When a Gratuitous Agency Exists Between the Bidder and Seller in an Auction Sale, the Bidder has a Duty of Loyalty and Full Disclosure to the Principal (Seller)

In Squire v. Johnson, 35 Va. Cir. 283 (Va. Cir. Ct. 1994), the Virginia Circuit Court of the City of Richmond in deciding whether the bidder could recover the item for which he submitted the highest bid considered whether or not a gratuitous agency was created between the bidder and the seller in this case.  The court found that the bidder could not recover the item because a gratuitous agency existed between the bidder and the seller and the bidder.  

The case involved an action in detinue brought by plaintiff bidder Squire (“Plaintiff”) to recover bench seat that was put up for sale in an auction. Evidence revealed that the Plaintiff suggested to defendant seller (“Defendant”) that she use an auction to dispose of certain items in her deceased father's estate.  Plaintiff also had knowledge about things of value with extensive auction experience.  Plaintiff recommended that the Defendant appoint a certain auctioneer with whom he had long history of previous dealings as a bidder in many auctions. Defendant appointed the said auctioneer and later they entered into a written contract listing the items for the auction sale . This listing did not include the leather bench with enclosed stalls (the main subject of present case). During the auction and bidding proceedings, the leather bench was put for the bid by the auctioneer with the defendant’s acquiescence although it did not appear in the list of items to be sold at auction.  Plaintiff was the top bidder for the leather bench and several other items. However, the Defendant refused to sell the bench seat to Plaintiff and a suit followed. The trial court ruled in Defendant’s favor.  This appeal followed.   

The appellate court analyzed the facts and found that a gratuitous agency existed between Plaintiff and Defendant. According to Restatement (Second) of Agency, § 1 (1958), agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act and Restatement (Second) of Agency, § 2 (1958), One who volunteers services without an agreement for or expectation of reward may be such a fiduciary. Id. at  283. In the present case, solely for Defendant's benefit and with her consent, Plaintiff advised her to hold an auction and volunteered his services in associating her with an auctioneer. The court found that the Plaintiff's voluntary acts for the benefit and on behalf of the Plaintiff rise to the level of creating a gratuitous agency. Id at 284

Court also observed that a gratuitous agency is subject to the same duties to his principal as non-gratuitous agents, including the duties of loyalty and full disclosure when acting adversely to the principal's interests. Plaintiff's actions under the circumstances imply a breach of the duties of loyalty and full disclosure, thus creating a presumption of fraud. The court bases the presumption on the following facts: first, plaintiff possesses expertise that the defendant does not with auctions and the appraisal of items; second, plaintiff and the auctioneer he associated with have a history of previous dealings; third, despite the fact the bench at issue was not listed to be auctioned, the auctioneer nonetheless presented it for bidding at far below its actual value; fourth, plaintiff was aware of the items defendant wanted to sell and may have assisted her in listing items for the auction; and fifth, plaintiff was present bidding and entered the highest bids on several items, knowing the bench did not receive a fair appraisal and was put to sale for inadequate consideration. Id. at 283-284

Appellate court found that Plaintiff’s acts are presumptively fraudulent unless done with the full knowledge, approval, and consent of his principal, the Defendant. In this case, Plaintiff had been Defendant’s agent in setting up the auction and benefited at the Defendant’s expense by his superior knowledge of auctions and the appraisal of items, by his prior association with the auctioneer, and by his knowledge of the items to be sold.

The appellate court found that, under the above discussed circumstances. Plaintiff's actions are presumptively fraudulent unless done with the full knowledge, approval, and consent of his principal, the defendant. There is no evidence of full disclosure by the Plaintiff or consent by the Defendant, therefore the burden of overcoming the presumption of constructive fraud by clear and satisfactory evidence has not been met. 

In view of the above, the appellate court affirmed the trial court’s decision.