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Some states and some courts have adopted the Restatement (Second) of Torts § 551 (1965) and as such § 551. Liability For Nondisclosure. As we’ve been asked to review in a pending case, it appears to us to be sound guidance for any jurisdiction.

Here’s § 551. Liability For Nondisclosure:

(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.

(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,

(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and

(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and

(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and

(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and

(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.

It’s all about disclosure, or one might say “Liability for nondisclosure.” What could this mean for an auctioneer? If you are not taking reasonable steps to investigate what you are selling, and ensuring important (material) information is being disclosed to bidders, there could likely be a liability.

Contemporary courts appear more sensitive to the disclosure of information when …

  • The defects are latent versus patent
  • Related to possible bodily injury or property damage
  • Such disclosure would correct previously disclosed information
  • One party relies on the other in regard to trust and/or confidence
  • One party has unequal access to information
  • The transfer involves real property

Auctioneers have been assured that we can sell “as is” (as-is) and “where-is” with absolutely no disclosure of any patent or latent facts about the subject property. Further, we have been repeatedly told that bidders are not entitled to any inspection opportunities regarding the subject property.

In this case, the attorneys involved are satisfied that tort law provides auctioneers disclose material information to bidders either actually (expressly) or constructively (via the bidder’s possible inspection) or face liability for nondisclosure.

However, tort law basically deals with civil liability in non-contract scenarios, although there is some overlap between contract law and tort law; we have consistently held, if the bidder is registered, they are in a contract with the auctioneer concerning the terms and conditions of the auction.

Nonetheless, this plaintiff’s attorneys will argue the material misrepresentation and/or underrepresentation (non-disclosure) took place prior to being bound by any terms of the auction and served as an inducement to register with a lack of (and false) information.

I would encourage every auctioneer in the United States to pay close attention to this aforementioned § 551 and particular attention to the above-bulleted list. It appears to us any lawsuit generally involving nondisclosure of any material facts is certainly favoring the unhappy auction buyer in virtually any courtroom.

Further, the best bidders buying at your auction want information and they presume the auctioneer to be honest, and forthcoming. Even with pre-auction inspection, those bidders expect the auctioneer/seller to further detail any important facts.

More confident, informed bidders bid more — thus providing more in proceeds for your seller. Thus, sellers benefit from more educated bidders. More often than not, that education comes from the auctioneer hired to maximize the seller’s position.

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, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.