In the landmark United States Supreme Court case Lochner vs. New York, 198 U.S. 45 (1905), the Court held that the “liberty of contract” was implicit in the due process clause of the Fourteenth Amendment.
This case involved a New York law which limited the number of hours bakers could work each day and each week.
The New York law prescribed maximum hours, and the Court ruled that such laws were an:
- “… unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract.”
Justice Rufus Wheeler Peckham, pictured here, delivered the opinion of the Court.
Nearly 30 years later, in Nebbia v. New York, 291 U.S. 502 (1934), the Supreme Court began to allow for increased regulation of economic activity and held there was no constitutionally protected fundamental right to freedom of contract.
Nevertheless, as evidenced by the Supreme Court of the United States — and otherwise — the courts in the United States have long wrestled with balancing economic regulation and the associated public good against the right to privately contract based upon mutual understanding and agreement.
In regard to our topic, we further explore how states deal with both the peoples’ right to contract and their right to govern in regard to paying over net proceeds to clients.
Auctioneers often sell property for others, and when the buyers pay, the money is escrowed in an account for the benefit of the seller. Then, the monies owed the client (minus agreed-to auctioneer fees and expenses) is paid over to the seller.
Basically, one of three governing rules are in place throughout the United States:
- The state dictates that the auctioneer must pay over net proceeds within a certain time frame (Indiana per IC 25-6.1-6-2 for example.)
- The state dictates that the auctioneer must pay over net proceeds within a certain time frame unless the auctioneer and client agree otherwise (Ohio per ORC 4707.024 for example.)
- The state does not dictate any certain time frame for which the auctioneer must pay over net proceeds to the client and thus the issue is entirely between the auctioneer and client (Illinois per 225 ILCS 407 for example.)
It is worth noting too that some states differentiate between real property sales and personal property sales. This makes good sense since some real property auctions require excessive (and often uncertain) time frames to close.
What is important here is that both auctioneers and those utilizing auctioneers’ services know of these (possible) timelines. As well for auctioneers, it is important to know that sometimes state and federal statutes allow for privity of contract, while other state and federal statutes do not.
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. He serves as Adjunct Faculty at Columbus State Community College, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.