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We’ve previously wrote about auction “consignment” contracts, akin to any type of contract between a seller and auctioneer.

As well, we’ve written about the types of contracts auctioneers enter into, or are materially involved in supervising.

Two such articles can be read here:

First, let’s look at arbitration.

Arbitration is an agreement between parties to a contract where they agree to present their arguments to an arbitrator who decides the dispute. In other words, the parties agree the arbitrator will decide the issue instead of the parties themselves.

Arbitration can be binding or nonbinding:

  • In binding arbitration, the parties agree that the arbitrator’s decision is final, without the option to appeal to a higher authority or court, unless the arbitrator demonstrates fraud or illegal discrimination.
  • In nonbinding arbitration, the parties can reject the arbitrator’s decision, and/or appeal the arbitrator’s decision to a higher authority or court.

While some contracts use nonbinding arbitration, such essentially acts as only a delay to a higher authority or court, rather than a substitute.

More interesting is binding arbitration. And, so our question today: Should auctioneers enter into “consignment” contracts with sellers with binding arbitration?

People generally cite these advantages and disadvantages regarding binding arbitration versus a court case:

Advantages:

  1. Arbitration is typically less expensive than court.
  2. Arbitration usually takes less time than a court case.
  3. Arbitrator(s) customarily have more subject expertise than a judge.
  4. Arbitration is more hidden from public view than a court case.

Disadvantages:

  1. Arbitration merely considers the facts, not legal precedent.
  2. Binding arbitration is just that — binding, without ample opportunities to appeal.

While these advantages and disadvantages are widely considered factual, we don’t feel they represent the central issue for auctioneers.

That central issue is what we like to call, “position.”

Binding arbitration brings the auctioneer and seller to a fairly neutral position. That’s good for the party in a less powerful position, and bad for the party in a more powerful position.

For an auctioneer just starting out, or with limited resources, binding arbitration may be a good contract item as he or she would be in a less desirable position.

However, for an auctioneer with years of experience, and more substantial resources, binding arbitration may be a detrimental contract item with he or she in a more desirable position.

Aaron owns Aaron’s Auction Service, and has only conducted two auctions thus far. He has limited resources, and says,

    “I like binding arbitration, as I have little money to hire an attorney; arbitration keeps my sellers from suing me. I can represent myself in arbitration … a court case scares me.”

Danny owns USA Real Estate Auctions and conducts auctions all over the United States and Canada. He says,

    “I like court being the only option for my clients … court costs money, so it discourages frivolous lawsuits. And, I have attorneys on staff to counter any claims that come our way.”

Lastly, an auctioneer’s business structure (sole proprietorship or partnership versus limited liability company or corporation), insurance coverage and legal resources must be considered before deciding upon the prudence of a binding arbitration clause.

Should auctioneers enter into “consignment” contracts with sellers with binding arbitration? Maybe yes, maybe no.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.