, , , , , , , , , , , ,

I shouldn’t be surprised anymore with some suggesting the auctioneer’s terms and conditions can be extraordinarily favorable to the auctioneer, and essentially extraordinarily detrimental to both buyers and sellers. Such is the situation in a case we were recently asked to consult regarding …

Apparently, this auctioneer had (and maybe still has) severe financial penalties in his contract with his seller payable to him — in the event of property withdrawal, misrepresentation, or interference with the auction, such as attempting to watch it take place. Too, his bidder/buyer terms and conditions cite a 10-times bid price penalty due from buyers not paying promptly.

All this might serve well as a bluff — deceitfully convincing sellers or buyers to conform to certain behavior to avoid severe financial hardship. Yet, are such contracts and/or terms and conditions enforceable? They are most likely not.

We need to look no further than David Dennison‘s contract with Stephanie Clifford. That contract — if it’s a contract without David’s signature and accompanying denial — requires Stephanie to pay David $1 million for every violation of the non-disclosure “agreement.” As we write this, David’s attorney is saying that Stephanie owes David $20 million dollars due to this clause in their [non-]contract.

What are almost all the attorneys on television, radio and the Internet saying about those damages? Some are actually laughing at them, because of their excessive nature. In other words, Stephie is very unlikely going to have to pay David [anything] these millions of dollars.

Contract law all across the United States in regard to liquidated damages and terms and conditions otherwise dictates that to be enforceable, such damages would have to be a “reasonable estimate” of the damage to Dennison’s reputation and not “excessive” — and not unfair and therefore an unenforceable penalty.

What? Excessive? Unfair? Inequitable? Indeed. This represents an overall concept with contract creation — equitable, reasonable. Every day in the United States, there are courts throwing out (voiding) contracts because they are not fair, not reasonable, not equitable despite the parties agreeing to the terms.

And, for those who say that we as consumers sign unfair, inequitable contracts all the time … we do. If we had the time and resources could we take these contracts to court to seek relief? We could and we might actually prevail …

As a general rule, contracts which are unconscionable are often voided by courts. Unconscionable terms and conditions in a contract can result when those terms/conditions are oppressive or when the bargaining process or resulting terms shock the conscience of the court.

For example, if there is a gross inequality of bargaining power so the weaker party to the contract has no meaningful choice as to the terms, and the resulting contract is unreasonably favorable to the stronger party, there may be a valid claim of unconscionability. A court will also look at whether the weaker party had the opportunity to ask questions or consult an attorney, and whether the price of the goods and/or services under the contract is excessive.

For decades, we auctioneers have been successful in essentially binding buyers and sellers to unconscionable contracts largely because, “everybody did it” and all auctioneer bidders/buyers/sellers were accustomed to those one-sided terms and conditions. More recently, we’ve moved to being even more unreasonable and I worry that this change will turn people away from auctions; in fact, it already has.

Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and Texas Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.