Contracts, Agency, and Fiduciary Duties
The two contracts
Every auction involves two relationships a candidate must separate: the contract between the seller and the auctioneer (an agency agreement) and the contract of sale between seller and buyer formed when the hammer falls. Know the elements of a valid contract - offer, acceptance, consideration, capacity, legality - and how the auction process maps onto them: the call for bids is an invitation, a bid is an offer, and the fall of the hammer is acceptance. In a reserve sale, the seller's acceptance is conditioned on the reserve being met.
Agency and fiduciary duty
The auctioneer is the seller's agent and owes fiduciary duties: loyalty, obedience to lawful instructions, disclosure of material facts, confidentiality, and accounting for all funds. The agent must not self-deal, must not take an undisclosed secret profit, and must keep the principal informed. Understand actual versus apparent authority - a bidder may reasonably rely on the auctioneer's apparent authority to state terms.
Traps
Questions often test the undisclosed dual agency: an auctioneer secretly buying the item or representing both sides without disclosure. Another trap is confusing the auctioneer's duty to the seller with duties owed to bidders - the auctioneer must deal fairly with bidders but owes the fiduciary duty to the principal.
Rule of thumb
"Whose agent am I, and did I disclose it?" If the auctioneer has any personal or conflicting interest, disclosure and consent are required.
Worked example
An auctioneer learns a bidder will pay far more and buys the item personally before the sale without telling the seller. This breaches loyalty and the duty to disclose material facts, and the secret profit belongs to the principal.