The Watch Collector's Undisclosed Interest
At a charity-benefit auction, auctioneer Brent is also a 25% owner of the auction house and a collector of vintage watches. He consigns three watches from his personal collection to the sale, but the consignment agreement lists the consignor as 'R.B. Holdings' and Brent does not announce his interest. During bidding on a 1972 chronograph, Brent's business partner bids $6,200 to 'protect the reserve,' and Brent accepts the bid, then sells the watch to an online bidder for $7,000 after the gavel. The seller of another lot, a 501(c)(3) charity, asks whether its 15% commission was properly calculated after a buyer's premium and whether Brent can buy the charity's lot himself. Brent says 'everyone knows I collect watches' and that the partner's bid was only a reserve bid. The charity's board wants the sale unwound and records produced.
1. Evaluate the undisclosed self-interest, the partner's bid, and the post-gavel sale. What disclosures and prohibitions apply?
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Self-interest. Brent is the seller's agent for the charity and other consignors. Buying or consigning his own property without clear, written disclosure and consent is self-dealing. Listing the consignor as 'R.B. Holdings' conceals the connection; 'everyone knows I collect watches' is not disclosure. Partner's bid. A bid by the seller's partner to 'protect the reserve' is a reserve bid. Seller bids are allowed only if the auctioneer clearly announces that the seller may bid; otherwise it is shill bidding and deception. Accepting that bid then selling after the gavel to an online bidder compounds the problem: the public sale was not honestly conducted, and the post-gavel sale bypassed the disclosed process. Charity lot. Brent may buy the charity's lot only after full written disclosure, independent board approval, and withdrawal from representing the charity on that lot; otherwise the charity can rescind and seek an accounting. Records. Produce consignment agreements, bid logs, disclosure forms, settlement statements, and trust records.
2. How should the commission and buyer's premium be computed and disclosed, and what records should be produced?
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Commission math. Start with the hammer price, not the buyer's premium, unless the consignment agreement expressly says otherwise. If the charity's lot hammered at $10,000, a 15% commission is $1,500, and the charity receives $8,500 before authorized expenses. The buyer's premium-say 10%, or $1,000-is a separate charge to the buyer and belongs to the auctioneer only if disclosed; if Brent also charges commission on the premium, that must be written and disclosed. Reserve bid effect. The $6,200 partner bid should not be treated as a genuine third-party sale. If the item was later sold for $7,000, the commission should be computed on $7,000 only if the charity agreed to that sale and the buyer's premium is separately stated. The charity is entitled to an accounting. Records. Produce the consignment agreement, all bid records, the reserve authorization, the buyer's premium disclosure, the settlement statement, and the trust ledger. Refund or credit any undisclosed charge and refer the shill-bidding issue to the board.