The Auctioneer Who Took a Fee Before the Sale Cleared
Rosa is a licensed auctioneer in Texas. She contracts with a consignor to sell 40 head of cattle at a live auction. The written agreement says Rosa receives a 6% commission, payable from the proceeds after the sale, and that the consignor will be paid the balance within 10 business days. The sale grosses $82,000. On day 3, Rosa deposits the full $82,000 into her general business operating account, which already holds her personal funds and her auctioneer income from other clients. On day 5 she withdraws $4,920 as her commission and pays herself a $2,000 draw. On day 9 a buyer's check for $11,000 bounces. The consignor demands full payment of $77,080 on day 10. Rosa says she cannot pay until the buyer makes good.
1. Identify the recordkeeping and fund-handling problems in how Rosa handled the $82,000, and explain what she should have done differently from the moment the sale closed.
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The core problem is commingling. Proceeds collected for a consignor are held for the benefit of others, and putting them into a general operating account mixed with Rosa's personal funds and unrelated income destroys the ability to trace who owns what. She also paid herself a commission and took a personal draw out of money that was not yet fully cleared and that was partly owed to the consignor - effectively spending trust money on herself.
What she should have done:
- Deposited sale proceeds into a separate trust/client account, not the operating account.
- Kept a ledger by consignor and by sale showing gross proceeds, each buyer's payment status, commission earned, and balance due to the consignor.
- Not paid commission or drawn funds until the corresponding buyer funds had actually cleared, or at minimum not used consignor-owned money to cover her own draw.
- Reconciled the trust balance to the sum of consignor ledgers before any disbursement.
The bounced $11,000 check is a collections problem, not a reason the consignor's money can vanish into a commingled account.
2. The consignor asks whether Rosa must still pay the balance within 10 business days given the bad check. Analyze the competing obligations and state a defensible position.
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Two obligations pull in different directions. The contract creates a 10-business-day payment promise to the consignor. Separately, Rosa has a duty to safeguard funds held for others and to keep records that account for each transaction.
A defensible position: the bounced check does not retroactively erase the contract term, but it does affect what funds are actually available and traceable. Rosa should (a) promptly notify the consignor of the $11,000 dishonor, (b) show the ledger proving the shortfall is attributable to that specific buyer, (c) pay the undisputed cleared balance of $66,080 (gross $82,000 minus the $11,000 dishonored item, minus her properly earned commission on cleared funds) within the contract window, and (d) pursue the buyer for the dishonored item while holding any recovery for the consignor.
What she may not do is withhold the entire balance or treat the shortfall as the consignor's loss simply because her account was commingled. The commingling is her own compliance failure and cannot be used to shift the buyer's default onto the consignor. If the contract is silent on dishonored items, she should document her interpretation in writing and get the consignor's acknowledgment.