Highest Bidder's Protection and his Rights in the Event of the Auction being Cancelled

Legal Insight

May 2024

Vasiliki Tolia, LL.M.

Summary: The role of the highest bidder is pivotal in the completion of the process of enforcement for the satisfaction of monetary claims and the auction. This is the person who, by participating in the now electronic public auction, bids the highest and acquires ownership of the auctioned movable or immovable property by paying the entire auction price. In this article, we will attempt to highlight the concern of both case law and the legislator towards the highest bidder, especially one who is not involved with the debtor and their creditors.

1. The role of the highest bidder is pivotal in the completion of the process of forced execution for the satisfaction of monetary claims and the auction. This is the person who, by participating in the now electronic public auction, bids the highest and acquires ownership of the auctioned movable or immovable property by paying the entire auction price. It is possible that the highest bidder could be the creditor initiating the auction or a company associated with the initiating creditor. However, it is equally likely that the highest bidder could be a third party unrelated to the debtor and the creditors, who simply shows purchasing interest and chooses to trust the public website of the Notarial Association of the Courts of Appeal of Athens, Piraeus, the Aegean, and the Dodecanese, e-auction (ΗΛ.ΣΥ.ΠΛΕΙΣ.).

2. While the auction is pending and as part of their negotiations, the initiating creditor and the debtor can agree to suspend or cancel it. Even without an agreement, the initiating creditor might promise or assure the debtor that they will consent to the suspension or cancellation of the auction. If the auction proceeds despite such an agreement or promise, the protection of the highest bidder and the security of transactions become significant concerns.

3. Specifically, according to established case law, the agreement between the initiating creditor and the debtor for the cancellation or suspension of the auction leads to the auction's cancellation if there is (procedural or substantial) damage, which is evident. The validity of this agreement does not require notarial form or its formation before the auction official. However, it requires notification by the parties to the auction official, without which the auction proceeds validly (Supreme Court decisions 1432/2003, 686/2018).

4. On the other hand, the mere assurance or promise by the initiating creditor to the debtor that they will consent to the suspension or cancellation of the auction, without formal contractual form and given without the auction official and other creditors' knowledge, cannot lead to the auction's invalidation unless the highest bidder, who is mainly harmed by the cancellation, had any knowledge of the pre-auction events (Supreme Court decisions 408/2000, 66/2019, 1086/2020, 523/2015, 8976/2007).

5. From the above, it is clear that the Greek courts' case law consistently – and rightly – supports the good faith highest bidder who bid in an auction conducted despite an agreement or promise of suspension/cancellation. If the auction official and the highest bidder were not informed of the agreement or promise, Greek judges do not cancel the auction, even if the initiating creditor acted abusively by proceeding with the auction despite their agreement with the debtor or their promise of suspension/cancellation. A third party unrelated to the debtor and the creditor, who was unaware of their agreements and promises and simply bid in the auction, is deemed more worthy of protection. By protecting the highest bidder, legal certainty and transaction reliability are established, and auctions are reinforced as a method of satisfying monetary claims. Overturning auctions based on unknown agreements or promises between the debtor and the initiating creditor would nullify the auction process with disastrous consequences for the country's economy. Moreover, the legislator's provision in article 1018 of the Code of Civil Procedure does not fully protect the highest bidder, as it does not cover transfer expenses (e.g., Property Transfer Tax) and any expenses incurred by the highest bidder for renovating the auctioned property. The highest bidder must reclaim these costs through appropriate lawsuits, leading to endless legal battles.

6. Beyond case law's concern, the legislator also shows concern for the highest bidder. Specifically, if the auction is definitively canceled (not for the above-discussed reason, but for others, such as procedural errors, prior cancellation of the compulsory seizure, or invalidity of the payment order), the highest bidder must be protected concerning the auction price. The following distinctions are made:

a) If the highest bidder has not paid the auction price by the time of the definitive cancellation, they can refuse to pay it.

b) If the highest bidder has paid the auction price, but it has not been distributed, they can reclaim it from the auction official or the Deposits and Loans Fund, requesting precautionary measures to prevent its distribution.

c) If the highest bidder has paid the auction price by the time of the definitive cancellation and it has already been distributed, they have two options to reclaim it, both based on the provisions of unjust enrichment. First, they can initiate a new auction on the auctioned property. Second, they can file an unjust enrichment claim against whoever received the auction price (or part of it).

- More specifically, article 1018 of the Code of Civil Procedure provides the highest bidder of an invalid auctioned property with a unique executable title and a special privilege. Based on the final decision canceling the execution and the auction official's certification that the auction price has been paid and distributed (these two documents form the highest bidder's executable title), the highest bidder can initiate a new auction, relying on the existing seizure and without needing to impose a new one (unless it has been overturned, in which case a new seizure is required). In this auction, the highest bidder enjoys the privilege of being ranked first in the creditor list, immediately after the new auction expenses. If the highest bidder chooses the option provided by article 1018, they are essentially acting against the debtor (since they are auctioning the debtor's property again), and the debtor is considered unjustly enriched.

- The highest bidder has the discretion to not choose the option provided by article 1018 CPC and to file a lawsuit based on the provisions of unjust enrichment (articles 904 et seq. of the Civil Code) to reclaim the auction price. The question arises as to whom this lawsuit should be directed. The Supreme Court, in its decision 5/2018, ruled that the lawsuit should be directed against whoever received the auction price. Therefore, the lawsuit is first directed against the debtor's creditors, who are considered unjustly enriched. The lawsuit is directed against the debtor only if they received any remaining auction price. This position of the Supreme Court draws an argument from article 1005, paragraph 3, of the Code of Civil Procedure, which states that if the auction is canceled, the creditors' real securities are revived. The revival of these securities logically presupposes the revival of the claims they secure. Therefore, the creditors regain their claims against the debtor and unjustly enrich themselves with the auction price of the canceled auction.

7. In conclusion, it should be noted that the highest bidder's protection does not extend to retaining ownership of the auctioned property after the auction's definitive cancellation. Upon final cancellation, all consequences are retroactively nullified, and the auctioned property returns to the debtor's ownership. The debtor can use property law claims to reclaim the property. This view is currently prevailing despite occasional contrary opinions (Supreme Court decisions 1437/2012, 797/2021, 1827/2022).