Auctioneer/Seller Withdraws an Item with Bids. Is It Legal?

February 20, 2011

terry hagen Says:

I recently bid on an item at a live auction of a store going out of business. After many bids I was the highest bidder and the auctioneer was going to bring down the hammer. At the last second a family member told the auctioneer he felt the item would get a higher price at local dealer’s place of business. The family member then told the auctioneer to only accept a bid that was quite a bit higher than my bid. At that point I stopped bidding. The bidding had passed the reserve price. The item did not sell that day. The more I think about this the more irritated I am. Was this ethical and/or legal?

Another great topic from one of our readers! So, Terry Hagen receives the honor of having the question answered in its own topic on the Auction Law Weblog.

First, I must note that Terry did not state that this auction was advertised as “Absolute” and insinuated that the “bidding had passed the reserve price,” so it implies that this was an auction “With Reserve.”

Of course, now I might ask a few questions. How did Terry know that the “bidding had passed the reserve price?” Did the auctioneer announce the reserve price? Did the auctioneer state that it had met its reserve? Do these questions really have any effect on the manner in which the auctioneer handled this? Nope!

Of course, while sometimes it might not look good upon the auctioneer (by a misinformed buyer), in an “auction with reserve” the Seller/Auctioneer does have the right to withdraw any item, regardless of whether it has a reserve price or not. This is where most people are misinformed about auctions “with reserve.” Most people think that an “auction with reserve” means that one or more items have a minimum reserve price. However, this is FALSE.

It really means that certain “rights” have been reserved which may be outlined in the Terms & Conditions of the auction, as well as other factors concerning the sale of the items offered, which are determined by law and not required to be specifically announced. In any case, only one of those “rights” is the right of withdrawal, which is predetermined under the law and does not require any specific announcement (remember that old phrase, “ignorance of the law is no excuse”) and the bidders are presumed to be knowledgeable and acting with such knowledge. There may be many other rights also reserved, which is why the bidders should always read the Terms & Conditions and/or listen very closely to the opening statements at an auction.

Take a quick look at the U.C.C. and see what it says about an “auction with reserve.”

2-328. Sale by Auction.
(3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale.

You will note that the U.C.C. does not say anything about an item having a reserved minimum, nor does it address items without a reserved minimum. Therefore, it is implied that any item may be withdrawn at any time prior to the call of “sold,” regardless of any other minimum or whether it even had a minimum. So, it is certainly legal.

Now, one might ask why this section of the U.C.C. was drafted in this manner. To answer the question would require reading the history and opinions of those that drafted the document. However, since I’ve already read about such things, I’ll try to summarize those reasons to save everyone the time and effort.

The primary reason was to protect the seller on a “bad day” (in case the “right bidders” were not in attendance) so that they would not be subjected to an unreasonable loss. Therefore, an auctioneer with the appropriate knowledge of an item and its value would still have the right to withdraw an item if it did not reach a reasonable price, whether the Seller specifically instructed him/her to do so or not.

Now, to address the question of ethics – First, it should be noted that the auctioneer’s fiduciary (that’s a fancy, legal word for “primary”) duty is to the Seller. Would it be ethical for the auctioneer to sell their item for less than a “reasonable” value? Of course, “reasonable” is a relevant term (depending on the individual), but that should be an easy one to answer, especially if you put yourself in the Seller’s shoes and those were your goods being sold. By the same token, since the auctioneer is working for the Seller, if the Seller decides to withdraw an item, then the auctioneer has little choice but to abide by their wishes.

Now, on a side note, the Seller should be aware of any contractual obligations that may be noted in their contract, as most auctioneers will include a “penalty for withdrawal” and the Seller may still be required to pay commissions or a fee for exercising their right of withdrawal.

The auctioneer has no duty to the buyer (except equal fairness to all buyers present) or to sell an item at any price, just because someone bid on the item. After all, while the purpose of the auction is to put items up for competitive bidding, there is no guarantee that if you bid, you will win the item. If another bidder outbids you, you have still lost the desired item, just as if the Seller decides to withdraw it. In either case, there is no contract between you and the Seller, until the auctioneer announces a completion of the sale.

So, when the issue of ethics arises, it is only subject to which side of the bargaining table you were seated and whether you were actually treated fairly, which is the only ethics consideration.

As a buyer, you are at opposing interests with any seller, since you are wanting to get the lowest price and the seller wishes to obtain the highest price. The only time that you are not being treated fairly in this case, is if the seller favors another offer over yours, based on factors other than receiving the highest price. Therefore, as the Seller’s agent, the Auctioneer was most likely treating you ethically and also complying with the wishes of his/her fiduciary, the Seller.

Now, I would emphasize that such withdrawals in an auction should be minimal, in most cases. After all, the lure of the auction holds the possibility that deals can be had at auction and in the hopes of retaining the buyers, the Seller should expect some items to sell for less than they might have hoped, yet they may also find that there will be many other items that will sell for more than expected. So, in the end, it all balances out.

Of course, I’ve rarely heard a Seller complain about an item that brought a lot more than they expected. However, I’ve had a few that look at each item on the list and make note of their disappointment in those items that didn’t do as well as they hoped.

The informed Seller will look at the bottom line to determine the success of their auction and basically disregard the individual price that each item brought.

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Auctioneer Bidding… Is it Legal?

February 6, 2011

The answer is…  YES…  er, NO…  well, It Depends!

Since this type of question arises quite often from both sides of the aisle (bidders and sellers), it warrants being posted here. Below is one of the more recent responses I replied to and hopefully it will help everyone to understand this often misunderstood part of the law.

neil Says:
February 4, 2011 at 9:02 pm

In an earlier response, you said, in reference to an auctioneer bidding on its own behalf, that “the MAJORITY of states allow an auctioneer to do so, IF it is DISCLOSED to the buyers that the auctioneer reserves the right to bid, whether it is on behalf of any minimums, reserves or for their own personal purchase.
If such bidding has not been disclosed, then it is illegal.” I’m not disagreeing. I just want to know what the basis is for your statement that disclosure is required.

While I’ve responded to similar questions in this blog on numerous occasions, I’ll give it another shot. I’m making a guess that you may have read the post Auction House Bidding & Selling which led to your question.

First, I’ll clarify the statement “the MAJORITY of states“:
I used this phrase as a sort of “disclaimer” because I know of one particular state (off the top of my head) that does not allow an auctioneer to bid for any reason. That state is Pennsylvania, although there could be another one or two that I’m not currently aware of, so it’s possible there could be others.

Second, I must also clarify another of my previous statements to insure it’s not misinterpreted.
An auctioneer may bid on behalf of the seller (i.e. to protect a minimum reserve) if such bidding is disclosed to the bidders.
There is no such requirement of disclosure (in most states that I’m aware of and with the exception of PA, of course), if the auctioneer is only bidding for his/her own personal purchase. In such cases, they are just another bidder for the merchandise. [However, it’s just a good idea to include/disclose such things in your terms, just to help the bidders understand and keep the questioning to a minimum, whether the auctioneer is required to do so or not.]

NOW to answer the question… “the basis for my statement that disclosure is required.”

The statement is based on the fact that almost all of the 50 states, incorporated all or most of the Uniform Commercial Code (U.C.C.) Section 2-328 into their own Business and Commerce codes/laws. You can view that section of the U.C.C. at U.C.C. § 2-328. Sale by Auction

You will note that (the first part of) Paragraph 4 states:

(4) If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved,

Now, keep in mind… you have to think like a lawyer! In other words, you have to read that statement very carefully to determine what it is stating, as it’s written in sort of a “reverse logic“.

The KEY STATEMENT is “and notice has not been given that liberty for such bidding is reserved“.

Therefore, to reverse this statement into layman’s terms, it is stating that if an auctioneer receives a bid on the seller’s behalf, then they must first give notice that such liberty of bidding is being reserved to do so.

OR more simply… Such bidding must be DISCLOSED (i.e. give notice) to the bidders, prior to doing so.

Now, to take this one step further… there is no requirement for an auctioneer to disclose each individual bid being made on behalf of the seller (i.e. the actual act of such bidding at the time it is being done).

There is also no requirement for the auctioneer to disclose whether or not a particular item has a minimum reserve.

The only requirement is that the auctioneer must disclose that such bidding may take place during the course of the auction. This disclosure may be made during the opening announcements or it may be in the form of a written Terms & Conditions. So, bidders should read the Terms & Conditions and pay close attention to the opening statements. Bidders should also keep in mind, even if you were not present during the opening statements, when you bid at an auction, you have agreed to be bound by those terms even if you didn’t actually hear them spoken. So, it’s always a good idea to arrive early and listen closely.

OH! One more thing… as I stated that most of the 50 states incorporated the U.C.C. into their laws, Louisiana did not incorporate the U.C.C. as written (they just used parts of it) and a few others have also modified the code to some extent. Since other states may have added additional requirements or modified their auction laws, check the laws of your own state and if you’re an auctioneer, you should already know what those laws are to begin with. In any case, if in doubt… Don’t bid or allow the seller to bid on their items and you’ll have nothing to worry about.


Auction House Bidding & Selling

March 16, 2009

In the comments on the article Auction Laws in the U.S.A., a couple of great questions have been asked by Frank Ceresi. While I posted a response in the comments, I thought this would be a good topic and may generate its own comments and questions.

Frank asks:
Is it lawful for the principal owners of an auction house to consign items in their own live and/or internet auction?
Is it lawful for the principals in an auction house to bid in their own live or internet auction?

Response:
I’m not aware of anything unlawful with an auction house selling items they have purchased to resell. Why should it be? This is how most resellers operate in the first place, from flea markets to major department stores, whether they sell used or new goods. I wouldn’t understand why anyone would consider this to be an unacceptable practice. The auction house purchases items and sells them to the highest bidder. This is the purest form of capitalism and free enterprise. After all, companies sell their own stocks and commodities by auction everyday, through the New York Stock Exchange.

Now, the second question requires a little clarification. Of course, while the laws can vary from state to state, I would also recommend that you carefully read the laws for your particular state to determine any variances from most other state laws. So, keep in mind, my following comments are for majority of state laws, but there could be the possibility of a few states that may indicate otherwise. Keep in mind, at auction, the buyer must perform their own due diligence and know the laws, as well as the terms of the auction.

In most states, the seller or their agent (which can certainly include the auctioneer) may be allowed to bid on behalf of any minimum reserve prices set by the seller, as long as “SUCH BIDDING IS DISCLOSED” to the bidders. This is also the primary difference between “shilling” and “protecting the reserve”.

There are basically two ways to “protect the reserve”. One method method is to “Pass” the item, if it does not meet the reserve. The other is “bidding on behalf of the reserve” and may only be done if DISCLOSED to the bidders (note the emphasis). Some auctioneers may also use a consignor bidder number or “house number”, in such cases that the reserve is not met, to keep things flowing smoother and allows for tracking during settlement of the auction.

The key point is “DISCLOSURE”. If the auctioneer has not disclosed that such bidding may be allowed, then it would be considered “shilling” and would be considered fraudulent bidding.

This disclosure may be in the form of written “Terms and Conditions” which may be posted or otherwise made available to the bidders, or may be statements made during the “Opening Statements” of the auction, which is why it is always a good idea to be present at the beginning of an auction and listen closely to everything the auctioneer says, at that time. If you arrive late, you are still bound by those oral statements, even though you may not have actually heard them being made. This falls under the same basis as you’ve probably heard before, concerning your responsibilities to know the law prior to any actions you take… “ignorance is no excuse”. So, if they have written terms and conditions, you should read them carefully, in their entirety. However, there is no requirement that the terms must be written. For that matter, the auctioneer is also allowed to set forth the conditions of each sale, as each item is being offered, which may also superceed any previous statements made or modify the terms for that particular sale.

It should also be noted that the auctioneer is not required to state whether any item has a reserve or not, much less how much the minimum reserve price may be for any item. In fact, at most auctions, any reserve is kept secret and is not disclosed. There are several reasons for this and experience has certainly born out a couple of those most prominently… one is that it “sets a maximum price in the mind of the buyer” and we all know that an item is worth what the highest bidder is willing to pay on a particular day.

This is not to say that the item may not bring more on a different day, with different buyers and the seller is not required to sell their item for less than they are willing to accept. This goes back to the definition of “Fair Market Value” which is “the price a willing buyer and willing seller agree on”. Therefore, this is the basis of the “reserved minimum” which must be met, before the seller agrees to sell.

Another reason why most auctioneers don’t disclose reserves, is due to another element of human nature… if the minimum amount is disclosed, most won’t even offer a starting bid at the reserve price. It’s as though they automatically deem the price to be “too high”. (Of course, then there are those that don’t understand auction laws and think everything has to sell regardless of price and think that if it starts lower, they might get it anyway.) However, from experience, if the item has a “reasonable” reserve, the bidders will usually meet or exceed it, if there are two or more truly interested bidders and they are allowed to start the bidding where ever they wish and bid accordingly. Of course, if there is only one interested bidder, the seller’s agent may bid against them until it reaches the reserve (if such bidding was properly DISCLOSED, as discussed above).

Of course, if you have attended auctions, you also know that you may set your own price prior to bidding, only to find yourself bidding more than you initially intended, as you felt it was worth more than you hoped someone else would pay.

Unfortunately, one of the myths that many people have about auctions, is that “everything must sell regardless of price” and they go looking for a “steal of a deal”. While there are often plenty of great deals to be had, there is no requirement that everything must be sold regardless of price. The U.C.C. states that “all auctions are considered to be WITH Reserve, UNLESS stated to be Absolute”. Therefore, the auctioneer may still cancel the sale of any item prior to announcing ’sold’, if he/she feels that the item has not met a reasonable value, even if it does not have a minimum reserve price. However, the ethical auctioneer would not bid against you in such cases (since there is no specific reserve), but only ‘Pass’ the item if a reasonable value was not reached.


Government Siezed Property Auctions

March 15, 2009

In one of the comments, Seth asks “If a loan balance is owed to the bank on a vehicle seized by the IRS, if you buy that vehicle at auction does the bank lose its lien on the vehicle?”.

Of course, there is a lot of misinformation or at least, a lot of ambiguities in the information, that is the subject of many books and other “information guru” offerings, which try to get consumers to buy their offerings, in the hopes of “How To Get Rich At Auction”.

The short answer to Seth’s question is, “NO!”.

When purchasing seized assets, you are only buying the government’s “interest” or in other words, the government’s portion of “claim to the property”. It does not preempt other claims, such as loans from a mortgage company or lender, which may still be entitled to foreclose for lack of payment.

In the case of the IRS, we can look at their specific regulations and the terms and conditions used for such auctions. You will also note, that the original taxpayer still has the “right of redemption” for 180 days. This means, they can pay you what you paid, plus interest and reclaim their property from you, within 6 months of your purchase. So, don’t run off and sell it too quickly or you may be liable for returning the property to them.

IRS Terms of Sale:
Nature of Title: The right, title and interest of the taxpayer in and to the property is offered for sale subject to any prior valid outstanding mortgages, encumbrances, or other liens in favor of third parties against the taxpayer that are superior to the lien of the United States. All property is offered for sale “where is” and “as is” and without recourse against the United States. No guaranty or condition of any of the property, or its fitness for any use or purpose. No claim will be considered for allowance or adjustment or for rescission of the sale based on failure of the property to conform with any expressed or implied representation.

Title Offered: Only the right, title and interest of the taxpayer in and to the property will be offered for sale. If requested, the Internal Revenue Service will furnish information about possible encumbrances, which may be useful in determining the value of the interest being sold.

IRS Sections regarding the Rights of Sale & Redemption:
Redemption Rights: The rights of redemption, as specified in Internal Revenue Code Section 6337, are quoted as follows:
* Sec. 6337. Redemption of Property.
(a) Before Sale. – Any person whose property has been levied upon shall have the right to pay the amount due, together with the expenses of the proceeding, if any, to the Secretary at any time prior to the sale thereof, and upon such payment the Secretary shall restore such property to him, and all further proceedings in connection with the levy on such property shall cease from the time of such payment.

(b) Redemption of Real Estate After Sale.
(1) Period. – The owners of any real property sold as provided in Section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof.

(2) Price. – Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchaser, his heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum.

Section 6339(c). Effect of Junior Encumbrances.
A certificate of sale of personal property given or a deed to real property executed pursuant to section 6338 shall discharge such property from all liens, encumbrances, and titles over which the lien of the United States with respect to which the levy was made had priority.


No Warranty Or Guarantees at Auction, EXCEPT…

June 2, 2008

I was presented the following scenario in the comments here

Here’s a basic summary of the comments:
I was recently duped into buying a painting supposedly from a valuable artist only to find out later that it was not. In this case, the auctioneer’s homepage posted all the items for sale and had the artist’s name and year the painting was done. The day of the sale, he said that he was told by a colleague that it was probably the work of the artist in question.

When a buyer attends an auction, there are “Terms & Conditions” that the Auctioneer usually gives at the beginning, although they may also be posted in written form. In most cases, these Terms & Conditions have a statement such as, “All items are being sold “As-Is, Where-Is, with No Warranties or Guarantees Expressed or Implied.”

Many Auctioneers think this gets them “off the hook” in case there is something wrong with the item, as buyers are also told to look things over and know what they’re bidding on. So, in this context, it appears that it rests solely with the buyer’s own judgment. And it Does… UNLESS, the Auctioneer makes a statement of the items’ condition, authenticity, value or other similar statement. Now, I know that there are some Auctioneers that may try to argue this point, but those are the ones that may find out the hard way… in front of a judge.

As long as the Auctioneer says, “I’m selling this nice painting of a farm house by a lake” and you can see that it is just that, but you know there’s a small rip in the painting, then it is up to your judgment of value for this painting. Caveat Emptor, as the saying goes or “Let the Buyer Beware”, which means it is solely up to your own knowledge and judgment. If you didn’t notice the rip, and you’re the high bidder, it’s still YOURS, when the Auctioneer calls “SOLD.”

But, what if it was a print and not a painting? What if the Auctioneer said it was by a particular artist and it wasn’t?

My first question is, “Was the Auctioneer kidding around?”, as we all know that most Auctioneers may use a bit of tongue-in-cheek humor to entertain, as well as sell stuff. This would certainly be a gray area and may depend on the reaction of the crowd. After all, if it was picture of a mallard swimming on the lake and the Auctioneer referred to it as a Walt Disney Painting of Donald Duck, then it probably wouldn’t change anything… Yes, I know that’s the extreme, but more subtle forms of humor and conjecture may also be used and if most of the crowd knows better, then it may still be hard to hold him to his word.

However, if you are bidding on something that has been held out to be much more valuable than it actually is, and the Auctioneer knowingly or not, tells you that it is “likely a Picasso”, then he may have a lot more problems trying to convince a judge that he was just “kidding around”.

If the auctioneer states “I have a Picasso”, then it may be assumed to be genuine. However, if he says, “I have a painting that is signed Picasso”, then it is up to the bidder to determine if it is real, as he has not claimed it to be genuine. However, the wording of a statement can be difficult to ascertain what he may be implying. If in doubt, stop the auctioneer and ask… “Is this a genuine Picasso?”

To state that a “colleague said that it was probably the work of the artist in question”, does not relieve the auctioneer from his obligation, as he is an agent of the seller. So, if the “seller” misrepresented the item, it may still be an invalid sale. To state “probably” is not necessarily a good defense for the auctioneer, as it may still be considered a misleading statement. I know that if I heard an auctioneer say “probably”, I am going to consider that it was not verified and unless I know that, it IS what it’s supposed to be, then I’m not going to bid very much (if I bid at all). But, that is not to say that you were not misled into thinking that it was an original… so, the actual wording of his statements may actually determine his liability.

However, if the auctioneer stated something like, “A colleague said that it was probably the work of the artist in question, but I can not guarantee it, so please bid accordingly“, then he has basically left it to the bidders to decide for themselves, as to its’ authenticity. If I made such a claim, I would make sure everyone heard me, by repeating the “no guarantee… bid accordingly” and I may also add “I have not verified this”, just to make sure there was no misunderstanding by the bidders. It’s not unusual for a seller to bring something to auction, who is also misinformed about their goods. Often, the auctioneer is only repeating what he has been told by the seller, however it still makes both, the seller and the auctioneer responsible, should the item not be as the seller believed. This doesn’t make them bad people, just misinformed… but the seller should still be held to his claim. However, if either KNEW it was a fake, then it is a serious offense, as that gets into fraud and may be a criminal offense.

As I previously pointed out, sometimes, it’s all in the way it is said and some bidders will try to use the line, “but I thought he said…”

In these types of cases, it doesn’t matter what you thought he said, as it is each individual’s own responsibility for determining the authenticity and to pay close attention to the Auctioneer. If you only heard the part when he said “Picasso”, if you aren’t sure, then you should stop him and ask for clarification before bidding.

Now, back to the original comment that was left. This Auctioneer posted this picture on his website and put the “Author’s Name” under it. This could clearly indicate to the consumer that he is claiming it to be authentic. Since this Auctioneer went on to say that “a colleague said that it was probably the work of the artist in question” is only putting additional authenticity to what was already published and he may actually be considered to be holding this out to be authentic. To put the “question” on the end of the statement may not get him off the hook in this case, without further statements to make clear that he is not sure of the authenticity that was previously claimed on the website. If I had an interest in this item, I certainly would have stopped the Auctioneer and questioned his “appraisal” of the painting. If he continues to assert that it is was probably authentic, then he would likely be held to a guarantee that he has just expressed, otherwise he may be found to have violated FTC laws for fraud.


Fiduciary Duty of an Auctioneer

November 15, 2007

An auctioneer’s fiduciary duty is to the seller. This means the auctioneer is an agent for the seller and must act in the best interests of the seller.

This falls back on the basis of general law, widely accepted in all courts of law throughout the U.S.:
(1) “Fiduciary” means an agent, trustee, partner, corporate officer or director, or other representative owing a fiduciary duty with respect to an instrument (i.e. “contract”).
(2) “Represented person” means the principal, beneficiary, partnership, corporation, or other person to whom the duty stated in subdivision (1) is owed.

In addition, the field of real estate is usually quoted in many examples because they are basically the only industry that allows for “dual agency”. However, to completely understand this “agency”, you must understand that the Broker has ultimate responsibility for all transactions by any salespersons working under the supervision of the Broker’s license, therefore the actual Broker is undertaking the role of dual agency (not the individual salespersons, as I will explain). In other words, the Broker can not be a direct party in the transaction (in any way and must remain neutral, or without specific directions to either salesperson) and will appoint two different salespersons to work for the seller and the buyer, since an individual agent cannot represent a fiduciary to both. On the same basis of law, if a RE salesperson has not specifically contracted to act as a buyer’s agent, then it is automatically assumed that the salesperson is acting on behalf of the seller, therefore is the fiduciary only for the seller.

To support that last statement, the Federal Trade Commission (FTC) speaks of this in numerous publications, one of which is:
http://www.ftc.gov/os/comments/realestatecompetition/518795-00391.htm
Fiduciaries are held to a higher standard under common law. Upon visiting, for example, a store, a consumer does not expect, or have any right to expect, the store’s salesperson to be looking out for the consumer’s best interest. But in hiring a trusted lawyer or real estate agent or investment trust company (you may also add “auctioneer”) to act for him, a client expects full fiduciary responsibility, including undivided loyalty, with no undisclosed conflicts of interest. Consumers are more easily misled when, as clients, not just customers, they are giving their trust to their own professional fiduciary.

In addition, you can find additional commentary on the basis of fiduciary duties at:
http://en.wikipedia.org/wiki/Fiduciary
Conflict of duty and duty
A fiduciary’s duty must not conflict with another fiduciary duty. Conflicts between one fiduciary duty and another fiduciary duty arise most often when a lawyer or an agent, such as a real estate agent (also add “auctioneer”), represent more than one client, and the interests of those clients conflict. This usually occurs when a lawyer attempts to represent both the plaintiff and the defendant in the same matter, for example. The rule comes from the logical conclusion that a fiduciary cannot make the principal’s interests a top priority if he has two principals and their interests are diametrically opposed; he must balance the interests, which is not acceptable to equity. Therefore, the conflict of duty and duty rule is really an extension of the conflict of interest and duty rules.”

Also see:
http://en.wikipedia.org/wiki/Conflict_of_interest

In other words, as a sole individual/entity, you can not have a conflict of fiduciary duties between the parties, or you are subject to a dereliction of duty to one or both parties. Therefore, under the basis of general law, it basically means that when an auctioneer signs a contract with a seller (the principal), the auctioneer has a fiduciary duty to the seller to act as their primary agent on their behalf and in their best interests or “as they would act”.

Now, this does not mean that if the seller misrepresents something, that the auctioneer doesn’t have a “duty” to the buyer to correct the problem. However, the auctioneer and the seller are both responsible for providing a reasonable duty to provide said goods in the condition stated for the agreed upon price/trade, as this falls under the Fair Trade Agreement statutes (that you can also search for under the FTC’s website). However, this does not create a fiduciary duty to the buyer, but only serves to treat the buyer fairly under the FTC’s Fair Trade Agreement.

The primary point is regarding the auctioneer’s fiduciary duty to act on behalf of the seller. The difference between the Fair Trade Act regarding buyers and fiduciary duty to the client (seller) is the same, regardless of whether it is a real estate transaction or the sale of any other type of property.

A Fiduciary can not represent two different parties with opposing intents. The primary fiduciary is to the client that has contracted the auctioneer to sell (act on their behalf for the sale of) their goods.

Some have attempted to imply that the Terms and Conditions of Sale implies a fiduciary duty. This is not the case, as the FTC’s Fair Trade Act specifically demonstrates that it is only an agreement for the terms of the sale and creates no other duty upon the seller (or their agent) as a representative of the buyer, as they are opposing parties until the final agreement has been reached. The Terms & Conditions (terms of their agreement) for an auction are only the conditions of finalizing the transaction, which both, the buyer and the auctioneer (seller’s fiduciary agent) are agreeing to as part of the sale, with only price being the final factor and determined upon the call of “Sold”. Therefore, the auctioneer has only “perfected a sales agreement” (that’s how a lawyer would state it) with the buyer on behalf of the seller (the principal fiduciary).


Auction Laws in the U.S.A.

August 18, 2007

In the U.S., there is no federal law regulating auctions (Thank goodness). Regulation is left up to individual states, as this is how the U.S. Constitution was intended. States have differing requirements on licensing, education, bonding, fees and other aspects of conducting an auction. While, not all states require licensing, most states do have laws and/or regulations covering the auction industry. The Uniform Commercial Code (U.C.C.) was the original basis for auction laws in all states, except Louisiana which only enacted part of the Code.

The Uniform Commercial Code is often quoted when people talk about auction laws, but the U.C.C. is not actually law. A group of lawyers worked on drafting the Uniform Commercial Code for over 10 years (1941-1951) to complete the proposed statute and get it approved by the American Bar Association. The U.C.C. is just a general “code of commerce” that has become a precedent of law, but the Uniform Commercial Code has no legal significance, except that 49 states have drafted most of the U.C.C. into their own laws. The first state to adopt it was in 1951 and the 49th state to adopt it was in 1967. Why only 49 states? Louisiana law is typically based Napoleonic law, while the other 49 are based on English law. (So, Louisiana just has their own way of doing things.)

You can see what the Uniform Commercial Code says in regards to auctions at: U.C.C. § 2-328. Sale by Auction

In addition to the basic Uniform Commercial Code (or parts of it) in each state’s business law, each state may have their own additional laws, modifications or administrative rules that also govern auctions and may also vary somewhat from the actual U.C.C., as originally drafted. You can find a list of State Auction Laws & Auctioneer Licensing Information in the top menu & right-hand column of this page.

If there is no link to your state, then your state may not have state licensing requirements for auctioneers. However, this doesn’t mean that your state does not have laws regulating auctions. If you have information or links to webpages outlining the laws, let me know and I will update the information after verifying the information.