Rose v. National Auction Group

Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh

Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman

____________________________________________________________________________________________________________________________

FILED JULY 9, 2002

GEORGE ROSE and FRANCES ROSE,

Plaintiffs-Appellees,

v No. 116600

THE NATIONAL AUCTION GROUP, INC,

ANDREW BONE, WILLIAM BONE, DONALD

BOOZER, EDDIE HAYNES and EDDIE

HAYNES, INC.,

Defendants-Appellants,

and

RANDALL R. HALL,

Defendant.

____________________________________

BEFORE THE ENTIRE BENCH

TAYLOR, J.

This case arises from the auction of an island formerly

owned by plaintiffs. In short, plaintiffs contend that

defendants induced plaintiffs, by fraud and misrepresentation,

into surrendering their contractual right to withdraw the

property from the auction by offering and agreeing to use a

false or “shill” bidder at the auction and, thus, plaintiffs

should not have to honor their earlier negotiated contract

with defendants. The trial court granted summary disposition

in favor of defendants on all claims. The Court of Appeals

reversed the judgment of the trial court, holding that some of

plaintiffs’ claims should go forward. Unpublished opinion per

curiam, issued March 7, 2000 (Docket No. 210666). We disagree

and reverse the judgment of the Court of Appeals in part. In

particular, this case implicates the “clean hands” doctrine in

light of plaintiff George Rose’s acknowledged agreement to

engage in an illicit shill bidder scheme.

Plaintiffs George and Frances Rose owned an island in

Lake Huron, known as “Crooked Island,” which they had decided

to sell. Mr. Rose approached defendant National Auction Group

(NAG) through its agent Andrew Bone about selling the island

at an auction. There were extended contacts between Mr. Rose

and representatives of NAG over the course of approximately

one year. Mr. Rose periodically had legal counsel in these

discussions. At one point, William Bone, another of NAG’s

agents, met with Mr. Rose at the island, discussed NAG’s

experiences in selling Lake Huron island property, and told

Mr. Rose that it would be no problem to obtain Mr. Rose’s

desired price of $850,000 for the island.1 To gain

familiarity with NAG’s approaches to the auction process,

during the course of this year, at NAG’s invitation, plaintiff

attended four Michigan property auctions conducted by NAG.

Plaintiffs thereafter signed a one-year listing agreement

with NAG on July 11, 1996. This agreement expressly provided

that the island was to be sold at an auction with no

guaranteed minimum selling price, a circumstance that is also

described as an absolute auction with no reserve. The

agreement stated:

The National Auction Group, Inc. will sell the

Property at absolute auction with no minimums or

reserves. The Property will be sold to the highest

bidder(s) regardless of the bid price and Seller

understands and acknowledges that he relinquishes

any right to place any minimum or reserve on the

bidding with respect to the property.2

The agreement qualified this submission to auction by

providing that Mr. Rose “has [the] right to withdraw property

1
Our recitation of the facts either presents such facts

as are undisputed or, in case of a dispute, attempts to

present the disputed matters in a light favorable to

plaintiffs. We use this approach because in reviewing a

decision on a motion for summary disposition brought by

defendants, we are required to consider the factual record in

a light most favorable to plaintiffs. Quinto v Cross & Peters

Co, 451 Mich 358, 362; 547 NW2d 314 (1996). We also note that

all the individual defendants who are parties to this appeal

were apparently employees or other agents of NAG.

Notably, an alternative paragraph in the form used to

draft the contract that contemplated the possibility of a

seller setting a “reserve” or minimum selling price for the

auction was crossed-out.

prior to auction.” As to any guarantee concerning the

ultimate selling price, the agreement included an

acknowledgment that NAG “has made no representations or

promises as to the price that may be bid at the auction and

. . . has in fact stated it has no opinion as to the value of

the property or of the price it will bring at the auction

sale.” Finally, the listing agreement at two points included

language that specifically precluded oral modifications of the

agreement.

Eventually, after the circulation of brochures announcing

the auction by NAG (which advertised that the auction would be

an “absolute auction,” i.e., a “no reserve auction” without

any set minimum bid3), the contemplated auction was held. At

the auction, Mr. Rose was concerned that only five bidders,

including those participating by telephone, had registered,

and he indicated to William Bone that he wanted to withdraw

the property from the auction as was his right under the

agreement. William Bone, in an attempt to reassure, told Mr.

Rose that the auction could go forward, but that he did not

need to be concerned that the price would be less than he

The cover page of the brochure, which also included

listings for the auctioning of other property besides the

island presently at issue, was entitled “Absolute Auction.”

Further, in the part of the brochure with a relatively

detailed description of Crooked Island, it was expressly

stated, “Selling regardless of price.”

wanted. The reason was that if the bidding was too low, a

NAG shill would make a phony bid. Only NAG agents and Mr.

Rose would know the bid was not to actually buy the property,

but instead to deprive the true high bidder of the property.

Notwithstanding the obvious perfidy of this scheme, Mr. Rose

agreed to it and, accordingly, the auction proceeded.

As the auction proceeded, bids were few and were stalled

at $175,000. At this point, a recess was called. Mr. Rose

then met with the NAG representatives, saying that $175,000

was unacceptable and that he wanted at least $850,000 for the

island. For their part, the NAG representatives attempted to

convince Mr. Rose that $175,000 was a fair bid, but he did not

agree and directed NAG to reconvene the bidding and implement

the shill bidder scheme. Once reopened, whether through

bungling or yet more chicanery, the promised NAG shill did not

enter the bidding and, thus, the bidding closed at $175,000.

Mr. Rose was, needless to say, dismayed with this outcome, but

did eventually sign a purchase agreement for the sale of the

property for $175,000 plus a six percent auction fee to be

paid to NAG by the high bidder.4 Mr. Rose now seeks to use

Mrs. Rose refused to sign the purchase agreement, but

the Court of Appeals has held that her refusal did not

invalidate the agreement. The propriety of that ruling is not

before us.

the courts to settle the score with his unfaithful

confederates.

Plaintiffs filed this suit against NAG and the affiliated

individual defendants, essentially seeking reimbursement for

the commissions paid to them pursuant to the listing agreement

as well as damages to put them in the place they would have

been had the shill performed. Plaintiffs alleged two types of

claims.5 The first were “precontract” claims of fraud,

misrepresentation, and breach of fiduciary duty covering the

time before the execution of the listing agreement. The

second were “postcontract” oral claims springing out of the

shill scheme agreed to at the auction. These also sounded in

fraud, misrepresentation, and breach of fiduciary duty, and

asked the trial court to act in equity to void the purchase

agreements and to divest NAG of the commission paid to it.

Defendants moved for summary disposition under MCR

2.116(C)(7) and (10). Defendants argued that the alleged

precontract representations were not actionable because they

were mere “puffing” as was made clear by the fact that the

listing agreement, not once, but twice specifically disclaimed

that defendants had made any representations concerning the

Plaintiffs also named Randall Hall, the good-faith

purchaser of the property, as a defendant. However, Hall’s

motion for summary disposition was granted, and he was

dismissed from the suit. Plaintiffs do not raise any claims

with respect to Hall in this appeal.

value of the property or the price at which it might sell.

Regarding the postcontract claims, defendants argued that any

oral agreement alleged by defendants would contravene the “no

oral modification” clause of the written agreement as well as

the applicable statute of frauds. Defendants further argued

that because the use of shill bidders was illegal that

plaintiffs should not be able to invoke the court’s equity

powers to enforce this illegal contract.

The trial court ruled in favor of defendants, holding

that with respect to the precontract claims, the express

language of the written agreement and the accompanying

disclaimer specifically refuted those claims and that the

precontract statements allegedly made by defendants

“constitute either puffing, mere opinion, or are statements

pertaining to future events . . . .” Regarding the

postcontract claims, the trial court held that the oral

understanding allegedly arrived at by the parties was illegal

because it would require the use of false bidders, it would be

in violation of the statute of frauds, and it would violate

the written agreement that specifically required any changes

to be in writing and signed by the parties.

A unanimous Court of Appeals affirmed the trial court

regarding the “precontract” claims, but, by a two-to-one vote,

reversed regarding the “postcontract” claims. As to the

postcontract claims, the majority essentially concluded that,

while the oral agreement contemplating the use of a shill

bidder was void as against public policy, this did not

necessarily preclude plaintiffs from maintaining an action for

fraud or misrepresentation or for negligence or breach of

fiduciary duty in order to recover certain types of damages

from defendants. The Court further reinstated certain claims

by plaintiffs related to defendants’ efforts in publicizing

and conducting the auction. We granted defendant’s

application for leave to appeal regarding generally the

postcontract issues.

This case arises from the trial court’s grant of summary

disposition in favor of defendants under MCR 2.116(C)(10). We

review this issue de novo. Maiden v Rozwood, 461 Mich 109,

118; 597 NW2d 817 (1999). In reviewing such a decision, we

consider the affidavits, pleadings, depositions, admissions,

and other documentary evidence submitted by the parties in the

light most favorable to the party opposing the motion. Quinto

v Cross & Peters Co, 451 Mich 358, 362; 547 NW2d 314 (1996).

Summary disposition under MCR 2.116(C)(10) is appropriately

granted if there is no genuine issue regarding any material

fact and the moving party is entitled to judgment as a matter

of law. Id.

III

Before us then are the “postcontract” claims.

Plaintiffs, in their fraud and misrepresentation claims are

seeking, by the invocation of the court’s equity powers, to

retrospectively revoke their obligations to NAG under the

written contract for the holding of the auction. That is,

they argue they would have canceled the auction had it not

been for the lure of the shill bidder scheme.

Yet, Mr. Rose’s reason for not canceling the auction was

because he chose to enter into an agreement with NAG to

surreptitiously deprive the bidders of the no reserve auction

that had been advertised. It cannot be doubted that even

those with no business world experience would understand that

it is wrong to advertise one thing and then secretly plot to

never deliver on the promises. Our law follows this norm as

it is undisputed that the use of a “shill” or false bidder

unbeknown to the sincere bidders at an auction is contrary to

our public policy. Under common-law principles articulated

long ago, agreements to stifle competitive bidding are

generally contrary to public policy. See Detroit Trust Co v

Agozzinio, 280 Mich 402, 405; 273 NW 747 (1937); Leland v

Ford, 245 Mich 599; 223 NW 218 (1929).6 Given improper

To similar effect, see MCL 446.58, wherein the

Legislature banned the use of shills in personal property

auctions.

conduct by Mr. Rose, plaintiffs’ equitable claims of fraud and

misrepresentation7 are barred by the bedrock principle that

the preservation of the integrity of the judicial system means

no court acting in equity can allow its conscience to be moved

to give such a plaintiff relief. Indeed, the maxim that one

“who comes into equity must come with clean hands” is “the

expression of one of the elementary and fundamental

conceptions of equity jurisprudence.” 2 Pomeroy’s Equity

Jurisprudence, ch I, p 90, § 398, 92 (1941). The courts of

this state have held similarly. Justice Cooley wrote for a

unanimous Court in Rust v Conrad, 47 Mich 449, 454; 11 NW 265

(1882):

[I]f there are any indications of overreaching

or unfairness on [an equity plaintiff’s] part, the

court will refuse to entertain his case, and turn

him over to the usual remedies.

Writing even more pointedly and echoing Pomeroy, we have

reiterated this rule more recently, stating in a succinct

formulation of the doctrine “that one who seeks the aid of

equity must come in with clean hands.” Stachnik v Winkel, 394

Mich 375, 382; 230 NW2d 529 (1975), quoting Charles E Austin,

Inc v Secretary of State, 321 Mich 426, 435; 32 NW2d 694

(1948). The Stachnik Court aptly described the scope and

See Flood v Welsh, 334 Mich 583, 591-592; 55 NW2d 104

(1952) (describing the cancellation of an executed contract on

the basis of fraud as a power of a court of equity).

purpose of the clean hands doctrine as

“a self-imposed ordinance that closes the doors of

a court of equity to one tainted with

inequitableness or bad faith relative to the matter

in which he seeks relief, however improper may have

been the behavior of the defendant. That doctrine

is rooted in the historical concept of the court of

equity as a vehicle for affirmatively enforcing the

requirements of conscience and good faith. This

presupposes a refusal on its part to be ‘the

abettor of iniquity.’ Bein v Heath, [47 US] 6 How

228, 247 [12 L Ed 416 (1848)].” Precision

Instrument Manufacturing Co v Automotive

Maintenance Machinery Co, 324 US 806, 814; 65 S Ct

993; 89 L Ed 1381 (1944). [Id., at 382 (emphasis

added).]

Further, relevant to the instant case, the clean hands

doctrine has been applied to deny equitable relief to parties

to a fraudulent contract:

If a contract has been entered into through

fraud, or to accomplish any fraudulent purpose, a

court of equity will not, at the suit of one of the

fraudulent parties,—a particeps doli,—while the

agreement is still executory, either compel its

execution or decree its cancellation, nor after it

has been executed, set it aside, and thus restore

the plaintiff to the property or other interests

which he had fraudulently transferred. [2 Pomeroy

supra, § 401, p 105.][8]

Unquestionably, the most famous illegal purpose

contract case is the legendary and perhaps supposititious

“highwayman’s case,” that generations of law students have

trained on. There, one criminal unsuccessfully attempted to

invoke equity to sue another for a share of their ill-gotten

booty. Our Court in 1956 discussed this case, quoting from

Pothier on Obligations, in a fashion that cannot be improved

upon, as follows:

“There is a tradition that a suit was

instituted by a highwayman against his companion to

account for his share of the plunder, and a copy of

Accordingly, while plaintiffs emphasize the alleged improper

behavior of defendants in devising the shill bidder scheme and

using it to induce Mr. Rose to continue with the auction, this

does not change the fact that plaintiffs are barred as a

matter of law by the clean hands doctrine from advancing their

equitable claims of fraud and misrepresentation in connection

with that scheme.

In concluding that plaintiffs’ fraud and

misrepresentation claims in connection with the shill bidder

scheme were not barred as a matter of law, the Court of

Appeals concluded that “an issue of fact exists whether

plaintiffs reasonably relied on . . . defendants’

the proceedings has been published as found amongst

the papers of a deceased attorney. It was a bill

in the Exchequer, which avoided stating in direct

terms the criminality of the engagement, and is

founded upon a supposed dealing as copartners in

rings, watches, et cetera, but the mode of dealing

may be manifestly inferred. The tradition receives

some degree of authenticity, by the order of the

court being such as would in all probability ensue

from such an attempt. The order was, that the bill

should be dismissed with costs for impertinence,

and the solicitor fined 50£. The printed account

is accompanied by a memorandum which states the

particular times and places where the plaintiff and

defendant were afterwards executed.” [Manning v

Bishop of Marquette, 345 Mich 130, 133-134; 76 NW2d

75 (1956), quoting 2 Evans’, Pothier on Obligations

(3d Am ed), pp 2,3.]

Fortunately for the present parties, Michigan law tends to be

far less harsh than the early common law in England.

representations that they would use a false bidder to prevent

plaintiffs’ property from being sold below their minimum

price.” In this regard, the Court noted that plaintiffs

contended that they were unaware that use of a false bidder

was illegal. While acknowledging the general rule that

ignorance of the law cannot prevent its enforcement, the Court

stated that “when a mistake of law is predicated on an

affirmative misrepresentation by one who acts in a fiduciary

capacity, the law is more forgiving.” The Court quoted the

following from Tompkins v Hollister, 60 Mich 470, 480; 27 NW

651 (1886), in support of this analysis:

It is true . . . that mistakes of law cannot

usually be a ground of relief, when standing alone.

The current of authority runs in that direction

most strongly, although in some states even such

relief has been granted.

But it is also true that there are cases of

fraudulent misrepresentations or concealments of

matters of law by those holding confidential

relations to the person wronged thereby which

equity will relieve against. Where one relies upon

another, and has a right to so rely, and the person

relied upon omits to state a most material legal

consideration within his knowledge, of which the

other is ignorant, affecting his rights, and the

person thus ignorant acts under this misplaced

confidence and is misled by it, a court of equity

will afford relief, especially if such action is to

the advantage of the person whose advice is taken,

even though no fraud was intended[.] [Emphasis

added.]

We conclude that, in its consideration of Tompkins, the

Court of Appeals failed to appropriately consider the

emphasized language that allows a claim of fraud or

misrepresentation related to a point of law only where the

plaintiff “has a right to so rely” on the advice.9 Stated

more plainly, a person cannot avoid the clean hands doctrine

by “relying” on advice or inducement to engage in a course of

conduct where it is plainly evident that the conduct is

illegal or unethical. We note the following from 3 Pomeroy,

supra, § 891, pp 509-510:

Any representation, in order that one may be

justified in relying upon it, must be, in some

degree at least, reasonable; at all events, it must

not be so self-contradictory or absurd that no

reasonable man could believe it.

Moreover, even underhanded conduct that does not rise to the

level of being legally prohibited can nevertheless require

application of the clean hands doctrine:

Misconduct which will bar relief in a court of

equity need not necessarily be of such nature as to

be punishable as a crime or to constitute the basis

of legal action. Under this maxim, any willful act

in regard to the matter in litigation, which would

be condemned and pronounced wrongful by honest and

fair-minded men, will be sufficient to make the

hands of the applicant unclean. [2 Pomeroy, supra,

§ 404, p 143.]

It appears that no previously reported Michigan case squarely

addresses the point, but we believe our conclusion that a

party has no right to rely on advice to engage in blatantly

In light of our analysis, it is unnecessary to decide

whether defendants actually owed any fiduciary duties to

plaintiffs.

unethical conduct is in harmony with our equity

jurisprudence.10 We believe that this is a reasonable rule.

While it is appropriate for a party to secure the services of

an expert for advice about legal, technical, or complex

matters, we see no reason that the explicit or implicit advice

of such an expert should allow a party to violate basic

ethical norms that are obvious to any sentient person. Thus,

contrary to the possible implication of the Court of Appeals

opinion, even if a party fails to appreciate the illegality of

certain conduct, that does not necessarily preclude the fact

that the party engaged in such conduct from requiring

application of the clean hands doctrine.

In sum, the clean hands doctrine bars the present claims.

No person capable of understanding the advertising that Mr.

Rose caused to be published, as Mr. Rose certainly was, could

have felt that the use of a shill bidder was ethically

acceptable conduct. Thus, application of the clean hands

doctrine is justified because the claims in question are

inextricably tied to Mr. Rose’s agreement to a fraudulent

See Stachnik, supra (denying equitable relief to

parties who misrepresented facts related to a purported

purchase agreement on the basis of the clean hands doctrine);

Isbell v Brighton Area Schs, 199 Mich App 188; 500 NW2d 748

(1993) (holding that, under the clean hands doctrine, the

plaintiff was not entitled to the equitable relief of ordering

the school district to issue a high school diploma where she

was denied a diploma on the basis of unexcused absences from

school and that she had forged excuse notes).

shill bidder scheme, and Mr. Rose will not be heard to claim

he had a right to rely on advice that he and NAG could get

together to swindle the very individuals they had advertised

to attract. In the trenchant and stinging words of Justice

Smith in Manning v Bishop of Marquette, 345 Mich 130, 131; 76

NW2d 75 (1956), “A rogue does not appeal to our conscience.”

Justice Cavanagh agrees with our rejection of plaintiffs’

equitable claims, but finds it anomalous that, given the

defendants’ alleged initiation of the treacherous agreement at

the auction, NAG will nevertheless be able to retain its

commission secured from plaintiffs’ proceeds for the sale of

the island. While this is an understandable reaction, the

reflective answer is that, unlike plaintiffs, NAG’s

entitlement to the commission is based in law rather than

equity and, thus, the clean hands doctrine, which is only

relevant in equitable actions, cannot be invoked to deny NAG

its commission from the completed sale. Finally, Justice

Cavanagh discusses doctrines asserted to be applicable to NAG

that would preclude its entitlement to a commission because

the commission was the product of an illegal contract. This

argument is off-target, however, inasmuch as the commission

derives from the initial auction contract, which all

acknowledge was legal, rather than the later “shill bidder”

agreement, which was not. Accordingly, in our view, Justice

Cavanagh’s conclusions predicated on the illegal contract

doctrine are unpersuasive because they misapprehend the origin

of NAG’s entitlement to the commission.11

The Court of Appeals also reversed the trial court’s

grant of summary disposition in favor of defendants on the

basis of plaintiffs’ claims of negligence and breach of

fiduciary duty in connection with defendants’ conduct in

suggesting the shill bidder scheme. However, we conclude that

the trial court correctly granted summary disposition in favor

of defendants on these claims.

With regard to the negligence claim, a necessary element

to establish such a claim is showing breach of a duty owed to

the plaintiff. Case v Consumers Power Co, 463 Mich 1, 6; 615

NW2d 17 (2000). In allegedly suggesting the shill bidder

scheme, defendants did not breach any duty to plaintiffs. The

public policy against secretly stifling competitive bidding at

an auction is obviously for the protection of sincere bidders

We are also unpersuaded by Justice Weaver’s partial

dissent. While she would mitigate the straightforward

application of the clean hands doctrine, we believe that, even

assuming the doctrine she invokes should be recognized in this

state, Mr. Rose and NAG were of substantially equal moral

fault with regard to the alleged shill bidder scheme (assuming

as we must for present purposes that such a scheme was

actually devised). They mutually agreed to a scheme that was

blatantly fraudulent in seeking to deceive legitimate bidders

and, accordingly, we see no reason to depart from the clean

hands doctrine in this case.

at the auction, not for the protection of sellers who may be

willing to engage in such a scheme. Further, it cannot be

said that there was any breach of duty in defendants’

“failure” to follow through with the alleged shill bidder

scheme because there cannot be a legal duty to commit an

illegal act. While we would agree with the partial dissent

that, as a general proposition, an auctioneer owes a basic

duty of competence and fairness to a seller, this duty does

not extend to protecting a seller against its own willingness

to engage in fraudulent conduct. Thus, plaintiffs’ negligence

claims fail because there is no evidence of a requisite breach

of duty to plaintiffs.

Plaintiffs’ breach of fiduciary duty claim must likewise

fail. A breach of fiduciary duty claim requires that the

plaintiff “reasonably reposed faith, confidence, and trust” in

the fiduciary. Beaty v Hertzberg & Golden, PC, 456 Mich 247,

260; 571 NW2d 716 (1997) (emphasis added). For the reasons

discussed in the preceding section of this opinion, plaintiffs

could not reasonably have believed that it was appropriate to

engage in a shill bidder scheme or reasonably have expected

that they were legally entitled to have defendants follow

through with such an illegal scheme. Thus, the evidence does

not support plaintiffs’ breach of fiduciary duty claim

regardless of whether defendants actually owed any fiduciary

duties to plaintiffs.12

The Court of Appeals in conclusory terms also reinstated

other claims of negligence and breach of fiduciary duty

brought by plaintiffs. These claims amount to allegations

that plaintiffs did not adequately publicize and conduct the

auction. However, plaintiffs failed to provide evidence of

how specifically defendants were allegedly deficient in this

regard. It is not enough to create a genuine issue of

material fact to provide conclusory statements that a duty was

breached. See Quinto, supra at 371-372 (holding that an

affidavit that provided “mere conclusory allegations and was

devoid of detail” was insufficient to avoid summary

disposition under MCR 2.116(C)(10)). Thus, we conclude that

the trial court properly granted summary disposition in favor

of defendants on these claims.

The decision of the Court of Appeals in this case is

reversed in part to the extent that it is inconsistent with

Because it is unnecessary to the resolution of this

case, we respectfully decline to address the partial dissent’s

conclusions regarding the scope of the fiduciary duties that

auctioneers owe to their principals. Whatever those duties

may be, plaintiffs still cannot have a cognizable claim for

breach of fiduciary duty under these circumstances because

they could not reasonably have relied on the shill bidder

scheme.

this opinion. The circuit court’s orders granting summary

disposition in favor of defendants on the relevant claims are

reinstated.

CORRIGAN , C.J., and YOUNG and MARKMAN , JJ., concurred with

TAYLOR , J.

S T A T E O F M I C H I G A N

SUPREME COURT

GEORGE ROSE and FRANCES ROSE,

Plaintiffs-Appellees,

v No. 116600

THE NATIONAL AUCTION GROUP,

INC., ANDREW BONE, WILLIAM BONE,

DONALD BOOZER, EDDIE HAYNES, and

EDDIE HAYNES, INC.,

Defendants-Appellants,

and

RANDALL R. HALL,

Defendant.

___________________________________

CAVANAGH, J. (concurring in part and dissenting in part).

The majority holds that plaintiffs’ equitable claims are

barred by the clean hands doctrine and in so doing affirms the

trial court’s order awarding the commission to defendants.

The majority also holds that plaintiffs’ negligence claim must

fail because no duty to conduct the auction in a negligent

free fashion was owed to plaintiffs, and that plaintiffs’

breach of fiduciary duty claim cannot stand because it was

unreasonable as a matter of law for the plaintiffs to believe

defendants would execute an unlawful scheme. I agree that

plaintiffs are barred from recovery on their equitable

contract claims asserting fraud and misrepresentation.

However, I would reverse the trial court’s award of

commission. Further, I think it is clear that defendants owed

a fiduciary duty to plaintiffs and thus the negligent

auctioneer claim should not be dismissed. Therefore, I

respectfully dissent.

Plaintiffs’ claims arise from a contract that is void as

against public policy. Courts may grant one party restitution

even though such an agreement violates public policy. II

Farnsworth, Contracts, § 5.9, pp 75-76. This is rare because

courts often leave parties as they find them when they enter

into an illegal contract. Exceptions are made (1) where

forfeiture would disproportionately affect a party whose

conduct does not warrant such a harsh result, (2) where a

claimant may be excusably ignorant of facts that the other

party is not, or (3) where the parties are not equally wrong.

Id. at 76-78. I agree with these principles and would hold

that the parties should be left where the courts found them.

Because this is an illegal contract, I would reverse the trial

court’s award of $29,050 in commission to defendants. It is

not just to deny all relief to plaintiffs and simultaneously

award the defendants their commission when they are arguably

more culpable than the plaintiffs, if the alleged facts are

found true. The defendants allegedly tricked their principal

(the plaintiffs) by concocting an illegal shill scheme. That

the defendants failed to execute the alleged scheme does not

make them less culpable. The majority attempts to do justice

by applying principles of equity, but fails by dismissing the

effect of the trial court’s decision to order payment of the

commission.1 Therefore, I would hold that the trial court

abused its discretion in awarding the defendants their

commission.

If the defendants wish to file an action to recover the

commission, a factfinder must first determine whether the

alleged shill scheme was used to induce the plaintiffs to go

forward with the auction. If the evidence presented convinces

the factfinder that defendants acted unlawfully or without

good faith, the defendants’ claim for commission should be

barred.

The majority erroneously concludes that the second

agreement is wholly separate from the original contract, and

that the original contract remains legally enforceable and

untainted by the shill scheme. This ignores the fact that, as

a result of the alleged shill offer, Mr. Rose refrained from

exercising his right to withdraw his property from the auction

as permitted by the original contract. To conceive of the

parties’ agreements separately fails to recognize the true

nature of the alleged shill offer and leads to an unjust

result.

The majority confidently asserts no duty is owed to

plaintiffs because the public policy prohibiting shill bids is

concerned only with the treatment of bidders. This

proposition erroneously assumes the auctioneer’s duty is

exclusive.

Under Michigan law, a fiduciary relationship will arise

“only when there is a reposing of faith, confidence and trust

and the placing of reliance by one upon the judgment and

advice of another.” In re Jennings Estate, 335 Mich 241, 244;

55 NW2d 812 (1952). Other courts have applied this

fundamental concept to hold that auctioneers owe fiduciary

duties to their principals. In Cristallina, SA v Christie,

Manson & Woods Intl, Inc, 117 AD2d 284, 292; 502 NYS2d 165

(1986), the court held:

The auctioneer is the agent of the consignor.

As an agent, Christie’s had a fiduciary duty to act

in the utmost good faith and in the interest of

Cristallina, its principal, throughout their

relationship. When a breach of that duty occurs,

the agent is liable for damages caused to the

principal, whether the cause of the action is based

on contract or on negligence. [Citations

omitted).]

Similarly, in Greenwood v Koven, 880 F Supp 186, 194 (SD NY,

1995) citing, inter alia, Restatement 2d, Agency, ch 1, § 13

(1958) (“An agent is a fiduciary with respect to matters

within the scope of his agency”), the court held:

To begin with, it is indisputable that

Christie’s acted in the capacity of an agent on

behalf of Koven. It is also clear that an agent

such as Christie’s is required under the law to act

in a fiduciary capacity on behalf of its principal.

Several treatises assert the same.

It is also the duty of the auctioneer to

maintain and exercise the utmost loyalty and good

faith to his principal. He must not acquire or

have antagonistic interests. He must not deal with

the property on his own account without his

principal’s full knowledge and consent. He must

not avail himself of his situation to make profit

for himself at his principal’s expense, and he must

give the principal timely notice of any matters

coming to his knowledge material for the principal

to know for the protection of his interests. [2

Mechem, Agency (1914), § 2334, p 1918.]

Another class of agents are Auctioneers, of

whom I shall merely observe here, that they are

considered as agents for both parties, so that

writing down the name of a purchaser at a sale is

sufficient memorandum within the statute of frauds,

and binds both buyer and seller. But this must be

taken secundum subjectam materiam; for though he is

agent to some purposes, he is not so to all. He is

an agent to each party in different things, but not

in the same things. When he prescribes the rules

of bidding, and the terms of the sale, he is the

agent of the seller; but when he puts down the name

of buyer, he is agent for him only. [1 Livermore,

Principal & Agent and Sales by Auction, (1986

reprint), p 77 (emphasis added).]

According to these principles, it is clear that an auctioneer

has the power to bind the seller while exercising total

control over the seller’s property interest during the

auction. Thus, an auctioneer’s powers provide him with a

significant amount of control and discretion, creating a duty

on the part of the auctioneer to act with loyalty and in good

faith toward his principal. Therefore, with regard to matters

within the scope of their relationship, the defendants owed a

duty to the plaintiffs.

Unlike the majority, I cannot conclude as a matter of law

that the plaintiff did not reasonably rely on the defendants

to lawfully and in good faith communicate with him about the

impending auction. After learning of plaintiff’s intention to

withdraw the property from the auction block, the defendants

allegedly induced the plaintiff to go forward by offering to

illegally rig the event. Thus, I would permit the trier of

fact to determine the reasonableness of Mr. Rose’s reliance on

the alleged offer.

The holding of the Court of Appeals on the negligence

claim should, therefore, be affirmed. Nonetheless, the wisdom

of pursuing the issue rests with the plaintiffs as they should

consider the effect of comparative negligence on their claim.

III

For the reasons stated above, I would reverse the trial

court’s order awarding defendants’ commission. In addition,

I would affirm the judgment of the Court of Appeals reversing

the trial court’s order granting summary disposition to

defendants on the negligent auctioneer claim. In all other

respects, I concur with the majority.

KELLY , J., concurred with CAVANAGH , J.

S T A T E O F M I C H I G A N

SUPREME COURT

GEORGE ROSE and FRANCES ROSE,

Plaintiffs-Appellees,

v No. 116600

THE NATIONAL AUCTION GROUP,

INC., ANDREW BONE, WILLIAM BONE,

DONALD BOOZER, EDDIE HAYNES, and

EDDIE HAYNES, INC.,

Defendants-Appellants,

and

RANDALL R. HALL,

Defendant.

___________________________________

WEAVER, J. (dissenting in part).

I respectfully dissent in part from the majority opinion

because I would grant the plaintiffs limited equitable relief.

Specifically, I would not require plaintiffs to pay the

defendants a ten-percent commission and six-percent auction

fee, totaling $29,050.

I agree with the majority that we must respect the usual

rule that “who comes into equity must come with clean hands”.

The general rule is that when two parties are in pari delicto,

both involved in an illegal or fraudulent transaction, the

court will not grant the plaintiff relief. However, that

rule is not meant to be applied inflexibly. In the

exceptional circumstances of this case, the Court should apply

the equitable principle that when both parties were involved

in the fraudulent or illegal transaction, “the one whose wrong

is less than that of the other may be granted relief in some

circumstances.” 27A Am Jur 2d § 132. It has long been

recognized that the courts may interfere from motives of

public policy. “Whenever public policy is considered as

advanced by allowing either party to sue for relief against

the transaction then relief is given to him.” Hobbs v

Boatright, 195 Mo 693; 93 SW 934, 938 (1906)1. See also Grim

v Cheatwood, 208 Okla 570; 257 P2d 1049 (1953)2 and Baltimore

In Hobbs, the defendants enticed plaintiff to enter

into a scheme to defraud other persons in a rigged footrace.

Plaintiff agreed to the scheme, put up $6,000, and ultimately

discovered that he had been the victim of the swindle. The

court took notice that this was an ongoing fraud by the

defendants, not a unique event. The court held that even

though the plaintiff had participated in an illegal contract,

plaintiff would be allowed to sue for relief.

Plaintiff was induced to enter into a pretended and

fixed poker game, with marked cards, planned by defendants and

his confederates. Plaintiff was thus defrauded of a sum of

money, and executed mineral deeds in satisfaction of the loss.

When plaintiff discovered the fraud, he brought an action to

cancel the deeds. The court allowed the plaintiff to proceed

in equity because the parties were not in pari delicto, and

“equity will intervene in the protection of one less guilty,

notwithstanding his unclean hands.” Grim, supra, p 572.

& O R Co v Carman, 71 Ohio App 508; 50 NE2d 358 (1942)3.

Here the defendants moved for summary disposition under

MCR 2.116(C)(7) and (10). Thus, all reasonable factual

inferences should be drawn in plaintiffs’ favor. Considering

the pleadings in the light most favorable to the plaintiffs,

one can conclude that the defendants did indeed induce the

plaintiffs to enter into the illegal shill bidding scheme, and

that the defendants did so for their own purposes. Given that

defendants instigated the illegal scheme, it would be unjust

to allow defendants to receive the auctioneer’s fee and

commission that were gained by their wrongdoing. Accordingly,

I would reverse the order of summary disposition to allow the

plaintiffs the opportunity to pursue limited equitable relief,

to the extent of not requiring plaintiffs to pay the

commission and auctioneer’s fee. I would do this not because

the plaintiffs deserve the relief, but because the defendants

should not be allowed to profit from their shenanigans. Any

other result would reward the defendants for enticing the

plaintiffs into the shill bidder scheme.

In Baltimore & O R Co, p 513, plaintiff brought an

action to quiet title. Where plaintiff’s failure to have the

leased lands transferred to its name contributed more to

causing the delinquent tax land sale than defendant’s failure

to act expeditiously in securing and recording a deed to

himself, the court awarded defendant equitable relief, relying

on the rule that “[i]f the parties appear not to have been in

pari delicto, the one whose wrong is less than that of the

other may be granted relief in some circumstances.”

Therefore, I would reverse the Court of Appeals in part

and hold that if the trier of fact finds that the defendants

induced the plaintiffs to participate in the shill bidder

scheme, the plaintiffs should be given limited equitable

relief to ensure that the defendants do not profit from their

bad acts. In all other respects I concur in the result of the

majority.

Rose v. National Auction Group

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