.2 million. Callimanopulos sued to enjoin Christie’s from conveying the painting to Heyler but his request for injunctive relief was denied.  The court found that at the time of the sale, Burge did not notice Heyler’s bid, which occurred just before the fall of the hammer. The oversight was pointed out by other Christie’s employees and at Burge’s discretion, bidding resumed.[7]

The court analyzed N.Y. U.C.C. § 2-328(2), which covers sales at auctions.  The provision states:

A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.[8]

In other words, if a bid is made while the hammer is physically falling (before it makes contact), the auctioneer can exercise discretion in deciding whether to accept the sale or reopen the bidding.  This is exactly what occurred in this case.  Burge exercised his “discretion” by choosing to recognize Heyler’s $3.2 million bid, made while the hammer was falling, even though he did not learn of the bid until after the hammer had fallen on Callimanopulos’ $3 million offer.  The court ruled that no binding contract was formed between Callimanopulos and Christie’s and the painting was allowed to go to Heyler.

In addition to N.Y. U.C.C. § 2-328(2), Christie’s auction catalog includes terms and conditions which contain a right of refusal provision that states:

The auctioneer has the right at his absolute and sole discretion . . . in the case of error or dispute, and whether during or after the sale, to determine the successful bidder, to continue the bidding, to cancel the sale or to reoffer and resell the item in dispute. If any dispute arises after the sale, our sale record is conclusive.[9]

This provision allows Christie’s to essentially rescind the sale if any dispute related to the sale of the painting later arose and provides added protection since N.Y. U.C.C. § 2-328(2) already works to determine the successful bidder based on the auctioneer’s discretion.

Callimanopulos v. Christie’s  highlights the discretion an auctioneer has in determining the final bid.  It is conceivable to imagine another scenario where an over-the-phone bid is made as the hammer is falling.  In such a case the auctioneer will have ultimate discretion in determining whether the over the phone bid was made while the hammer was falling or after – a situation that may be harder to discern if there is nobody, other than the agent bidding on the other side, physically present to notify the auctioneer when the bid was made.

An over the phone buyer may also argue that the terms in an auction catalog do not apply to phone bids, however this argument has been rejected in a number of cases, and an over the phone buyer will be bound by all the same laws and provisions as any other auction participant.[10]