ADDITIONAL CONSIDERATIONS
Disclaimer: No person should act upon this information without first obtaining competent, professional counsel from his or her own attorney at law. Likewise, any person with a question or issue requiring legal advice should immediately consult his or her own attorney at law to obtain that advice.
United Country specifically does not warrant the accuracy or completeness of the contents herein.
Conforming to Professional Standards of Conduct
- Your ethical values are a set of instructions for a way of life, both business and personal. They include an obligation to consider not only your own well-being but that of others.
- Be honest in all your dealings, both personal and business
- Work to establish a reputation of fair dealing. This takes time but will be your best investment. A poor reputation takes little time to develop and is almost impossible to overcome
- Unprofessional conduct by an individual auctioneer reflects on the ethics of the entire profession.
- If a prospective auction is beyond your capabilities, ask for help, turn it down or refer it to a specialist in that field.
- An auctioneer’s attitude toward competitors should be one of respect. Charge what you are worth. Undercutting or “knocking” a competitor just to get a sale hurts all auctioneers.
- The auctioneer’s fiduciary relationship is with the seller but he must look out for the buyer’s interest also.
- In all that you do, apply the basic golden rule.
Uniform Commercial Code
Most states have enacted the law know at the Uniform Commercial Code (UCC). The purpose of the UCC is to simplify, clarify and modernize the law governing commercial transactions; to permit continued expansion of commercial practices through custom, usage and agreement; and to make the law uniform among various jurisdictions. The UCC has been adopted in all states besides Louisiana, which has its own similar code.
Transactions Covered by the UCC
Warranties - An express warranty is a warranty created by a clear statement or specific conduct of the seller. An implied warranty generally is a warranty created by operation of law. Auctioneers should exercise caution and limit the warranties made or disclaim all warranties.
Expressed – Stated in words
Implied – Imposed to protect a buyer – regardless of whether the seller has agreed to provide these warranties.
Executed – fully performed
Executory – something remains to be done
Parol – verbal agreement
Bilateral – mutual agreement by both sides
Unilateral – one party agrees to perform
Option – must have financial consideration
Elements of Contract
Offer
Acceptance
Consideration
Enforcement – contract for sale over $500 not enforceable unless in writing
Assignment of rights under the contract does not relieve the delegating party of duty to perform
Movable things
Seller to deliver
Buyer to accept and pay for
Express Warranty
Affirmation of fact made by seller to buyer
Implied Warranty
If seller is a merchant selling goods of that kind, a contract implies warranty
Exclusion of Warranty
“as is”, “where is” and/or “with all faults”
No warranty when sold,
Must be announced before sale & in advertising
General Warranty
Good title, merchantable, fit for intended use by purchaser
Title passes from seller to buyer on delivery in any matter agreed upon. Purchaser acquires title only to what seller has the right to transfer.
Securities/Letters of Credit
Letter of credit which states bank will honor demand for payment upon compliance with conditions in letter – may be revocable or irrevocable.
- 1. In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.
- 2. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.
- 3. Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid.
- 4. If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.
Navigating Auction Threats
The auction industry is fast-paced, widely arching and varies in business operation size. It involves multiple interested parties and utilizes many platforms. At any given moment in the process of selling items in a bidding environment there are any number of legal circumstances that can arise. In addition, auction professionals are required to be flexible and adaptable to changing processes and technologies, making legal concerns even more prevalent. Below are some tips to help avoid and navigate common auction threats:
Incorrectly identifying seller(s) of property can jeopardize both the auction and auctioneer.
Individual or entity?
Are the spouse, partners, corporate resolution, LLC members, etc. involved? – All parties must sign auction contract. Get any creditors’ agreement and written approval & make sure it is unconditional and irrevocable.
Include a seller warranty:
Sample Seller Warranty: “Seller solely owns the Property or has the right to sell it and receive the proceeds.”
Real Estate
Obtain title reports & title insurance to ensure seller identity/ownership structures
Personal Property
Obtain titles and/or certificates where applicable
Inadequate property descriptions can doom sale of property and expose an auctioneer to liability and/or legal action. The auction contract should define the property (legal descriptions, etc.)
Real Estate:
Obtain title reports & title insurance to property legal descriptions
Obtain property tax reports
Require a real estate sellers disclosure document
Personal Property:
Hire an appraisal company to inspect and appraise personal property to authenticate and/or define personal property items
Require the seller to represent and warrant that the goods are authentic
Full descriptions (with photos) including new/used status and disclosures of any wear/tear/flaws will further ensure full disclosure on state of personal property
A lack of a comprehensive marketing plan is a substantial threat to an auctioneer
Seller input is instrumental in the development of the marketing plan
Marketing plan details must be documented and laid out in an easy to read and follow format
Require WRITTEN seller agreement in the auction contract
Improperly defined and outlined seller duties/expectations can also be a danger to the auction and auctioneer. You must completely define seller duties in the auction contract:
Disclose encumbrances (defined terms for existing deeds, liens, mortgages, rents etc.)
No new encumbrances
Sample Clause: “Seller will not allow any new Encumbrance during the period of this Agreement.”
Require seller to provide title report, title insurance commitment, tax reports, seller’s disclosures, surveys, plats, appraisals, titles, certificates, etc.
Property preparation for offering and sale (what will/won’t they work on to ensure the property is ready for the sale?)
Required approvals
Disclosures – Beware of “As-Is”, disclose everything your seller knows about the property good or bad.
Warranted legal compliance for local, state and federal laws (especially for real estate, firearms, automotive & equipment)
Likewise, improper bidder/buyer requirements & expectations can be a risk for an auction and auctioneer.
Employ the 3 C’s – clear, complete and correct
Terms, bidder packets & contract for sale should include all disclosures, disclaimers, descriptions, registration, bid requirements, auction procedural etc. and should each complement one another.
Work from a tight script and do not stray from the terms and contract for sale for any reason
Make all documentation easily and readily available to review
Your auction contracts should include a clause that seller warrants no other broker, listing or claim for commission
Sample Clause: “Seller grants Auctioneer an exclusive listing to market the Property which ends +++ days following the date the auction was conducted or last due to be conducted (“Listing Period”).”
AND “Seller will hold harmless and indemnify Auctioneer for any matter arising out of an agreement, contract, or other relationship that Seller has, or had, with another agent or broker in relation to the Property, its listing, offering, or sale.”
AND “ORDERED that any offer to sell or buy the Property, and every agreement or contract for its sale or purchase, which offer, agreement, or contract was made or entered into prior to the Effective Date of the Auction Contract, is held to have lapsed and now be null, void, and of no effect whatsoever such that no broker or agent involved with such offer, agreement, or contract is owed, or otherwise entitled to receive, either now or in the future, any related commission, expense, fee, or other compensation whatsoever either from Seller or Auctioneer”
Many times buyer remorse sets in shortly after an auction. Once the excitement of the environment dies down, you may experience buyer remorse. This however, is not an auctioneer issue, it is a seller issue. The two parties to the Contract for Sale are the Buyer and the Seller.
To Navigate Buyer’s Remorse:
Get contract signed as soon as possible after closing the auction.
Remind buyers frequently of the Contract for Sale obligations and terms regarding buyer default – typically forfeiture of earnest money and damages
Sample Clause: “If Buyer defaults in the performance of any term or obligation herein and Closing does not timely occur as a result, Seller will give written notice to Buyer that the Earnest Money Deposit will be immediately forfeited to Seller and Auctioneer as reasonable liquidated damages and not as a penalty against Buyer. Seller and Auctioneer will equally split the Earnest Money Deposit between them and keep their respective shares. Buyer forever waives and releases any right to sue Seller, Auctioneer, or Escrow Agent to recover the Earnest Money Deposit, or any part thereof, on the grounds that it is unreasonable in amount, or that its retention by Seller and Auctioneer is wrongful or a penalty not agreed upon by the parties as reasonable liquidated damages.”
Advise seller to consult a lawyer for advice and response to buyer
Ensure all communications are written or confirmed in writing, make them available for litigation if necessary.
Though rare when an auction is properly qualified, price disappointment and simple greed can lead to sellers trying to reduce or deny selling commission owed to an auctioneer when it comes time to close.
To navigate Potential Seller’s Remorse:
Properly qualify the auction and set seller’s expectations early and often in the auction process.
Ensure you have fully performed all Auction Contract duties
Keep well documented files, include all emails, contracts & agreements, terms & conditions, etc.
An auctioneer can turn possible threats into advantages by dictating that they prefer disputes to be handled in their own backyards. This can discourage and dampen claims due to time, costs and inconvenience. Auctioneers should include a clause in their auction contract regarding seller requirements, terms and conditions regarding bidder requirements and contract for sale regarding buyer requirements.
Sample Clause: Choice of Law, Jurisdiction, and Venue – Any Auction matter will be exclusively construed and governed in accordance with the laws of the State of +state+, without regard to its conflict of laws principles. The exclusive jurisdiction and venue for any controversy or claim between the Parties will be the city or county of + + + in the State of + + +.
Insurance
Most small business owners place insurance low on their priority list when in fact, other than capital, talent and business plan, it is without question the most important aspect of operating a business. Unfortunately, when a small business owner is writing checks and capital is limited, writing insurance checks get harder and harder. Before you know it, the business owner becomes successful and the urgency for insurance coverage diminishes until that fateful day when time catches up to them. Needless to say, years of hard work can be totally undone with just one mishap or claim of negligence. Here are some of the insurance coverage’s we recommend you consider or at the very least, be aware they exist.
General Liability Insurance covers legal hassles due to accidents, injuries or claims of negligence. Negligence is considered to be the failure to exercise the degree of reasonable care resulting in damage or injury to others. General Liability policies protect against the cost of defending lawsuits and/or payments as the result of bodily injury, property damage, medical expenses, libel or slander.
Most commonly referred to as Errors and Omissions (E & O) Insurance, this type of coverage protects your business against malpractice, error and negligence in the provision of services to your customers. In most states, real estate licensees are required to carry E & O insurance; however, it is worth noting that this mandatory E & O policy will only cover the parts of an auction contract that specifically relates to the sale of real property. There are some insurance companies that do offer E & O coverage for personal property auction transactions.
Property Insurance is to protect against the risk of loss of property from such things as fire, theft, and some weather damage. There are different forms of property insurance. The basic form will cover losses resulting from fire, lightning, wind, hail, and explosion. The broad form is coverage that extends to include such things as a roof collapse from snow or ice; riots or other civil uprisings. Special form coverage covers the above plus other direct physical losses that are not otherwise excluded.
If you operate your business from your home, it is worth noting that homeowners’ policies do not generally cover home-based businesses. This is another consideration to discuss with your insurance agent. It is also important to determine whether your seller, especially a business or corporation maintains adequate General Liability Insurance coverage. In the event an accident takes place at their business location and they lack coverage or have no coverage, you can expect your General Liability policy to be the primary target of the attorneys representing the damaged party.
A Business Interruption policy would cover losses during natural disasters, fires or other catastrophes that may cause a business to shut down for a significant period of time, including the loss of income and business expenses incurred during the shut-down or the rebuilding of the business location.
Key person coverage is akin to life insurance that names the corporation as a beneficiary if an essential or key person dies or is disabled.
Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, and are not engaged in any other occupation.
You should also discuss the following with your insurance agent:
Employee use of vehicle
Worker’s compensation
Coverage for auctions held off premises
Coverage for yourself if you are an independent contractor
Always be very frank with your insurance agent and disclose the exact nature of your auction activities. This will assist your agent in tailoring a commercial policy package to give you the optimum levels of coverage for both your business and your budget. In some cases, your seller (an individual, company or corporation) property owner where the auction is going to be conducted may require the auctioneer/auction company to provide additional coverage or add the seller as additionally insured.
Cyber Security
Cybersecurity is protecting information that a business has stored in a digital or electronic format. Auctioneers, and other business owners, often state that they do not have much information to protect, but in reality all auctioneers do have valuable information stored.
- Sellers’ information
- Bidders’ information
- Employee’s information
- Information about your business
- Vendor information – who your business does business with
- Account numbers
- Marketing or other strategic plans
- Trade secrets
- Financial data and history
Cyber Security Breach
A cybersecurity breach is generally the unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of business or personal information maintained by the business or person.
Steps to Take When There is a Breach
- Secure the business data—The business must take immediate action to stop the breach and secure the data, computers, and network. It is essential to stop the breach and prevent additional data loss. This will generally require an investigation to determine how the breach occurred, determine the size of the breach, and evaluate what data was lost or exposed.
- Fix Vulnerabilities – The business must take appropriate action to strengthen cybersecurity, this could include changing access codes, changing passwords, cutting off access where the breach occurred.
- Mitigation – The business must take any steps to the extent possible to recover the data, limit further exposure, and reduce risks to customers, employees, and vendors.
- Notify Appropriate Parties – Most states have enacted legislation requiring notification of security breaches involving personal information. The business should notify law enforcement, notify individuals who were affected by the security breach, notify individuals who may have been affected by the security breach, and anyone else required by law.
How to Reduce the Risk of a Cyber Security Breach
- Take the risk of security breach seriously – – too many people think it cannot happen to them.
- Get frequent evaluations and assessments of the data, computer system, and network from an expert.
- Update computers, servers, and networks as necessary.
- Talk with an attorney licensed in your state about the risk of security breaches and your obligation in the event of a breach.
- Train employees who use the computers and have access to the network.
- Consider putting together an incident response plan—this is a plan about what to do in the event of a security breach and shows that the business has taken steps to prepare for an incident.