An auction is a manner of selling property by bids, usually to the highest bidder by public competition. The word auction is derived from the Latin auctio meaning 'an increase' and the applicable laws date back to the earliest days of legal record keeping. In Bermuda auctioneers are governed by the Auctioneers Act 1955 that requires the payment of a license fee of $80 by anyone selling items at public auction. The receipt must then be displayed at all auctions in a place 'easily visible to persons attending'. Failure to do so is an offence subject to a fine of $840.

The relationship between the auctioneer and the vendor is one of agent and principal. This means that the auctioneer is able to conclude contracts between the vendor and the purchaser. There are some limits to this, as he may not conclude a sale by private contract even if the offer exceeds a reserve set by the vendor. Further, when auctioneers act for undisclosed principals, they are personally liable to purchasers.

The contract between vendor and purchaser is concluded when the auctioneer bangs his hammer or makes some other indication that the bidding has closed. The auction cannot then reopen. If the auctioneer does this he makes the vendor liable to an action for breach of contract and could be sued himself. Neither is it possible to introduce terms and conditions after the hammer has come down. These must be introduced at any time prior to the close of bidding. It is therefore possible for a purchaser to verbally state some conditions that unless rebutted by the auctioneer, become incorporated into the contract with the vendor. As agent the auctioneer may provide warranties on items sold that are incorporated into the contract of sale. Within certain limits this would be true even if the auctioneer exceeds the authority granted by the vendor.

The auctioneer owes a number of duties to the vendor. He must settle the terms and conditions of sale. It is usual for these terms and conditions to be placed on public view at the auction venue so as to ensure that they bind all those attending. A statement should also be made on any advert that the event will be subject to these terms. The auctioneer must display such skill and knowledge as is reasonably expected from competent auctioneers and he must comply with all applicable customs and laws. He must describe the vendor's property with care to ensure that a proper price is obtained. He may even have to conduct research in order to discharge this duty. In order to safeguard the business of the auctioneer, the law provides that goods that are in his possession may be privileged from distress. This means that a receiver for an insolvent estate may not seize goods belonging to that estate if they are in the possession of an auction house.

A reserve may be placed on an item so that no sale is made unless the bids reach that figure. If, by mistake, the auctioneer brings his hammer down before that figure is met, no sale is made, as the offer made by the purchaser is conditional upon acceptance by the vendor. The only way the auctioneer would be liable is if he did not inform the purchaser that the item was subject to a reserve.

Fraud is usually the most serious offence that can occur during an auction. There are various examples of this. It is a criminal offence for a vendor (or anyone on his behalf) to bid on his own items unless he has publicly reserved the right to do so. An auctioneer also commits an offence if he knowingly takes a bid from such people. The practice of auctioneers taking bids 'off the wall' in order to raise the price is potentially fraudulent and therefore subject to criminal penalties. Having said that, if the purpose in doing so is to raise the price to meet a reserve, it is doubtful that there would be sufficient causation to substantiate such a claim. This one of the tricks of the trade.

If a vendor has a forgery and does not tell the auctioneer this will not absolve him of responsibility. As the auctioneer is his agent a representation made by the auctioneer will bind the vendor and makes him liable to a charge of fraud. Finally, agreements between bidders not to bid on an item are not illegal but maliciously making false statements in order to reduce its value could lead to a claim of malicious falsehood. Whatever method of auction you have dealings with, check that the auctioneer is well established and of good repute; ensure that there are written terms and conditions so that the responsibilities of the parties are clearly stated; and always have regard to the consumers golden maxim - "Buyer Beware"

Graham Wood is an Associate and member of the Telecommunications & Technology Team within Appleby Spurling & Kempe's Corporate/Commercial Department. Copies of Mr. Wood's column can be obtained on the Appleby Spurling & Kempe website at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.