Before beginning any auction sale of real or personal property, it is the duty of every auctioneer to state fully the terms and conditions upon which the sale will be made. Further, an auctioneer shall announce the character, quality and description of the property offered for sale to the persons present. The duty of an auctioneer generally includes, but is not limited to, the notification as to whether or not a right to bid is reserved by or on behalf of the seller.
An auctioneer, by selling property for another at an auction, is the agent of the seller. In the absence of an applicable statute to the contrary, the auctioneer’s rights and liabilities are governed by the general principles of the law of agency.
The mere fact that an auctioneer is sometimes required to take out a license in order to exercise his or her calling does not make the auctioneer a public officer. Since an auctioneer is usually selling the property of another, an auctioneer’s authority to conduct the sale is derived from the person whose property he or she undertakes to sell.
An auctioneer is primarily the agent of that person, being selected and remunerated by him or her, acting in that person’s interests, and to an extent, being subservient to his or her wishes[i].
As a general proposition, an auctioneer owes a basic duty of competence and fairness to the seller. An auctioneer, as the agent of the seller, is in a fiduciary position and has a duty to turn over proceeds of the auction sale in full, such proceeds being tantamount to trust funds. An auctioneer must exercise ordinary care and skill in the performance of the duties confided to him or her. If an auctioneer assumes a position that is entirely inconsistent with that of his or her agency relationship, the auctioneer may lose his or her right to compensation for his/her services and may be held accountable to the principal for any side profit received by him or her as a result of the sale which the auctioneer did not disclose to the principal. However, a person cannot avoid the clean hands doctrine by “relying” on advice or inducement by an auctioneer to engage in a course of conduct evidently illegal or unethical. Any representation, in order that one may be justified in relying upon it, must be to some degree reasonable. In all cases, the representation must not be so self-contradictory or absurd that no reasonable man can believe it[ii].
For instance, in Rose v. Nat’l Auction Group, 466 Mich. 453 (Mich. 2002), appellees, the property owners, sued appellants, the auctioneers, for reimbursement of commissions paid to the auctioneers. The auctioneers moved for summary disposition. The Alpena Circuit Court (Michigan) ruled in favor of the auctioneers. The court of appeals affirmed as to the pre-contract claims, but reversed as to the post-contract claims. The supreme court granted the auctioneers’ application for leave to appeal. The property owners entered into an agreement with the auctioneers to sell the property owners’ island at auction. The auctioneers told the property owners that it would be no problem to obtain the desired price of $ 850,000. However, during the auction, it was clear that the price would be nowhere near that amount, so the property owners agreed to the use of a false bidder. Even with the use of a false bidder, however, the desired price for the island was not met. The property owners then sued the auctioneers, alleging fraud and misrepresentation. The trial court ruled in favor of the auctioneers on all of the claims. The court of appeals held that some of the property owners’ claims should go forward. The supreme court held that the property owners entered into the agreement with unclean hands, since they acknowledged agreement to engage in an illicit shill bidder scheme. Thus, the clean hands doctrine barred the property owners’ claims. The decision of the appellate court was reversed in part to the extent that it was inconsistent with the opinion. The trial court’s orders granting summary disposition in favor of the auctioneers were reinstated.
Pursuant to Code of Ala. § 7-2-328, a sale by auction shall include the following:
(1) In a sale by auction, if goods are put up in lots, each lot is the subject of a separate sale.
(2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.
(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. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case, a bidder may retract his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid.
(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, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.
[i] McMakin v. Pine Bush Equip. Co., 242 B.R. 271 (D.N.J. 1999)
[ii] Rose v. Nat’l Auction Group, 466 Mich. 453 (Mich. 2002)