NEW YORK - In September 2008, Albert Rabizadeh submitted the winning bid for an antique Russian enameled box at an auction conducted by William J. Jenack Estate Appraisers & Auctioneers. About a week earlier, he had signed Jenack’s Absentee Bid form, acknowledging that he would be bound by his bid, and even identifying the item at issue. He provided credit card information for the prospective purchase. When he subsequently refused to pay for the item, Jenack’s lawsuit against him was, on its face, a sure winner. The trial court in fact granted Jenack’s motion for summary judgment.

Using an argument that deserves points for cleverness, Rabizadeh convinced the Appellate Division (New York State’s intermediate appellate court) to reverse the trial court decision on the grounds that the transaction was not memorialized in a writing sufficient to satisfy New York’s Statute of Frauds. Briefly, he argued that Jenack’s contemporaneous records of the transaction (often called “clerking sheets” by auctioneers) failed to comply with Section 5-701(a)(6) of New York’s General Obligations Law (GOL) because they did not provide the actual names of both the buyer and the seller. The clerking sheet listed Rabizadeh, but referred to the seller (i.e. the consignor of the item) only by a numeric code. It bears mention that this statute is so obscure that many lawyers familiar with auction practices were previously unaware it existed.

Prior to the Appellate Division opinion, no court in New York had ever held that a buyer could walk away from a bid he knowingly and voluntarily made just because he wanted to. Courts have long recognized defenses such as fraud, duress and mistake, but Rabizadeh had no such defense. Instead, Rabizadeh simply argued that because Jenack had failed to provide him with the identity of the consignor, he was no longer obligated to honor his bid. The implications of the opinion for future transactions therefore understandably concerned many auctioneers, including Sotheby’s, which submitted an amicus brief in support of Jenack’s appeal to New York’s highest court, the Court of Appeals. The principal concern was that the actual name of the consignor would have to be disclosed in every sale in order to make the sale enforceable.

One indication of the obscurity of the GOL statute is that the leading case interpreting it prior to this one was from 1834. Fortunately for the auctioneers (and for everyone who believes that buyers like Rabizadeh are obligated to consummate their winning bids), that opinion held that the use of the name of the seller’s agent (and not necessarily the name seller himself or herself) on a clerking sheet was sufficient. Because the clerking sheet named Jenack, the Court deemed it sufficient under the statute and reversed the Appellate Division.

In practical terms, the holding of the Court of Appeals simply means that the status quo for auction practices remains in place. The Appellate Division decision threatened to upset that, but the Court of Appeals wisely reversed that decision, protecting the identity of sellers who consign art and other property to auction houses.

Please note that this article presents general information and is not intended as legal advice.
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Ronald W. Adelman is a litigator and transactional lawyer at Cahill Partners LLP. He has broad experience in virtually all areas of commercial practice, with a particular focus in the fields of intellectual property (copyright, trademark and related matters, and art law) and defamation.