“Steve, if I use the phrase ‘we are not guaranteeing the authenticity, condition or anything else’ for what I sell, and the buyer is bidding and buying with his or her own knowledge and expertise, and then I sell a reproduction piece not knowing what it really is, am I released of any and all responsibility to the buyer?
“I want to do what is right and legal when I have an auction, and my goal is to have a good reputation.”

An auctioneer asked me this question, and it’s a good one, because this is the course that a lot of auctioneers take – give a general disclaimer against liability for representations made and then make factual representations to bidders about the goods being sold. Let’s see if this is effective.

Disclaimers are not bulletproof and cannot give umbrella protection to auctioneers for all they might say or do during an auction – far from it. If an auctioneer gives a good disclaimer against warranties and then conducts the auction without straying beyond legally-permitted bounds, he’s on pretty safe ground. Here’s an example of a general disclaimer:

Please inspect everything carefully before you bid. Everything offered today will be on an “as is” basis with all faults, defects and other issues existing. No warranties will be given, either expressed or implied, and you will take the goods in their present condition.
The auctioneer could then offer up a lot and say, “Here’s a nice chair. What will you give for it?” So long as the piece is a chair and the owner has good and clear title to it, and title and possession will pass to the buyer upon sale, the auctioneer is in good shape whether the chair is an antique or brand new. What he sold to a buyer is what he said he was offering – “a chair.”

Of course, that’s not the way it’s done in many auctions. What is frequently done is something like this:

“Folks, take a look at this one. It looks like Chippendale to me … solid mahogany … a fine period piece. How many dollars will you give?”

The auctioneer sells the chair for $2,000. Sadly for the buyer, the chair is a recent and cheap reproduction worth only a small fraction of that amount. Now let’s see where that path leads.

I have often found that the best way to help someone understand the answer to a question is to ask another question that shows the questioner a different slant on the same issue. This can be particularly instructive when the questioner’s own interest is made the focal point.

Suppose the auctioneer walked into a store to look at a ring for his wife. A large sign on the wall states plainly: “Everything is sold ‘as is’ with all faults, defects and other issues existing. No warranties are given, either expressed or implied.”

The auctioneer tells a salesperson what he’s looking for and is soon shown a sparkling ring. The salesperson says, “This is a beautiful one-carat, round, brilliant-cut diamond solitaire that is almost flawless. It has the best clarity and color you can buy.”
The auctioneer pays $2,000 for the ring on “a special sale” and presents it to his missus. Sweetums later discovers it’s a cubic zirconia and worth only a tenth of what her husband paid.

Is Mr. Auctioneer okay with this because a disclaimer was clearly made on the store’s wall and printed on his receipt for the sale, or is he fighting mad? It’s a safe bet he’s the latter – and why shouldn’t he be mad? He paid for what he didn’t get and did so because of false representations made to him by the salesperson.
If the salesperson knew the ring was not what it was represented to be, that’s fraud.

Due to the salesperson’s intent to misrepresent, this is an “actual fraud.” The ring was purposefully misrepresented to trick the buyer into paying for what he didn’t receive.

Do you think Mr. Auctioneer much cares whether the ring was misrepresented intentionally or in error? He probably doesn’t, because either way he thought he was buying a great diamond ring when he was actually buying a fake. That’s the same view the law takes.

If the salesperson did not know that the ring was not what it was represented to be, that’s still fraud. The salesperson’s mistake in making these representations about the ring, as opposed to intentional misrepresentations, makes this a “constructive fraud.” Lack of intent doesn’t change what happened; the auctioneer still didn’t get what he thought he was buying.

The seller’s representations were false whether intentionally or mistakenly made.

The buyer relied on the seller’s representations and, as a result, suffered a significant loss.

The law analyzes this issue like this: Someone made a material representation that was untrue, and another party relied on that falsehood and was damaged. As between these two parties, who should pay for the loss – the seller who made the false statement or the innocent buyer who relied upon it?

The answer should be obvious. The law will hold the seller guilty of committing a fraud on the buyer, for which the seller will be held liable.

Now let’s answer the question the auctioneer asked me.
We’ll start with this – there is no special rule or exemption from the law of fraud for auctions or auctioneers.

None!

Quite the contrary – the requirements are exactly the same for auctioneers as for all other sellers, the same for auctions as for all other forms of sales. Consequently, the same rule applies to the “diamond ring” as to the “period chair.”

Here’s the lesson to be learned: A seller can say whatever he wants to make a sale, but it had better be true. If it’s not, the seller is responsible for any damages.

Next time we’ll consider how the Uniform Commercial Code impacts this issue.

Steve Proffitt is general counsel of J.P. King Auction Co., Inc., online at www.jpking.com

He is also an auctioneer and instructor at both Reppert School of Auctioneering in Auburn, Ind., and Mendenhall School of Auctioneering in High Point, N.C. He welcomes questions from readers about auctions and auctioneering. Readers’ communications may be reprinted in whole or part.
Proffitt will answer selected questions but cannot provide personal answers. His answers do not represent legal advice or the formation of an attorney-client relationship. Please submit questions to sproffitt@jpking.com