It is commonly ruled in courts all over the United States that auctioneers (and other like agents) must disclose all known material facts (and particularly all known latent defects) about property they are charged with selling or otherwise representing.
Further, courts routinely rule that agents acting as a professional cannot purposely avoid knowledge about such property — also known as the “should have known” doctrine.
Our picture here is of a Cadillac HT4100 V8 engine — for those unfamiliar with these particular engines, they tended to severely malfunction — quite often, and after only modest use. General Motors soon after realizing this, replaced these Cadillac engines with 5.7L engines originally made for Oldsmobile.
Our discussion today involves an auctioneer possibly having a 1983 Cadillac with an HT4100 engine. The engine is visibly leaking oily-looking fluid on the ground. Auctioneer notes in the description: “1983 Cadillac Sedan DeVille with only 49,000 Miles!”
The description continues … “Beautiful car, with HT4100 Engine, Auto Trans, AC, Full Power, Good Rubber …”
Picture #49 is of the engine undercarriage clearly showing the oil leak (with actual oil/antifreeze on the outside of the engine.)
To monetize the extent of this HT4100 defect, this car might be worth $5,000 – $6,000 with a 5.7L or other engine, but only $500 or so with this HT4100 engine showing malfunction.
In an online-only auction, the car sells for $5,800. The buyer comes to pickup the car and upon further inspection, notices the oil leak. The buyer is disturbed and asks the auctioneer why this wasn’t disclosed in the car’s description. The auctioneer replies that he took 50 pictures of the car, and picture #49 clearly showed the oil leak.
The buyer says he looked at the pictures — at least most of them — but assumed that if there were any significant problems with this car, that those facts would have been noted in the car’s description — in words, rather than merely by picture.
The buyer essentially says …
You took the time to take 50 pictures, including a picture of the oil leak, but didn’t take the additional few seconds required to note the defect in the text? It seems you didn’t really want me to note the defect?
One would certainly conclude the auctioneer indeed disclosed all known latent defects (if this was the only issue) with picture #49. However, is it good enough to only note this defect by picture, and not in the car’s description?
Is it reasonable to conclude that this defect was not adequately disclosed? Not in the description as all, and the next-to-last picture of 50 …?
I think technically, the defect was disclosed — thus concluding the auctioneer did disclose “all known latent defects.” Yet, how would a court likely rule? I suspect a court would evaluate the reasonableness of the disclosure –and the lack of disclosure otherwise (in earlier pictures and in the textual description.)
However, despite courts routinely supporting the notion of special agency disclosure, there is also the legal notion of the special agent “selling” versus merely “placing in the stream of commerce.” The latter legal theory leans towards the seller (owner) being responsible for disclosure to the bidders, via the auctioneer.
In either courtroom (strictly responsible or not,) it seems in the auctioneer’s interest to expressly disclose at minimum all known latent defects. In this way, the auctioneer earns the confidence of his bidders and buyers, and gives future bidders and buyers reason to have that same confidence.
With this approach an auctioneer’s sellers are better served, and thus a win-win-win situation evolves with sellers-auctioneers-buyers. Is an auction with only a picture of the defect enough? Maybe legally, but not practically.
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.