In the absence of fraud or similar fishy conduct, buyers who believe that they have overpaid at auction because of bad advice are swimming against the tide. For example, in the 1976 court of appeals of Arizona case Nataros v. Fine Arts Gallery of Scottsdale, Inc., the plaintiffs sued an auction house for fraud and negligent misrepresentation, claiming that its expert had given them inflated price ranges for works that they purchased. The court held for the house after finding that the sale was not rigged and that the estimated market values given by the expert were in the range established by free and open bidding at the auction.

Disclaimers were addressed in the famous 1971 case Weisz v. Parke-Bernet Galleries, Inc., in which a buyer sued Parke-Bernet (predecessor to Sotheby’s) in New York civil court on the grounds that the catalogue had misattributed two paintings to Raoul Dufy. The plaintiff won, despite the auction house’s argument that the catalogue disclaimed all warranties of attribution. However, in a decision three years later, a New York appellate court reversed the earlier decision and held for the auction house, suggesting that buyers at auction assume the risk of loss despite their lack of bargaining power and expertise.

"Given the auction house’s financial interest in the work, it’s no fluke that the specialist urged me to buy it," Ishmael reasoned. "Doesn’t this interest have to be prominently disclosed?"

In New York the answer is yes. Section 122(h) of the city’s auction regulations says that when an auction house makes loans or advances money to consignors, "this fact must be conspicuously disclosed in the auctioneer’s catalogue or printed material." Whether this disclosure must be made on a lot-by-lot basis rather than as a general statement is a trickier question, although the New York City Department of Consumer Affairs has reportedly taken the position that the latter satisfies the regulation.

Smart bidders should pay close attention to disclosure symbols in auction catalogues. According to published reports, Sotheby’s began using new icons in its fall 2008 Impressionist and modern art sales to indicate that certain works were subject to "irrevocable bids" (meaning they are essentially presold unless a higher bid is received during the auction), a refinement on the traditional third-party guaranty that some argue may actually hurt the value of a work.

"How about the auction house’s duty to act responsibly not just to the buyer and seller but also to the public at large?" Ishmael asked.

Good point. Some courts and commentators have suggested that given the dominant market position of Sotheby’s and Christie’s and the shift in their clientele from mainly art dealers to the general public, auction houses owe a duty to the public to act in a reasonable manner. Indeed, Halsey Minor’s complaint alleges "injury in fact to the general public." Whereas the United States, Britain and other common-law countries (in contrast to civil-law countries, such as France) have traditionally viewed auction houses as private agents of sellers and buyers and thus not subject to regulation, today these nations are putting increased pressure on the houses to create a level playing field. In the U.S., some observers have even proposed holding auctioneers to the legal standards found in the 1933 Securities Act, suggesting that they meet the stringent disclosure requirements applicable to underwriters of financial instruments.

Although we couldn’t help Ishmael, his case raised at least two interesting questions: When is it legally and ethically acceptable for an auction house to withhold information from a buyer? And who were the real sharks in the salesroom the night that Ishmael left his bid? "When Ishmael Called" originally appeared in the February 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's February 2009 Table of Contents.