Auction Contract and Agency Law
The two contracts in every auction
Every auction involves at least two relationships: the contract between seller and auctioneer (the listing or auction agreement), and the contract of sale formed between seller and buyer when the auctioneer accepts the final bid. The auctioneer acts as the seller's agent, which means duties of loyalty, obedience to lawful instructions, disclosure, confidentiality, and accounting. The auctioneer is generally not the buyer's agent, and questions frequently test whether a statement or act created an agency for the buyer - it usually does not.
Terms that carry weight
Know the difference between with reserve and without reserve sales. In a with-reserve sale the seller may withdraw the goods before the hammer falls; in a without-reserve sale the goods must be sold to the highest bidder once bidding opens. Also know the seller's authority to set a reserve, the auctioneer's authority to accept bids on the seller's behalf, and the concept of the auctioneer as a disclosed principal's agent.
Traps
- Who can bind whom. A bidder's shout does not create a contract until the auctioneer accepts it; the fall of the hammer or announcement of sale is the acceptance.
- Undisclosed reserve. Announcing "absolute" or "no reserve" changes the seller's withdrawal rights - a common exam trap.
- Commission disputes. The listing agreement controls commission; questions often hinge on whether the auctioneer earned commission when the seller withdrew the item.
- Dual agency. Acting for both sides without disclosure is a breach.
Rule of thumb
Ask: Whose agent is this person, and what did the agreement actually say? The written auction agreement, not the auctioneer's assumption, governs commission and withdrawal rights.