A recent Federal District Court decision in Illinois should be of serious concern to auction bidders. If it stands, we might all have to take a full coterie of mechanics and consultants with us to each auction.

Our plaintiff, “Ted,” was a successful bidder at a 2011 auction. (“Legal Files” won’t identify the auction company because, as will be explained later, it isn’t particularly unique in this regard.)

Ted purchased a 1967 Corvette 427/435 coupe at a hammer price of $68,500 — $72,610 after buyer’s commission. The Corvette was in beautiful condition, and it was displayed with an NCRS certificate certifying the authenticity of the car. Ted claims that several Corvette experts expressed their doubts about the authenticity of the Corvette after he placed the winning bid.

Upon inspection after he took the car home, Ted was told that the Corvette was a bitsa — “a fraudulent amalgamation of Corvette parts from various model years, placed on a damaged 1964 Corvette frame, with fraudulent vehicle identification numbers and tags … with the vehicle then cosmetically altered … to appear to be a 1967 coupe.” His demands to unwind the deal were refused, so Ted sued the auction company and the consignor.

Ted asserted the following claims against the auction company and the consignor:

Passing off a 1964 Corvette as a 1967 Corvette and offering an inaccurate NCRS certificate constituted fraud and negligent misrepresentation.

It was a breach of contract since he was not provided with proper and legal title to the Corvette.

Based upon these problems, he should be allowed to get his $72,610 back.

The auction company and consignor filed a Motion to Dismiss with respect to all of Ted’s claims. This motion attempted to eliminate the lawsuit at the procedural stage. The argument is that, even if everything that Ted has alleged about the situation is true, he has not made any proper legal claims. Consequently, there is no need to waste time and effort on a trial, and the case should just be tossed out of court.

You agreed not to believe me

The main line of defense was the language of the bidder’s agreement that Ted signed. The pertinent provision reads: “…the Purchaser…is buying property entirely upon his own or his agent’s personal examination, inspection and opinion. All lots are sold ‘AS IS, WHERE IS.’”

The court interpreted this provision as a “no reliance” provision, which means that the bidder had agreed that he would make his own inspections and investigations about the car — and would not rely upon anything the auction company might say about the car.

Under Illinois law, which applied, as it was the site of the auction, no-reliance provisions are generally enforceable.

The court’s interpretation resulted in the dismissal of Ted’s fraud and misrepresentation claims. As a general legal principle, a buyer cannot claim that he was defrauded by a seller’s statements unless he believed and relied upon them. Having agreed that he would form his own opinions and not rely upon the auction company’s statements, the statements could not have caused his damages.

The faulty NCRS certificate was summarily dismissed. The court read it closely and concluded that all it really said was that a 1967 Corvette with these identification numbers was produced by Chevrolet. It did not claim that this Corvette was actually that Corvette.

Not a clean title

The court did rule that Ted could go to trial on the breach-of-contract claim. Although the auction company did give him a certificate of title to the 1967 Corvette with the claimed VIN, the car Ted purchased was actually a 1964 Corvette with some other original VIN, camouflaged as a 1967 with a phony VIN.

Consequently, it was not clear whether Ted actually received a proper certificate of title to the car that he purchased. To resolve that would require a trial, where evidence and witnesses could be examined. If it turns out that the certificate of title works, then Ted will be out of luck. If it doesn’t, then the failure to provide good title will allow Ted to get his money back.

Sounds pretty expensive!

What gives?

The apparent lack of liability on the part of the auction company will no doubt make many readers howl over the unfairness of it all. After all, the misrepresentation here goes to the very identity, character and essence of the car being sold.

“Legal Files” contacted SCMer Bryan Shook, a Camp Hill, PA, attorney who has made an international practice out of litigating collector car disputes, and asked for his comments. Shook said this disclaimer is overly broad and contrary to public policy. He also sees it as grossly unfair because of the perceptions that auction houses have intentionally created:

“Many auctions have a team of car specialists as well as researchers and writers who research and write each vehicle’s auction description. The gist of the information may be provided by the consignor; however, the auctions are generally selective of the cars they permit into their events and all (or most) of the cars are vetted (in some fashion) by a researcher or car specialist,” Shook said. “The statement that the ‘auction house has no obligation to verify or authenticate any such claims or representations’ may legally be true; however, in the course of the consigning process and the promotion process, the auction does vet the cars, and accordingly the auctions have become known in the hobby as only selling the best (or at least good) cars due, at least in part, to the efforts undertaken by the auctions to improve their consignments by vetting the consigned cars prior to sale. Therefore, since the auctions voluntarily accept this obligation or duty to verify and authenticate the cars they offer for sale, they have through these efforts created a sense of security in bidders and hobbyists in general — so much so that they should not now be permitted to hide behind a disclaimer which would effectively nullify their efforts and the security which they have worked to instill in their bidders.”

In common use

No-reliance provisions are very common in auction bidder agreements. Consider a second provision used by another auction house: “No statements, including those in the catalog or in any other material, shall be deemed to create a representation or warranty by either the auction company or the seller of the vehicle.”

And consider a third one from another well-known house: “Bidder is responsible for inspections and verifications of condition, authenticity, and completeness of any vehicle purchased. No warranties or representation of any kind are made by the auction company. Statements printed in catalogs… signs… and verbal statements made by auctioneers or auction staff are representations made by the Consignor [not the auction company].”

Striking a balance

Shook makes a strong argument about the perceptions that the auction companies have created, and he may well be able to make that stick in an appropriate case. But let’s be real about this.

Take, for example, a typical mega-auction, in which more than 1,000 cars might change hands in a week. The auction staffers research and verify as much as they can about the cars they accept. But can we really expect them to thoroughly vet that many vehicles each year and find all the problem cars? If they have other auctions across the country, the task quickly becomes impossible.

At the core of the auction process, the auction company is acting as a broker on behalf of the consignor. The auction company is simply repeating to us what they were told by the consignor. As long as it is reasonable to rely upon the consignor and the auction company adds no incorrect content of its own, any misrepresentations should be the liability of the consignor, who is the real culprit here.

Of course, the auction companies do try to cultivate a “we have your back” perception. That’s great marketing and PR, but we should realize that they can only do so much. It’s fair that they make it clear that they aren’t insurance companies.

But having said that, a very real unfairness still results from some of these provisions. Notice that Ted’s claims were dismissed against both the auction company and the consignor. That is unfair overkill — the auction company should be able to protect itself, but it shouldn’t be allowed to protect the consignor from his own fraud. That is the biggest problem with this provision, and the second one shares the same fault. The third one, however, skates the line very nicely. It essentially states that if you get lied to, go sue the lying consignor, not the auction company. That’s okay.

What should you do?

Auction bidders need to carefully read all the fine print in their bidder agreements — and protect themselves accordingly. Don’t want to go to that trouble? Then consider this comment from the court: “There is generally little that courts can do to protect persons who are prone to signing contracts without reading them from the natural consequence of their folly.” ♦

John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.


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