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The Auctioneer is the Agent of the Seller in Every Auction: Buyer Gets the Better of Argument in Jenack Appeal Oral Argument. Are Auction Houses Ready if Result Stands?

Posted in Auctions, Legislation

 

The New York Court of Appeals held oral argument last week in the appeal from the Appellate Division of the New York Supreme Court’s ruling in Jenack v. Rabizadeh that an auctioneer must disclose the name of any owner who has consigned the work for sale, or a sale against a successful bidder cannot be enforced consistent with New York General Obligations law § 5-701, the New York Statute of Frauds (video in Windows Player).  The court actively questioned both sides before taking the case under advisement.  The view here is that the buyer (Rabizadeh) got the better of the argument, but one has to wonder how the equities will weigh on the court in a case where the winning bidder simply repudiated a voluntary transaction.

As readers will recall, the William J. Jenack auction house in Chester, New York, auctioned for sale an object described as “Fine Russian Silver/Enamel Covered Box with Gilt Interior, Signed I.P. Khlebnikov, 19th Century. Height 1½”; Top 2½” x 3 5/8″,” the work of renowned silversmith Ivan Petrovich Khlebnikov.  The high bidder was Rabizadeh, but after the sale Rabizadeh did not pay.  Jenack sued Rabizadeh, presumably on the argument that he breached the contract to buy the object.  Jenack won, and after some procedural wrangling over the damages to be paid relative to the subsequent resale, the case was appealed again.  The Appellate Division focused on New York General Obligations law § 5-701(a)(6) and reversed the trial court, now finding for Rabizadeh.  The provision at issue,  governs agreements for “goods sold at public auction,” and requires that where the auctioneer makes a record at the time of the sale with ”the name of the purchaser, and the name of the person on whose account the sale was made, such memorandum is equivalent in effect to a note of the contract or sale, subscribed by the party to be charged therewith.”

The central question is how a bidder, auctioneer and consignor can form an enforceable contract.  Under traditional Uniform Commercial Code rules, if there is a writing signed by the party to be charged (here the buyer), that is enough.  What this statute does is create an exception to that requirement in the specific context of an auction: even if no one has signed anything, there is still an enforceable contract where the provisions are satisfied.  The disagreement is over whether an auctioneer, without disclosing the actual owner of the object, can bind a winning bidder to a contract that can be enforced by merely holding itself as the “person on whose account” the object is sold.

The argument thus focused on the question of agency.  Under common law principles, an agent can bind a principal just as if the principal were the one performing an act, whether or not the agency relationship is revealed to the other party.  Jenack’s primary argument was that the Statute of Frauds was satisfied here because the auction house is the “seller” under agency principles, and that the reference number (which could be cross referenced by the auction house, but not the buyer, to the actual consignment seller) further satisfies the statute.  Jenack argued that the case of Hicks v. Wigmore, 12 Wend. 548 (1834) compels the conclusion that an agent (including an auction house) is sufficient, if disclosed, to satisfy the Statute of Frauds, and that “on whose account is made” does not mean the seller, it can mean the auction house.  Hicks interpreted the version of the statute at that time, which Jenack argued was identical to the current Statute of Frauds.  Hicks stated “The name of the person on whose account the sale is made: the expression here is somewhat peculiar. It is not the name of the vendor or owner, but of the person on whose account the sale is made, which may well be complied with, by inserting the name of the agent, factor or consignee. “  Id. at 553.  But that interpretation was made in the context of who may sue to enforce the bid (whether it has to be the actual owner, or the consignee auction house).  That was met in Jenack no matter what the meaning of the Statute of Frauds.  Jenack also repeatedly referred to custom and practice in the business, which is absolutely irrelevant to the interpretation of the statute (a point that two judges quickly picked up on).

Rabizadeh’s attorney made his best point right off the bat: every auction has an auctioneer who is the agent of the seller.  If an auctioneer could be the person on whose account the sale is made, within the meaning of the statute, the language of the law would have no purpose.  That is because there cannot very well be an auction at which the auctioneer is unknown to the buyer.  He also pointed out that the 1834 case on which Jenack’s entire case relies is readily distinguishable on its facts: that case dealt with multiple sellers, and the question before that court was whether an agent was sufficient to act for more than one seller.  And, the real question in that case was whether the sale book could be completed in a different place and at a later time than the auction house itself (it could not).  It really has nothing to do with the question in Jenack.

Rabizadeh’s attorney did not squarely answer the Court’s hardest question however: if the Court of Appeals finds for Rabizadeh, couldn’t any auction house simply void any sale with which it is unhappy?  The answer to that question (helpfully for Rabizadeh), however, is resoundingly no: if the auction house had the name of the seller, put the object up for auction, and then later disclaimed a contract with the buyer on the grounds that the seller’s name is not in the sale book, it would have committed a transparent violation of the covenant of good faith and fair dealing, if not outright fraud.  No auction house would do this, and the buyer would have ample recourse if it did.

Oral arguments are a poor predictor of results, and both counsel performed well under withering questioning, but the view here is that Rabizadeh got the better of this one.  The question now is whether auction houses will be ready for the result of the Appellate Division is upheld.  Many commentators (and Jenack’s amicus curiae) have implied that the case is a slam dunk for Jenack, which is just not so.  Even a win for Rabizadeh does not necessarily have to upend common practices entirely, but it will need to be addressed thoughtfully.