GEORGE ROSE V NATIONAL AUCTION GROUP
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STATE OF MICHIGAN
COURT OF APPEALS
GEORGE ROSE and FRANCES ROSE,
UNPUBLISHED
March 7, 2000
Plaintiffs/Counter DefendantsAppellants,
v
No. 209582
Alpena Circuit Court
LC No. 96-002148-CH
NATIONAL AUCTION GROUP,
Defendant/Counter Plaintiff,
and
ANDREW BONE, WILLIAM BONE, DONALD
BOOZER, EDDIE HAYNES, and EDDIE HAYNES,
INC.,
Defendants,
and
RANDALL R. HALL,
Defendant/Counter Plaintiff-Appellee.
GEORGE ROSE and FRANCES ROSE,
Plaintiffs/Counter DefendantsAppellants,
v
No. 210666
Alpena Circuit Court
LC No. 96-002148-CH
NATIONAL AUCTION GROUP,
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Defendant/Counter Plaintiff-Appellee,
and
ANDREW BONE, WILLIAM BONE, DONALD
BOOZER, EDDIE HAYNES, and EDDIE HAYNES,
INC.,
Defendants-Appellees,
and
RANDALL R. HALL,
Defendant/Counter Plaintiff.
Before: Holbrook, Jr., P.J., and Zahra and J.W. Fitzgerald,* JJ.
PER CURIAM.
In this real estate auction case, plaintiffs/counter defendants appeal as of right from the trial
court’s separate orders granting summary disposition under MCR 2.116(C)(10) to defendants National
Auction Group, Andrew Bone, William Bone, Donald Boozer, Eddie Haynes, and Eddie Haynes, Inc.
(hereafter referred to collectively as the “Auction Group defendants”), and to defendant Randall R.
Hall. The trial court entered judgment in favor of Hall on his counterclaim for specific performance of
certain real property conveyance instruments, and also awarded sanctions of $10,000 on the basis that
certain claims asserted against him by plaintiffs were frivolous. The trial court also entered judgment in
favor of the National Auction Group on its counterclaim for its commission and auction fee in the
amount of $29,050. This Court ordered plaintiffs’ separate appeals consolidated.
I. Facts and Proceedings
In 1969, plaintiffs George and Frances Rose purchased a 73-acre island in Lake Huron,
commonly called Crooked Island. Since that time, the Rose family has used the island as a vacation
retreat. In the summer of 1995, after reading an article in the newspaper about the National Auction
Group, an auction company located in Alabama that was then in the process of preparing to auction
another island property in Michigan, George Rose contacted the Auction Group about possibly using
their services to auction Crooked Island. Plaintiffs intended to use the sale proceeds to fund their
retirement.
* Former Supreme Court justice, sitting on the Court of Appeals by assignment.
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Soon after being contacted, William Bone, president of the Auction Group, met with plaintiffs
and toured Crooked Island. During this tour, Bone allegedly stated to George Rose that Crooked
Island was larger, nicer, and better located than the other island property the company was auctioning,
which he stated would sell for at least $1.2 million. Bone is also alleged to have stated to George Rose
that if the Auction Group were allowed to auction Crooked Island they would make Rose a “wealthy
man,” and that Bone was confidant the property would sell for several million dollars. Plaintiffs allege
that they informed the Auction Group defendants that they required a minimum price of $850,000, and
that they were repeatedly assured this price would be attained.
After first contacting the Auction Group, plaintiffs spent approximately one year mulling the
decision to sell Crooked Island. During this time, George Rose attended several other auctions
conducted by the Auction Group defendants. Eventually, on June 25, 1996, plaintiffs signed a one-year
exclusive listing agreement with the Auction Group. The agreement provided, in pertinent part:
2. 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. Seller has right to withdraw property prior to auction.
3. Seller acknowledges that The National Auction Group, Inc. has made no
representations or promises as to the price that may be bid at the auction and that The
National Auction Group, Inc. 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.
***
10. This agreement is subject to the final approval of the President or CEO of The
National Auction Group, Inc.
***
16. This Agreement will be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns, and this Agreement constitutes the
entire contract between parties. There are no oral representations or understandings
other than the terms set forth herein. Any changes to be effective shall be in writing and
signed by both parties.
Plaintiffs also signed an attached disclaimer, which provided:
THE SELLER(S) ACKNOWLEDGES THAT NEITHER AUCTION COMPANY
NOR ANY OF ITS STOCKHOLDERS, OFFICERS, AGENTS OR
REPRESENTATIVES HAVE GUARANTEED OR PROMISED THAT THE
AUCTION SALE SHALL BRING ANY PARTICULAR PRICE FOR THE
PROPERTY.
AND SELLER REPRESENTS AND WARRANTS THAT
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AUCTION COMPANY HAS IN FACT STATED TO SELLER THAT AUCTION
COMPANY HAS NO OPINION AS TO THE VALUE OF THE PROPERTY OR
OF THE PRICE IT WILL BRING AT THE AUCTION SALE.
ALSO, THIS AGREEMENT REPRESENTS ALL AGREEMENTS BETWEEN
AUCTION COMPANY AND SELLER, UNLESS AGREED UPON IN WRITING
AND SIGNED BY BOTH PARTIES.
BY SIGNING MY NAME BELOW, I ACKNOWLEDGE THAT I HAVE READ
AND UNDERSTAND THE ABOVE DISCLAIMER.
The Auction Group defendants prepared for an auction of Crooked Island on Saturday, August
31, 1996—which was Labor Day weekend. The primary auction site was to be on Mackinac Island,
with an additional audio auction site in Troy. Advertising materials indicated that Crooked Island, along
with a lakefront lot in Alpena, were to be sold at “absolute auction,” “regardless of price.”
Plaintiffs allege that when they arrived at the auction site on Mackinac Island on August 31,
1996, they immediately expressed concern to the Auction Group defendants that an insufficient number
of bidders were present. Plaintiffs allege that they exercised their option under ¶ 2 of the written listing
agreement to withdraw the property from the auction. At that point, William Bone allegedly proposed a
new agreement to induce plaintiffs to go forward with the auction that day. Bone proposed to allow the
auctioneer to open bidding and when the bidding stalled a short recess would be called at which time
Bone would meet in private with plaintiffs and ask them if they were satisfied with the highest bid. In the
event plaintiffs were not satisfied, an agent for the Auction Group would submit the high bid and the
property would essentially be removed from the market until it could be auctioned or sold at a later date
by the Auction Group under the one-year listing agreement. Plaintiffs allege that they agreed to proceed
with the auction based on these new terms, which were not reduced to writing.
The bidding started and quickly stalled at $175,000, at which time a recess was called.
Plaintiffs, accompanied by their adult son, met with the Auction Group defendants in another room and
expressed dissatisfaction with the price, reasserting their demand of a minimum price of $850,000.
Plaintiffs instructed the Auction Group defendants to proceed under their oral agreement and place the
high bid so as to remove the property from the auction. When the bidding was reopened, no further
bids were offered and the auctioneer announced that the property had been sold to Mr. Hall, a bidder
from the Troy site.
Plaintiffs allege that they were emotionally distraught after the auction ended, and that when
George Rose was presented with a purchase agreement for the sale of the property to Hall for
$185,500 ($175,000 plus a 6% buyer’s fee), he initially refused to sign the document. However, he
alleges that he eventually did sign it after the Auction Group defendants physically impeded him from
leaving the premises and threatened him with a lawsuit. Frances Rose refused to sign the purchase
agreement.
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In November 1996, plaintiffs filed a fourteen-count complaint against defendants. As to the
Auction Group defendants, plaintiffs sought to rescind the parties’ written listing agreement, and alleged,
among other claims, fraud, misrepresentation, breach of fiduciary duty, negligence, unconscionability,
conspiracy, and intentional infliction of emotional distress. As to defendant Hall, plaintiffs sought to
rescind the conveyance instruments and also sought monetary damages for conspiracy and intentional
infliction of emotional distress. Defendant Auction Group filed a counterclaim for specific performance,
seeking to force plaintiffs to close on the sale to Hall and to pay the Auction Group its commission and
auction fee under the listing agreement of $29,050. Defendant Hall filed a counterclaim for specific
performance and damages.
Following some discovery, defendant Hall moved for summary disposition of his counterclaim
under MCR 2.116(C)(8) and (10). The trial court granted the motion pursuant to MCR 2.116(C)(10),
finding that none of the numerous theories raised by plaintiffs presented a material issue of fact. In
particular, the court rejected plaintiffs’ contention that the Auction Group defendants lacked authority to
conduct the auction without reserve, finding that the bidders, including defendant Hall, were clearly
under the impression that the Auction Group was authorized to auction the property without reserve to
the high bidder. The court further found that the oral agreement between plaintiffs and the Auction
Group defendants was void as violative of the statute of frauds, the parol evidence rule, and public
policy. The court granted defendant Hall’s request for specific performance, including the grant of an
easement across a mainland lot owned by plaintiffs to provide access to the island. The court also
awarded $10,000 in sanctions, attorney fees, and costs to defendant Hall, finding that plaintiffs’ claims
of conspiracy and intentional infliction of emotional distress were frivolous. Plaintiffs/counter defendants
appealed this ruling in Docket No. 209582.
Thereafter, the Auction Group defendants moved for summary disposition under MCR
2.116(C)(7) and (10). The trial court granted the motion, finding that the terms of the parties’ written
listing agreement refuted every argument proffered by plaintiffs relating to their claims of fraud and
misrepresentation. In particular, the court noted that the written agreement provided that the Auction
Group defendants made no representations as to value or the price the property would bring at auction,
that the auction would be conducted without reserve, and that any subsequent agreements between the
parties must be in writing. The court further found that the alleged statements of the Auction Group
defendants constituted mere puffing, statements of opinion, or statements pertaining to future events.
Lastly, the court rejected plaintiffs’ argument that the oral agreement had supplanted the written
agreement, noting in particular that the oral agreement involved the illegal use of a false bidder. The
court concluded that the auction had been conducted in accordance with the parties’ written agreement,
and that the Auction Group defendants were entitled to their commission and auction fee under the
contract. Plaintiffs/counter defendants appealed this ruling in Docket No. 210666.
II. Standard of Review
A motion for summary disposition under MCR 2.116(C)(10) tests the factual support of a
claim, and is subject to review de novo. Smith v Globe Life Ins Co, 460 Mich 446, 454; 597 NW2d
8 (1999). In reviewing such a motion, a court considers pleadings, depositions, affidavits, and other
documentary evidence submitted by the parties in a light most favorable to the party opposing the
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motion. The motion should be granted if the evidence demonstrates that no genuine issue of material
fact exists, and that the moving party is entitled to judgment as a matter of law. Id. at 454-455, quoting
Quinto v Cross & Peters Co, 451 Mich 358, 362; 547 NW2d 314 (1996).
III. Contract Claims
A. Validity and Enforceability of Written Listing Agreement
Plaintiffs assert at the outset that the parties’ written listing agreement was invalid because
plaintiffs were unaware whether the Auction Group’s president had approved the agreement, as
provided for in ¶ 10 of the agreement. We reject this assertion as wholly baseless. No principle of
contract law requires that each party to a written contract have in its possession a fully executed copy of
the contract before its terms become effective. Here, the listing agreement was signed by both parties
and their subsequent conduct constituted an acknowledgment that they considered themselves bound by
its terms. The contract was not merely an illusory promise on the part of defendant Auction Group, as
was found in Mustaw v Naiukow, 105 Mich App 25; 306 NW2d 378 (1981), a case heavily relied
upon by plaintiffs.
We likewise reject plaintiffs’ claim that the parties’ listing agreement was void and
unenforceable as unconscionable. Plaintiffs have not demonstrated any genuine issue of material fact
whether the contract was one of adhesion or whether its terms were substantively unreasonable.
Paulsen v Bureau of State Lottery, 167 Mich App 328, 336; 421 NW2d 678 (1988); Rehmann,
Robson & Co v McMahan, 187 Mich App 36, 44; 466 NW2d 325 (1991).
Accordingly, we hold that plaintiffs’ claims challenging the validity and enforceability of the
parties’ written contract were properly dismissed.
B. Election of Remedies
Plaintiffs’ multi-count complaint sought relief in both law and equity. In particular, plaintiffs
sought equitable rescission of the written listing agreement executed with the Auction Group and the
conveyance instruments executed in favor of defendant Hall,1 and also sought monetary damages based
in tort. In Michigan, a plaintiff must generally elect between inconsistent remedies so as to prevent
double recovery for a single injury. Riverview Co-op Inc v First Nat’l Bank and Trust Co of
Michigan, 417 Mich 307, 311-313; 337 NW2d 225 (1983); Triplett v St Amour, 444 Mich 170,
196; 507 NW2d 194 (1993) (Griffin, J, dissenting). See generally, 10 Mich Civ Jur (revised ed 1997),
Fraud and Undue Influence, § 88. On these facts, we deem plaintiffs as having elected to affirm both
the written contract with the Auction Group and the conveyance to Hall and to seek damages in tort.2
Accord Willard v Shekell, 236 Mich 197, 205; 210 NW 260 (1926) (the assertion of a claim to
rescind a contract on the ground of fraud repudiates the assertion of a claim on the contract).
Generally, the equitable remedy of rescission is unavailable where the party seeking to rescind
can be made whole with monetary damages. Here, because plaintiffs intended to dispose of the island
property, and their alleged damages relate to the amount of money they received from its sale, they have
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a complete and adequate remedy at law. See 10 Mich Civ Jur, Fraud and Undue Influence, §§ 103
105. Upon affirmance of the parties’ written contract, defendant Auction Group was entitled to its
commission, and, as we will hold later in this opinion, plaintiffs are entitled to pursue certain of their tort
claims before a trier of fact.
As to plaintiffs’ claim for rescission of the conveyance to defendant Hall, we would agree with
the trial court that, on these facts, Hall was entitled to specific performance. No evidence was
presented to show that Hall was involved in a scheme to defraud plaintiffs or that he was aware of any
secret dealings between plaintiffs and the Auction Group defendants with respect to the auction
procedure. Accord Kammer Asphalt Paving Co, Inc v East China Township Schools, 443 Mich
176, 188; 504 NW2d 635 (1993) (the equitable remedy of a constructive trust will not be imposed
upon a party who in no way contributed to the reasons for its imposition).
We also expressly reject plaintiffs’ attempt to invalidate the conveyance instruments on the
grounds that (1) in light of the oral agreement between plaintiffs and the Auction Group defendants, the
Auction Group defendants lacked either actual or apparent authority to conduct the auction “without
reserve,” (2) at the close of the auction, Mr. Rose signed the purchase agreement under duress as a
result of threats made by the Auction Group defendants, (3) Mrs. Rose did not sign the purchase
agreement despite her status as a tenant by the entireties, or (4) minor differences existed between the
purchase agreement signed by Mr. Rose and the one signed later by Mr. Hall. None of these claims
defeat Hall’s entitlement to specific performance in light of generally recognized principles of law relating
to auctions. The auction was advertised and held as “without reserve,” which means that the property
owner has entered into a collateral contract with bidders that the property will not be withdrawn from
sale once bidding begins, and if the property is wrongfully withdrawn, the highest bidder is entitled either
to damages or the property. J&L Investment Co v Dep’t of Natural Resources, 233 Mich App 544,
551; 593 NW2d 196 (1999). Once the hammer was brought down on Hall’s high bid, plaintiffs’
attempts to invalidate the auction are of no material consequence.3
Given the foregoing, we conclude that the trial court properly granted specific performance in
favor of Hall, and properly granted summary disposition in favor of the Auction Group defendants of
plaintiffs’ claim for equitable rescission of the written listing agreement.
C. Easement Granted to Defendant Hall
The judgment entered by the trial court provides for “an easement of access from Misery Bay
Road to the boat launch site for the purposes of ingress and egress to the boat launch site and well, and
for suitable docking, parking and storing of motor vehicles, trailers, and watercraft to provide access to
Crooked Island.” The easement further provided that, “The Grantors hereby allow the Grantees, their
heirs and assigns, the right to do the following on the easement: to drive, to park motor vehicles, to
park water craft and water craft trailers, and any other activities necessary for grantees to reach Lake
Huron in order to transport themselves to the property commonly known as Crooked Island.”
On appeal, plaintiffs request that this Court remand this matter to the trial court for a hearing to
determine the proper scope of the easement granted. We reject plaintiffs’ request. Before the start of
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the auction, it was announced that in lieu of including a mainland lot, as had been advertised, an access
easement and right of first refusal as to the sale of the mainland lots would be included in the auction of
Crooked Island. Plaintiffs’ attorney had drafted the language of the easement. As noted by the trial
court, no controversy regarding the scope of the easement was then pending, and the court specifically
instructed the parties that any issues related to reasonable use of the easement would be addressed by
the court if and when such issues arose. Under the circumstances, we conclude that plaintiffs have not
demonstrated the need for a remand on this issue.
IV. Tort Claims Against the Auction Group Defendants
Plaintiffs’ complaint alleged separate counts of fraud, innocent misrepresentation, negligent
misrepresentation,4 breach of fiduciary duty,5 and negligence6 based upon certain conduct of the
Auction Group defendants. Because we draw a l gal distinction between those acts alleged to have
e
been committed to induce plaintiffs to enter into a written contract with the Auction Group and those
committed after execution of the contract, our analysis is directed toward the context in which the
challenged conduct occurred.
A. Pre-Contract Statements
1. Fraud in the Inducement or Misrepresentation
The elements of actionable fraud are (1) the defendant made a material representation, (2) the
representation was false, (3) the defendant knew when the representation was made that it was false, or
made recklessly, without knowledge of its truth as a positive assertion, (4) the defendant made the
representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon
the misrepresentation, and (6) the plaintiff suffered damage. M & D, Inc v McConkey, 231 Mich App
22, 27; 585 NW2d 33 (1998). Fraud in the inducement occurs when a party materially misrepresents
future conduct under circumstances in which the assertions may reasonably be expected to be relied
upon and are in fact relied upon. Samuel D Begola Services, Inc v Wild Bros, 210 Mich App 636,
639; 534 NW2d 217 (1995). A claim of innocent misrepresentation is established if a party
detrimentally relies upon a false representation so that the injury suffered by that party inures to the
benefit of the party who made the representation. The innocent misrepresentation rule represents a
species of fraud but eliminates the need to prove a fraudulent purpose or an intent on the part of the
defendant that the misrepresentation be acted upon by the plaintiff, and includes the need to show that
an unintentionally false representation was made in connection with the making of a contract and that the
resulting injury inure to the benefit of the party making the misrepresentation. In addition, a plaintiff
alleging an innocent misrepresentation claim must show that the plaintiff and defendant were in privity of
contract. M & D, Inc, supra at 27-28.
Here, to induce plaintiffs to sign the exclusive listing agreement, the Auction Group defendants
allegedly stated that they could obtain plaintiffs’ minimum price of $850,000 at auction for Crooked
Island, that the island was worth more than a million dollars, that they would make Mr. Rose a “wealthy
man,” and that they would never put plaintiffs’ property in jeopardy. In granting summary disposition to
defendants, the trial court ruled that these statements could not serve as a basis for a fraud claim
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because they were either statements of opinion, puffing, or statements pertaining to future events.
Plaintiffs challenge this ruling on appeal. We find no error.
Neither an expression of opinion nor a salesman’s hyperbole in promoting a sale, commonly
referred to as puffing, constitute actionable fraud. 10 Mich Civ Jur, Fraud and Undue Influence, § 25.
See, e.g., Van Tassel v McDonald Corp, 159 Mich App 745, 750; 407 NW2d 6 (1987). Further, it
is well settled that a statement of value is a mere expression of opinion that may not be the basis for a
fraud action. This rule is particularly appropriate where the party alleging fraud in a real estate
transaction has an unfettered opportunity to assess the value of property, but fails to do so. A party
who relies on another’s opinion of value does so at his own peril. 10 Mich Civ Jur, Fraud and Undue
Influence, §§ 26, 28-29.
Assuming as we must that the Auction Group defendants made the statements attributed to them
by plaintiffs, we would agree with the trial court that the statements were merely salesman puffing or
expressions of opinion as to value. Contrary to plaintiffs’ assertion that the parties’ preliminary
negotiations were influenced by the unequal bargaining power of the parties, plaintiffs clearly controlled
their future. Indeed, the undisputed evidence demonstrates that plaintiffs are intelligent adults, that they
had the benefit of legal counsel during this period, that they mulled the decision to auction the island for
approximately one year before signing the listing agreement with the Auction Group, and that during this
period they attended several other auctions conducted by the Auction Group. Despite the importance
of this decision on their financial future, plaintiffs failed to obtain an objective appraisal of the fair market
value of the island before signing the exclusive listing agreement with the Auction Group. Further,
plaintiffs signed the agreement despite the fact that some of its terms were at variance with verbal
representations made by defendants. For example, the agreement expressly provided in ¶ 2 that the
property would be sold at “ABSOLUTE AUCTION with no minimums or reserves.” Yet, in his
deposition, Mr. Rose testified that he read and signed the agreement even though he did not fully
understand the meaning of the terms “absolute auction” or “without reserve.” As another example, the
agreement included a separate boldface disclaimer providing that “NEITHER AUCTION COMPANY
NOR ANY OF ITS STOCKHOLDERS, OFFICERS, AGENTS OR REPRESENTATIVES HAVE
GUARANTEED OR PROMISED THAT THE AUCTION SALE SHALL BRING ANY
PARTICULAR PRICE FOR THE PROPERTY,” and that defendant “HAS IN FACT STATED TO
SELLER THAT AUCTION COMPANY HAS NO OPINION AS TO THE VALUE OF THE
PROPERTY OR OF THE PRICE IT WILL BRING AT THE AUCTION SALE.” The disclaimer
further provided that “THIS AGREEMENT REPRESENTS ALL AGREEMENTS BETWEEN
AUCTION COMPANY AND SELLER, UNLESS AGREED UPON IN WRITING AND SIGNED
BY BOTH PARTIES.” Yet, plaintiffs claim to have relied to their detriment on the Auction Group
defendants’ verbal representations of the fair market value of the island or the amount it would bring at
auction. “To allow persons of intelligence and mature age to repudiate their written contracts, which
they have an opportunity to read before signing and can read, would lend uncertainty to business
transactions and render the making of contracts unsafe.” Draeger v Kent County Sav Ass'n, 242
Mich 486, 490; 219 NW 637 (1928). See also Paterek v 6600 Ltd, 186 Mich App 445, 450; 465
NW2d 342 (1990) (one who signs a contract cannot seek to invalidate it on the basis that he did not
read it or thought that its terms were different, absent a showing of actionable fraud or mutual mistake).
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Under the circumstances of this case, plaintiffs’ pre-contract fraud claim will not be countenanced by
this Court.7
Citing Hayes Const Co v Silverthorn, 343 Mich 421; 72 NW2d 190 (1955), plaintiffs argue
that, because of the Auction Group defendants’ special knowledge and expertise in the field of real
estate auctions, the general rules cited above are inapplicable. In the context of plaintiffs’ pre-contract
fraud claim, we are unpersuaded by this argument. In Silverthorn, an experienced general contractor
brought suit against a heating subcontractor for allegedly defective furnaces. The plaintiff-contractor
alleged that the defendant-subcontractor had committed fraud when he persuaded plaintiff to install the
allegedly defective furnaces by stating that the maintenance was nil, that they were reasonably priced,
and that they would do the job that the plaintiff needed done. In addressing the plaintiff’s fraud claim,
the Michigan Supreme Court explained:
[W]e are here in the realm of what the common law has for years termed ‘puffing,’ a
salesman’s praise of his own property, involving matters of estimate or judgment upon
which reasonable men may differ. Ordinarily these are not regarded as actionable, even
though the vendee’s joys of realization fail short of those of his anticipation. The reason
for this lies in the realities of commercial intercourse.
***
The relationship of the parties may, however, impose more stringent requirements. One
party may have special knowledge and the other none and without the means of getting
it. In this case the latter cannot fairly and reasonably exercise his own judgment. The
parties, therefore, do not stand on equal terms and the buyer has a right to rely upon the
representations of excellence made by the seller. [Id. at 426-427.]
Here, unlike in Silverthorn, plaintiffs’ ability to fairly and reasonably exercise their own judgment before
entering into a contractual relationship with the Auction Group defendants was in no manner
circumscribed by defendants. Id. at 427. Thus, the “special knowledge” exception has no applicability
to the facts before us.
2. Breach of Fiduciary Duty
It is axiomatic that a person cannot hold another liable for duties and obligations incident to an
agency relationship unless the creation and existence of that relationship is established. 1 Mich Civ Jur,
Agency, § 18. Here, the parties’ agency relationship became effective on June 25, 1996, when their
written contract was executed. Therefore, any statements or conduct on the part of the Auction Group
defendants prior to that date may not serve as the basis for a breach of fiduciary duty claim.
Accordingly, we order any such factual allegations stricken from plaintiffs’ complaint.8
Given the foregoing, we conclude that plaintiffs have failed to state a prima facie case of
actionable fraud, misrepresentation, or breach of fiduciary duty as to the Auction Group defendants’
pre-contract statements or conduct.
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B. Post-Contract Statements, Promises, and Conduct
1. Fraud and Misrepresentation
The bulk of plaintiffs’ remaining allegations relate to statements or promises made by the
Auction Group defendants on the day of the auction. Plaintiffs allege that when they arrived at the
auction site they expressed concern to defendants regarding what they believed to be an insufficient
number of bidders present and indicated an intent to withdraw the property before the start of the
auction, as they were allowed to do under ¶ 2 of the listing agreement. Plaintiffs allege that defendants
induced them to proceed with the auction by stating that they would not sell the property for less than
$850,000, and that, if the bidding did not attain plaintiffs’ minimum price, defendants themselves would
submit the high bid and thereafter sell the property at auction at a later date. Plaintiffs assented to the
terms of this oral agreement, and the auction proceeded. The Auction Group defendants did not,
however, submit a bid on the property, and the hammer was brought down on Hall’s high bid of
$175,000.
a. Withdrawal of Property Prior to Auction and Oral Agreement
As a preliminary matter, we disagree with plaintiffs’ characterization of their attempted
withdrawal of the property prior to the auction as amounting to a cancellation of their written agreement
and the creation of a “new” oral agreement based on defendants’ verbal representations at that time.
The parties’ written contract was a one-year exclusive listing agreement, under which plaintiffs were
provided the opportunity to withdraw their property prior to auction. Plaintiffs’ invocation of the
withdrawal option, however, did not operate to cancel the entire contract, but rather permitted the
Auction Group to sell the property at another auction at a later date within the one-year period covered
by the listing agreement.9 As such, the parties’ oral agreement constituted a modification of the terms of
their written contract.
Because the oral modification entailed new consideration from both parties—i.e., plaintiffs
forfeited their contractual right to withdraw the property from the auction and defendants promised to
obtain plaintiffs’ minimum bid price—it was not invalid for lack of consideration, MCL 566.1; MSA
26.978(1), nor was it in violation of the statute of frauds,10 Minor-Dietiker v Mary Jane Stores of
Mich Inc, 2 Mich App 585, 589-590; 141 NW2d 342 (1966). In Minor-Dietiker, supra at 589
590, this Court quoted the following from Zannis v Freud Hotel Co, 256 Mich 578, 584-585; 240
NW 83 (1932), in which the estoppel doctrine was invoked to find that an oral modification of a written
lease did not violate the statute of frauds:
“Had defendant claimed such verbal lease to be void under the statute of
frauds, it would have been estopped for the same reason that we determine that
plaintiffs are estopped from so claiming. The facts of the case, as confirmed by the
verdict of the jury, establish the fact that a consideration was received and acted upon
by each of the parties for the modification of the written lease. There is no question but
that the modification itself comes within the statute of frauds, it being an oral change of a
written lease. Abell v Munson, 18 Mich 306, 100 Am Dec 165 [1869]. While the
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law of this state has consistently held that an agreement required by the statute of frauds
to be in writing may not be substantially altered by a verbal agreement, it has also held
that parties may not accept the benefits from such alteration and then claim that the
transaction is void.”
Thus, we conclude that the parties’ written contract remained valid and enforceable notwithstanding the
parties’ subsequent oral modification of certain of its terms.
b. Claims of Fraud or Misrepresentation Based Upon Oral Agreement
The question that arises is whether plaintiffs can recover from the Auction Group defendants
under theories of fraud and misrepresentation for inducing plaintiffs to enter into an oral agreement which
purported to violate Michigan’s common-law prohibition against the use of false bidders, also referred
to as shillers, by-bidders, or secret puffers, to raise the bid price of property at auction. 11 See Bronson
v Leach, 74 Mich 713, 721; 42 NW 174 (1889); Kulenkamp v Groff, 71 Mich 675, 676; 40 NW
57 (1888). See generally, 7 Am Jur 2d, Auctions and Auctioneers, § 25 (property owner may not
engage in the bidding at auction, either directly or indirectly, unless it is expressly announced that he
reserves such privilege; he is not allowed to make secret bids with the intent to enhance the price of the
property). In this context, plaintiffs’ first amended complaint alleged fraud and misrepresentation based
on the following statements:
Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated that he would withdraw Plaintiffs’ property, Crooked Island, from the auction if
the sale price was not at least Eight Hundred Fifty Thousand ($850,000.00) Dollars;
Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated that he would purchase and resell Crooked Island for at least Eight Hundred Fifty
Thousand ($850,000.00) Dollars.
A contract founded on an act prohibited by statute, or a contract in violation of public policy, is
void. Mahoney v Lincoln Brick Co, 304 Mich 694; 8 NW2d 883 (1943); Maids Int’l Inc v
Saunders Inc, 224 Mich App 508, 511; 569 NW2d 857 (1997). A contract that is void, however,
can support a claim of fraud or misrepresentation to the extent that the claim is not dependent upon
either direct or indirect enforcement of its terms. A leading case on this aspect of the law is Cassidy v
Kraft-Phenix Cheese Corp, 285 Mich 426; 280 NW 814 (1938), in which the defendant corporation
orally agreed to grant the plaintiff the exclusive manufacturing and selling rights for a certain territory in
California of a cheese product known as O-Ke-Doke. Under the terms of the oral agreement, the
plaintiff was required to purchase from the defendant a certain minimum amount of cheese per month.
Thereafter, with the knowledge and consent of the defendant, the plaintiff expended substantial amounts
of time and money in working out the preliminary details for manufacturing and selling the product in
California. Before commencement of the business, however, the defendant notified the plaintiff that it
would not fulfill its obligations under the oral contract, and instructed the plaintiff to discontinue any
further efforts to commence business. The Michigan Supreme Court dismissed the plaintiff’s breach of
contract claim, holding as a matter of law that the alleged oral contract was in violation of the statute of
12
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frauds and therefore unenforceable. The Court also rejected the plaintiff’s attempt to assert a fraud
claim, stating that an action for damages cannot be maintained on the ground of fraud in refusing to
perform an oral contract within the statute of frauds, even though the defendant at the time of the making
of the oral contract may have had no intention of performing it. Id. at 435. In rejecting the plaintiff’s
argument that the statute of frauds should not be invoked to allow the defendant to perpetrate a fraud—
an argument advanced by plaintiffs in the present case—the Court noted that, although the maxim had
been “troublesome” in application, “’[i]t is not a fraud to refuse to perform an unenforceable
agreement.’” Id. at 437, quoting Connell v Slater, 137 Misc 249; 243 NYS 25, 27 (1930). The
Court continued:
In every case where parties deal at arm’s length each is supposed to know the
law. In the instant case plaintiff was bound to know that he could not consummate a
valid contract, such as he asserts in this case, except it was reduced to writing or in
some other manner compliance with the statute of frauds was accomplished. Plaintiff
could not be defrauded except he was deceived. Hence he must be held bound by the
knowledge that he never consummated an enforceable contract with defendant. We are
mindful it is plaintiff’s theory that he can rely upon defendant’s alleged oral contract to
enter into a written contract, and that the damage sought is claimed to be such as
resulted from defendant’s refusal to consummate the written contract. [Cassidy, supra
at 438.]
Rejecting the plaintiff’s assertions of ignorance of the law and detrimental reliance, the Court stated that
“to hold otherwise would relieve the parties of their duty to execute a contract in conformity with the
public policy of this state. Id. at 436-437.
We find Cassidy to be distinguishable from the facts before us. Unlike Cassidy, which involved
an arm’s length transaction and the absence of any valid contract, the facts of our case involve a
fiduciary relationship between plaintiffs and the Auction Group defendants from which arose a valid
written contract. Cassidy’s damages flowed entirely from the defendant corporation’s failure or refusal
to execute a written contract, i.e., from the defendant’s breach of the parties’ oral agreement. Hence,
Cassidy’s tort claim was wholly dependent upon enforcement—albeit indirectly—of the parties’ void
oral agreement. In the present case, however, we do not find plaintiffs’ fraud and misrepresentation
claims to be wholly dependent upon direct or indirect enforcement of the void oral agreement.
Certainly, any damages claimed to arise from the Auction Group defendants’ failure or refusal to place
the high bid and remove the property from the auction would not be recoverable, because such a claim
would indeed be dependent upon enforcement of the oral agreement. However, any damages arising
from defendants’ false statements or fraudulent promises that were intended to induce plaintiffs not to
withdraw their property from the auction and to proceed—resulting in a lost opportunity to sell the
property at a later date—are recoverable, as is the commission paid to defendants in consequence of
the sale of the property pursuant to the terms of the parties’ valid written contract. Recovery of such
damages is not dependent upon either direct or indirect enforcement of the parties’ void oral agreement,
which is severable from their valid and enforceable written contract. See Samuel D Begola Services,
supra at 641.
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Further, to maintain an action for fraud based on a transaction that is void because of illegality or
because it is violative of public policy, a plaintiff must establish that his or her reliance on the defendant’s
representations was reasonable. Novak v Nationwide Ins Co, 235 Mich App 675; 599 NW2d 546
(1999); Nieves v Bell Industries, Inc, 204 Mich App 459, 464-465; 517 NW2d 235 (1994).13 In
this case, an issue of fact exists whether plaintiffs reasonably relied on the Auction Group defendants’
representations that they would use a false bidder to prevent plaintiffs’ property from being sold below
their minimum price. Plaintiffs contend that they were unaware that the use of a false bidder was illegal,
and that they placed their trust and confidence as to such matters in the Auction Group defendants, who
represented themselves as experienced and knowledgeable in the field of auctions. Defendants
contend, assuming the truth of plaintiffs’ allegations, that plaintiffs were or should have been aware that
the use of a false bidder would be illegal and that they should not be permitted to impose liability against
defendants for their own ignorance of the law.
Michigan courts have long held that mere ignorance of the law, standing alone, cannot prevent
its enforcement. Nagy v Michigan Copper & Brass Co, 233 Mich 552, 557; 207 NW 850 (1926).
However, when a mistake of law is predicated on an affirmative misrepresentation by one who acts in a
fiduciary capacity, the law is more forgiving:
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. [Tompkins v Hollister, 60 Mich 470, 480; 27 NW 651 (1886).]
See also Carpenter v Detroit Forging Co, 191 Mich 45, 53-54; 157 NW 374 (1916).
It has been said that the only “rigid rule” forbidding relief from fraud on an illegal transaction is
where the parties are in pari delicto, in equal guilt. Over a century ago, in Hess v Culver, 77 Mich
598; 43 NW 994 (1889), the defendant used fraudulent representations to obtain the plaintiff’s
promissory note for the purchase price of Bohemian oats at an exorbitant price in return for an
agreement and bond of a fictitious corporation to sell a larger quantity for plaintiff at the same price for a
commission. The Michigan Supreme Court held that, to the extent the trial court had directed a verdict
in favor of the defendant on the theory that the transaction was illegal and the parties in pari delicto, the
theory was to be rejected:
If plaintiff were seeking to enforce such a bond as was palmed off on him, his ignorance
that it was illegal in its purposes would not perhaps absolve him from the consequences
of trusting to a void contract. But it has been held by this court in repeated instances
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that, while a man is, for public reasons, held responsible for his conduct, although
ignorant of law, there is no conclusive presumption that he actually knows the law.
Where a man is defrauded, as often happens, by the misrepresentations of some one
who assumes knowledge, and where, under the circumstances, he is actually deceived,
and not consciously wrong, the fact that the transaction is against public policy in law
will not necessarily compel the victim to submit to the fraud of the actual villain. The
only rigid rule forbidding relief is where parties are in equal guilt. While the law does not
draw fine distinction in ascertaining equality of wrong, it recognizes the fact that one
party to such an arrangement is not necessarily an equal party in guilt, or consciously
guilty at all, and will not deny relief to an injured party against the one who is really the
deceiver, and who commits fraud by means of his persuasive or other influence over his
victim. Even actual knowledge of legal rights and liabilities is not always conclusive
against relief. . . . One of the elements in this fraud was that defendant accomplished it
by representing that the alleged company was a corporation authorized to do the acts
referred to by the laws of this state, and therefore having full legal sanction and
recognition in its doings, so that plaintiff had no reason to suppose the dealings would be
subject to any lawful objection. [Id. at 601-602. Citations omitted.]
In this case, we conclude that questions of fact exist whether defendants made false
representations and whether plaintiffs relied upon those misrepresentations to their detriment. Such
questions are properly within the sphere of the trier of fact. See 1 Mich Civ Jur, Agency, § 142. That
is, if the trier of fact finds that defendants induced plaintiffs to enter into the oral agreement, and that
plaintiffs had either actual or constructive knowledge at the time that the use of a false bidder was
against public policy, plaintiffs are barred from recovery on these claims. Accord, Knight v Linzey, 80
Mich 396, 406; 45 NW 337 (1890) (another Bohemian Oat scheme case in which the plaintiff’s fraud
claim was dismissed because the plaintiff conceded that he knew it was a fraud, and that he could not
gain unless someone else other than the defendants lost. The Court found that the plaintiff “was not
actually deceived, and he was ‘consciously wrong.’”). In such a case, where the parties are determined
to be in pari delicto, the courts will generally leave them where their respective conduct has placed
them. See 10 Mich Civ Jur, Fraud and Undue Influence, § 79.
Conversely, recovery would not be barred if the trier of fact finds that plaintiffs reposed trust
and confidence in the specialized knowledge and advice of defendants and that plaintiffs were operating
under a mistake of law, instigated by defendants, as to the legal effect of the use of a false bidder at
auction. Accord, Pearl v Walter, 80 Mich 317; 45 NW 181 (1890) (in this Bohemian Oat scheme
case, the plaintiff conceded he was afraid there was “something wrong” with the transaction at first, but
his fears and suspicions were overcome by the defendants’ fraudulent representations). Because we do
not find that the scheme allegedly proposed by the Auction Group defendants in this case amounted to a
“transparent fraud,” see id. at 322, plaintiffs may present their post-contract fraud claim to a trier of
fact.
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Given the foregoing, we reverse the order granting summary disposition in favor of the Auction
Group defendants as to plaintiffs’ post-contract claims of fraud and innocent misrepresentation,14 and
remand for further proceedings.
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2. Breach of Fiduciary Duty and Negligence
Plaintiffs’ first amended complaint made numerous allegations that the Auction Group
defendants breached their fiduciary obligations or were otherwise negligent in the performance of their
duties under the written listing agreement and the oral agreement. The Auction Group defendants
moved for summary disposition, arguing that no genuine issue of material fact existed as to these claims,
citing defendant Eddie Haynes’ deposition testimony that the advertising and marketing conducted in
preparation for the auction of Crooked Island was adequate and that the auction itself was conducted in
an appropriate manner.15
Plaintiffs responded to defendants’ motion by submitting an affidavit of Douglas P. Bilodeau, a
certified auctioneer who had conducted auctions for thirty-one years, and who was president of the
International Auction School of South Deerfield, Massachusetts. Bilodeau averred that “auctioneers
owe fiduciary obligations to their clients, consisting of good faith and loyalty and to exercise due care,
skill and diligence in performing their duties.” Bilodeau averred that he had reviewed the facts and
pleadings of this case and that in his opinion the Auction Group defendants “violated their fiduciary
obligations to the Plaintiffs” by failing to “advise the owner intelligently and honestly as to the market
value of the property prior to selling at auction,” and “failing to properly market and advertise the
property being auctioned for sale.” Bilodeau further averred that the Auction Group would be in
violation of its fiduciary duties “if it represented to its client that it could achieve a certain price at auction
without knowing the value of the property being auctioned,” or “if it fails to advise its clients adequately
of the substantial risk involved in selling property without reserve and without a minimum upset price.”
In response to plaintiffs’ submission of the Bilodeau affidavit, the Auction Group defendants
supplemented their motion by submitting a non-notarized letter from F. Vladi, an international island
broker and appraiser, who opined that the fair market value of Crooked Island was between $150,000
and $225,000. Defendants argued that, based on the final sales price of $185,500 for Crooked Island,
plaintiffs had failed to demonstrate an issue of fact whether any act or omission by defendants was a
proximate cause of any damages to plaintiffs.
The trial court’s order granted summary disposition in favor of the Auction Group defendants of
plaintiffs’ complaint in its entirety. The court did not explicitly cite its reasoning for dismissal of plaintiffs’
various post-contract tort claims. On review de novo of the lower court’s order, we conclude that,
while certain of plaintiffs’ post-contract tort claims were properly dismissed, certain others were
sufficiently pleaded to withstand summary disposition.
A fiduciary duty arises where there is a fiduciary relationship between the parties. The duty
arises out of the relationship between two persons of such a character that each must repose trust and
confidence in the other and must exercise a corresponding degree of fairness and good faith. Portage
Aluminum Co v Kentwood Nat’l Bank, 106 Mich App 290, 294; 307 NW2d 761 (1981). When
the fiduciary relationship is betrayed by the party in the position of influence, the betrayal is actionable,
and the origin of the confidence is immaterial. Smith v Saginaw Savings & Loan Ass'n, 94 Mich App
263, 274; 288 NW2d 613 (1979). Under agency principles, a fiduciary relationship exists between an
auctioneer and a seller. If an auctioneer assumes a position that is entirely inconsistent with that of his
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agency relationship, he may be deprived of compensation for his services. 7 Am Jur 2d, Auctions and
Auctioneers, § 70.
To establish a prima facie case of simple negligence, a plaintiff must prove that (1) the defendant
owed a duty to the plaintiff; (2) the defendant breached that duty; (3) the defendant’s breach of duty
was a proximate cause of the plaintiff’s damages; and (4) the plaintiff suffered damages. Babula v
Robertson, 212 Mich App 45, 48; 536 NW2d 834 (1995).
a. Certain Fiduciary Obligations Disclaimed by Contract
The parties’ exclusive listing agreement, although not unconscionable, was drafted by the
Auction Group defendants to their clear advantage. Under the contract, the Auction Group defendants’
express obligation to plaintiffs was merely to “sell the Property at ABSOLUTE AUCTION with no
minimums or reserves” within seventy-five days of June 25, 1996. Conversely, plaintiffs’ obligations,
liabilities, and waiver of rights under the contract were many. For example, the contract provided that
plaintiffs (1) “relinquish[] any right to place a minimum or reserve on the bidding with respect to the
Property,” (2) “acknowledge[] that The National Auction Group, Inc. has made no representations or
promises as to the price that may be bid at the auction and that The National Auction Group, Inc. has in
fact stated that it has no opinion as to the value of the property or of the price it will bring at the auction
sale,” (3) acknowledge that the Auction Group defendants had not guaranteed or promised that the
auction sale shall bring any particular price for the property, (4) “represent[] and warrant[] that Auction
Company has in fact stated to Seller that Auction Company has no opinion as to the value of the
property or of the price it will bring at the auction sale,” (5) “shall pay The National Auction Group, Inc.
a commission equal to ten percent (10%) of the gross sales price paid by the Buyer at Closing,” and (6)
shall convey clear title to the buyer by warranty deed.
On appeal, plaintiffs contend that the Auction Group defendants violated their fiduciary
obligations by failing to advise them as to the market value of the property before selling it at auction,
and representing that it could achieve a certain price at auction without knowing the value of the
property. Defendants contend that their fiduciary obligations to plaintiffs in this respect were abrogated
by the terms of their written contract. Defendants assert that, because the parties’ written contract and
disclaimer disavowed any requirement that defendants render an opinion as to value or obtain a pre-sale
appraisal of the property’s fair market value, plaintiffs’ claims in this regard must fail. We reluctantly
agree with defendants on this issue.
An agent in a fiduciary relationship is obligated to inform the principal fully of all material facts
within the agent’s knowledge relating to the subject matter of the agency relationship. See 1 Mich Civ
Jur, Agency, § 111. However, the duties and liabilities of a fiduciary relationship may be modified by
contract. See id. at § 22. See also 1 Restatement Trusts, 2d, § 2, Comment b, p 6 (a fiduciary
relationship imposes a duty to act for the benefit of the other as to matters within the scope of the
relation).16 Here, the parties’ contract modified the Auction Group defendants’ broad common-law
fiduciary duties by expressly negating any duty to inform plaintiffs of their opinion as to the value of the
island or the price that it may bring at auction. Accordingly, to the extent that plaintiffs’ tort claims are
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based on the Auction Group defendants’ failure to perform these duties, we conclude that the claims
were properly dismissed.
b. Breach of Fiduciary Duty and Negligence Concerning the Parties’ Oral Agreement
Notwithstanding that the parties’ oral agreement was void and unenforceable as violative of
public policy, the question that arises is whether the agreement may form the basis for liability against the
Auction Group defendants for breach of f
iduciary duty and negligence. Having reviewed the record
available at this stage of the litigation, we conclude that genuine issues of material fact exist such that
summary disposition of plaintiffs’ claims was premature.
Independent of any contract establishing a fiduciary relationship, the common-law recognizes
certain implied duties of trust, confidence, loyalty, and good faith. Portage Aluminum Co, supra.
When the acts of an agent in a fiduciary relationship tend to violate any of these duties and obligations,
the principal may seek recovery without a showing of either actual fraud by the agent or injury to the
principal. 1 Mich Civ Jur, Agency, § 115. “’Fidelity in the agent is what is aimed at, and as a means of
securing it, the law will not permit the agent to place himself in a situation in which he may be tempted by
his own private interest to disregard that of his principal.’” Flint & Pere Marquette Railway Co v
Dewey, 14 Mich 477, 487 (1866), quoting People v Township Bd of Overyssel, 11 Mich 222, 225
(1863). See also Prince v Clark, 81 Mich 167, 170-171; 45 NW 663 (1890). Relief is to be
granted whenever influence has been acquired and abused, whenever confidence has been reposed and
betrayed. Stephenson v Golden (On Rehearing), 279 Mich 710, 739; 276 NW 849 (1937);
Vicencio v Ramirez, 211 Mich App 501, 508; 536 NW2d 280 (1995). Neither the origin of the
confidence nor the source of the influence are material. Stephenson, supra.
Here, the Auction Group defendants held themselves out as particularly skilled auctioneers of
unique properties, such as Crooked Island. As such, they were obligated to use the degree of care and
skill that would ordinarily be exercised at that time by someone performing similar functions under like
circumstances. Stephens v Detroit Trust Co, 284 Mich 149, 158; 278 NW 799 (1938). Further,
where a fiduciary relationship exists, and the agent knows that the principal is relying on him for a full
and truthful statement of all material facts, the agent is bound to exercise honesty and good faith in his
transactions with the principal, and to make a full and fair disclosure of all the material facts and
circumstances in relation to the transaction, and to act in the principal’s interest. Horvath v Langel,
276 Mich 381, 385; 267 NW 865 (1936). “Fidelity upon the part of the agent to his principal is the
essential basis of agency.” Id.
While the focus in a breach of fiduciary duty claim is assuredly on the conduct of the defendant,
Stephenson, supra at 741, we do not mean to imply that the plaintiff’s conduct is irrelevant. Indeed,
recovery remains dependent upon a showing that the plaintiff in fact reposed trust and confidence in the
defendant, such that the defendant had the opportunity to betray his principal. In this case, the question
whether plaintiffs’ assent to the Auction Group defendants’ proposed use of a false bidder should limit
or foreclose their recovery is probative of the existence of the fiduciary relationship that is the sine qua
non of a breach of fiduciary duty claim.17 Thus, as we determined in the context of plaintiffs’ post
contract fraud and misrepresentation claims, if a trier of fact were to find that plaintiffs were aware or
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should have been aware of the illegality of the use of a false bidder at the time it was proposed by
defendants, the trier of fact may conclude that defendants betrayed no confidence and leave the parties
where they were found. On the other hand, if a trier of fact were to find that plaintiffs were ignorant of
the law regarding false bidders, and in fact reposed trust and confidence in the statements and promises
of defendants, recovery on this claim is not barred.
The measure of damages in such a matter is generally the unjust enrichment that has been gained
by the defendant, rather than the actual damage that has been suffered by the plaintiff. McIntosh v
Fixel, 297 Mich 331, 342; 297 NW 512 (1941). See also Stephenson, supra at 741 (the “controlling
question” is whether the agent who abused the confidence reposed in him by his principal should be
“allowed to retain the fruits of his perfidy”). Here, we are of the opinion that damages in this context
are limited to the commission and fees paid to the Auction Group defendants pursuant to the terms of
the parties’ written contract.
Given the foregoing, we conclude that plaintiffs’ breach of fiduciary duty and negligence claims
are not defeated as a matter of law because of the underlying illegality of the oral agreement. We
remand these claims for further proceedings in the trial court.
3. Remaining Post-Contract Tort Claims
Plaintiffs’ remaining factual allegations generally relate to the Auction Group defendants’
preparation for and conduct during and after the auction. Having thoroughly reviewed the parties’
pleadings and documentary evidence submitted below, we conclude that summary disposition was
improperly granted to defendants on these remaining allegations because issues of material fact exist
whether defendants breached their fiduciary obligations to plaintiffs or otherwise were negligent in the
exercise of their duties. Accordingly, plaintiffs are entitled to present these tort claims to a trier of fact.
V. Sanctions Awarded to Defendant/Counter Plaintiff Hall
A claim or defense is “frivolous,” for purposes of the statute governing an award of sanctions,
when: (1) the party’s primary purpose was to harass, embarrass, or injure the prevailing party; (2) the
party had no reasonable basis upon which to believe the underlying facts were true; or (3) the party’s
position was devoid of arguable legal merit. MCL 600.2591(3)(a); MSA 27A.2591(3)(a). The
circumstances existing at the time a case is commenced is critically important in determining whether a
lawsuit has a legal or factual basis. Louya v William Beaumont Hosp, 190 Mich App 151, 163-164;
475 NW2d 434 (1991). A trial court’s finding that a claim is frivolous will not be reversed on appeal
unless clearly erroneous. If the court finds a claim or defense to be frivolous, the imposition of sanctions
is mandatory. Cvengros v Farm Bureau Ins, 216 Mich App 261, 266, 268; 548 NW2d 698 (1996).
At the hearing on defendant Hall’s motion for summary disposition, the trial court specifically
questioned plaintiffs’ counsel regarding the reasons for bringing claims of conspiracy and intentional
infliction of emotional distress against Hall. Plaintiffs’ counsel explained:
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When this case was first filed I was contacted personally by a representative [of the
Auction Group’s insurer]. . . . He said to me, we are getting an attorney. Please do
not, for these defendants, do not file defaults. I said fine.
I was thereafter contacted by a Miss Donna Pratchard, who is an employee and
personal secretary for a partner in the law firm of Plunkett and Cooney, Petoskey
office. Miss Pratchard said to me, Mr. Clos, I am calling on behalf of—and I don’t
have the attorney’s name. . . . We would like some additional time to file an answer on
behalf of the National Auction Group. I said certainly. That’s fine. . . . I said, let me
ask you something, Miss Pratchard. . . . [H]as Plunkett Cooney represented the
National Auction Group in the past? She says, numerous times we have. Her quote to
me.
Subsequent thereto, I received a call from Mr. White’s office, who told me he
was representing them [Auction Group], . . . because there was a conflict of interests
with the Plunkett Cooney law firm.
Based on that, Your Honor, we believe that we had enough to tie Mr. Hall to
the National Auction Group because of the fact Mr. Hall is a shareholder of Plunkett
Cooney, or a partner, whatever the case might be. That was set out for discovery.
Plaintiffs’ counsel further explained that he offered to dismiss the conspiracy and intentional infliction of
emotional distress counts against Hall when extensive discovery failed to produce any factual support
for the claims. In granting summary disposition to defendant Hall, the trial court awarded sanctions,
pursuant to MCR 2.625(A)(2) and MCL 600.2591(3)(a)(i) and (ii); MSA 27A.2591(3)(a)(i) and (ii),
in the amount of $10,000. The court found no basis in law or fact to support plaintiffs’ conspiracy and
intentional infliction of emotional distress claims against Hall, noting that they were based only on “a
secretary’s ‘hunch.’”18
On appeal, plaintiffs argue that the award of sanctions was clear error because the factual
scenario outlined above “indicat[ed] a potential conspiracy between Defendant [Hall], a lawyer in the
same law firm that was representing the [Auction Group] Defendants.” We strongly disagree. The
facts, as alleged by plaintiffs’ counsel, are that Hall’s law firm declined to represent the Auction Group
defendants because a potential conflict of interest was recognized. This was a logical conclusion in light
of the conflict of interest provisions of the Rules of Professional Conduct. What is not logical, however,
is plaintiffs’ counsel’s misguided attempt to transform a commonplace conflict of interest matter into an
allegation against Hall of conspiracy and willful intent to harm plaintiffs. As the trial court aptly found, at
the time plaintiffs’ counsel filed a complaint alleging these counts against Hall, no evidence whatsoever
existed, beyond counsel’s own active imagination, to support such allegations. Louya, supra. It is also
clear that plaintiffs’ counsel failed to conduct any investigation in an attempt to find such factual support
before filing a complaint against defendant Hall. This Court has held that “[t]he statutory scheme is
designed to sanction attorneys and litigants who file lawsuits or defenses without reasonable inquiry into
the factual basis of a claim or defense, not to discipline those whose cases are complex or face an ‘uphill
fight.’” Louya, supra at 163-164. Under the circumstances, it is appropriate that plaintiffs and their
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attorney19 bear the costs of using discovery to determine whether plaintiffs had a viable claim in the first
instance. MCL 600.2591(1); MSA 27A.2591(1).
Lastly, we decline to address the parties’ remaining claims as such claims are either disposed of
directly or indirectly by our holdings above or wholly without merit.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this
opinion. We do not retain jurisdiction.
/s/ Donald E. Holbrook, Jr.
/s/ John W. Fitzgerald
1
Plaintiffs’ complaint framed their equitable claims as a request f “declaratory rulings” to void the
or
written listing agreement and the conveyance to Hall.
2
As a general rule, election of remedies is an affirmative defense that must be pleaded by the defendant
in its first responsive pleading, or it is waived. MCR 2.111(F)(a); Stowe v Mather, 247 Mich 329,
330-331; 225 NW 504 (1929). Although the Auction Group defendants did not assert election of
remedies in their first responsive pleading, we find that the unique factual circumstance of this case
demands that we raise it sua sponte so as to narrow the issues for appeal and for remand to the trial
court.
3
We also expressly reject plaintiffs’ attempt to invalidate the auction by analogizing to cases involving
deeds procured by forgery or fraud.
4
In particular, plaintiffs’ fraud and misrepresentation counts of their first amended complaint alleged in
¶ 138 that “Defendants [Auction Group], Andrew Bone, William Bone, Eddie Haynes and Eddie
Haynes, Inc. made numerous material misrepresentations and omissions to Plaintiffs, including, but not
limited to, the following:
a. Defendant Andrew Bone, individually and on behalf of Defendant [Auction Group],
stated that he would not put Plaintiffs’ property in jeopardy;
b. Defendant Andrew Bone, individually and on behalf of Defendant [Auction Group],
stated that he would adequately advertise Crooked Island for sale and otherwise
market Crooked Island in a manner sufficient to obtain a sale price of at least Eight
Hundred Fifty Thousand ($850,000.00) Dollars;
c. Defendant Andrew Bone and William Bone, individually and on behalf of Defendant
[Auction Group], stated that they could get at least Eight Hundred Fifty Thousand
($850,000.00) Dollars for the sale of Crooked Island;
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d. Defendants Andrew Bone and William Bone, individually and on behalf of Defendant
[Auction Group], stated that they would not sell Crooked Island for less than Eight
Hundred Fifty Thousand ($850,000.00) Dollars;
e. Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated that he would withdraw Plaintiffs’ property, Crooked Island, from the auction if
the sale price was not at least Eight Hundred Fifty Thousand ($850,000.00) Dollars;
f. Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated that he would purchase and resell Crooked Island for at least Eight Hundred Fifty
Thousand ($850,000.00) Dollars if they failed to obtain a high bid of $850,000.00 or
more at the auction;
g. Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated that Plaintiffs would obtain millions of dollars for the sale of Crooked Island since
Albany Island, a less desirable and much smaller island, sold for One Million Two
Hundred Thousand ($1,200,000.00) Dollars;
h. Defendant William Bone, individually and on behalf of Defendant [Auction Group],
stated to George Rose that “you will be a wealthy man” after Crooked Island is sold at
auction;
i. Defendant [Auction Group’s] employee and/or agent, Doug Gallimore, and
Defendant [Auction Group’s] auction brochure, stated that the auction would take place
via “satellite hook-up” between Mackinac Island and Troy, Michigan;
j. Defendant William Bone, individually and on behalf of Defendant [Auction Group],
and Defendant [Auction Group’s] auctioneer(s), Defendants Eddie Haynes and Eddie
Haynes, Inc., stated that they could not announce and impose a minimum upset price for
the sale of Crooked Island at the auction, and that they could not withdraw the property
from the auction, because they are unauthorized to do so and will be sued by the
bidders;
k. Defendants [Auction Group], Andrew Bone and William Bone omitted to state to
Plaintiffs that it is necessary to adequately and aggressively market and advertise
Crooked Island for sale to obtain the sale price of at least Eight Hundred Fifty
Thousand ($850,000.00) Dollars anticipated by Plaintiffs;
l. Defendants [Auction Group], Andrew Bone and William Bone failed to state to
Plaintiffs the substantial risk involved in selling Crooked Island “without reserve” and
without a minimum upset price;
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m. Defendants [Auction Group], Andrew Bone and William Bone failed to state to
Plaintiffs that conducting the auction on a weekend would most likely yield a depressed
purchase price for Crooked Island;
n. Defendants [Auction Group], Andrew Bone and William Bone failed to state to
Plaintiffs that conducting the auction on Labor Day weekend, a national holiday
weekend, would most likely yield a depressed price for the sale of Crooked Island; and
o. Defendants [Auction Group], William Bone, Eddie Haynes and Eddie Haynes, Inc.
stated to Plaintiffs that Plaintiffs would go to jail and that Plaintiffs would be sued if they
failed to sign the Rose Purchase Agreement.
5
In particular, Count IV, ¶ 170 of plaintiffs’ first amended complaint alleged that “Defendants [Auction
Group], Andrew Bone, William Bone, Eddie Haynes and Eddie Haynes, Inc. breached their fiduciary
duties owed to Plaintiffs by committing, performing and/or failing to perform the following actions:
a. Failing to advise Plaintiffs of the need to adequately market and advertise Crooked
Island for sale;
b. Failing to actually market and advertise Crooked Island in an adequate and
commercially reasonable manner to obtain the greatest number of bidders for the
auction of Crooked Island;
c. Failing to advise Plaintiffs adequately and reasonably of the substantial risks involved
in selling Crooked Island without reserve and without a minimum upset price, including
without limitation the risks of selling the property for a depressed price, not being
guaranteed any minimum price, and having no ability to reject the highest bid at the
auction;
d. Selling Crooked Island at auction without reserve and with no minimum upset price;
e. Failing to conduct the auction of Crooked Island via satellite hook-up between
Mackinac Island and Troy, Michigan;
f. Advertising incorrectly that Plaintiffs’ two (2) mainland lots in Alpena, Michigan were
included with the auction of Crooked Island;
g. Failing to advise Plaintiffs that conducting the auction of Crooked Island on a
weekend would most likely yield a depressed purchase price for Crooked Island;
h. Failing to advise Plaintiffs that conducting the auction of Crooked Island on Labor
Day weekend, a national holiday weekend, would most likely yield a depressed
purchase price for Crooked Island;
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i. Conducting the auction of Crooked Island on a weekend when [the Auction Group]
Defendants . . . knew or should have known that the auction at such time would most
likely yield a depressed purchase price for the sale of Crooked Island;
j. Conducting the auction sale of Crooked Island during Labor Day weekend, a
national holiday weekend, when [the Auction Group] Defendants . . . knew or should
have known that conducting the auction at such time would most likely yield a
depressed purchase price for Crooked Island;
k. Encouraging Plaintiffs to sell Crooked Island without reserve and without a minimum
upset price when [the Auction Group] Defendants . . . knew or should have known that
such a sale would most likely yield a depressed purchase price for Crooked Island, and
would otherwise result in the inability of Plaintiffs to withdraw Crooked Island from the
auction or reject the high bid;
l. Intimidating, cornering, physically impeding travel and imposing duress upon Plaintiffs
in attempting to force them to sign the Rose Purchase Agreement;
m. Misrepresenting facts and law to Plaintiffs regarding the alleged inability of [the
Auction Group] Defendants . . . to withdraw Crooked Island from the auction, which is
contrary to the explicit reservations and statements contained in Preliminary Terms &
Conditions of Sale[,] Michigan Island Properties . . . and their advertisement. . . ;
n. Making misrepresentations and omissions of material facts to Plaintiffs as particularly
set forth in Paragraph 138 of this Complaint and incorporated herein.
o. Advertising for sale Plaintiffs’ two (2) lots located on the mainland in Alpena,
Michigan, as included with the auction of Crooked Island, when, in fact, Plaintiffs never
authorized or intended for same[;]
p. Auctioning Crooked Island without reserve, in contravention of the explicit terms of
the New Agreement[;]
q. Rushing through the auction of Crooked Island, at the expense of Plaintiffs, in order
to save enough time for [the Auction Group defendants] to auction other real property
owned by a third party and scheduled to take place on the same afternoon as the
auction of Crooked Island[;]
r. Telling Plaintiffs that they would go to jail and that they would be sued if they fail to
sign the Rose Purchase Agreement, and otherwise verbally assaulting Plaintiffs[;]
s. Threatening Plaintiffs by verbally stating to them that if the Plaintiffs go to the press
“you will regret it for the rest of your lives,” and otherwise placing Plaintiffs in fear of
suffering bodily and property harm to themselves and their family members[;]
-25
t. Cornering Plaintiffs at the auction of Crooked Island and impeding their ability to
leave the auction and inflicting duress upon Plaintiffs in an effort to force them to sign the
Rose Purchase Agreement.
6
Count XII, ¶¶ 219-220 of plaintiffs’ complaint alleged:
219. [The Auction Group] Defendants . . . breached their duty of care owing to
Plaintiffs by making numerous misrepresentations, omissions and threats to Plaintiffs as
previously alleged in this Complaint, as well as acting and/or failing to act in violation of
their fiduciary duties as previously alleged in this Complaint.
220. Further, in breach of [the Auction Group] Defendants[‘] . . . duties of care owing
to Plaintiffs, said Defendants violated [various] statutes and ordinances. . . .
7
Given that the parties were not in privity of contract at this stage, plaintiffs’ innocent misrepresentation
claim fails as a matter of law.
8
In particular, we order the allegations in ¶¶ 170c and 170k stricken, as well as any pre-agency
allegations incorporated in ¶¶ 170n, 219, and 220.
9
See, e.g., Swinebroad-Denton, Inc v Hornback 744 SW2d 429 (Ky App, 1987) (noting that a
seller may withdraw from an auction sale contract anytime before the beginning of the auction, but the
seller is bound much more stringently by an exclusive listing agreement which contractually binds the
seller to the selling agent for the duration of the term of the agreement.
10
A contract for the payment of a commission upon the sale of an interest in real estate must be in
writing and signed by the parties to be charged. MCL 566.132(1)(e); MSA 26.922(1)(e).
11
It is illegal to use a “booster,” “shiller,” or other false bidder at any auction sale of personal property.
MCL 446.58; MSA 19.565(8). As plaintiffs note, the statutory prohibition is not directly applicable to
this case given that it does not apply to auctions of real property.
12
Given our holding that the parties’ oral agreement was void, we need not reach the issue whether the
agreement was void in light of the unambiguous integration clause of the parties’ written contract, which
expressly prohibited oral modifications.
Furthermore, we note, in passing, that the trial court was in error in finding that the parties’ oral
agreement violated the parol evidence rule. The parol evidence rule does not bar proof of oral
modifications occurring after the parties have reduced their obligations to writing. “The swath of the
parol evidence rule is not so broad as to prevent a showing of subsequent oral modifications.”
Michigan Nat’l Bank of Detroit v Holland-Dozier-Holland Sound Studios, 73 Mich App 12, 14;
250 NW2d 532 (1976).
-26
13
We note that, in Phinney v Perlmutter, 222 Mich App 513, 534-537; 564 NW2d 532 (1997), a
panel of this Court expressed disagreement with the holding in Nieves that reliance must be reasonable.
The Phinney panel stated its opinion that reliance need only be actual, not reasonable, and further
indicated that it did not consider itself bound to follow Nieves under Administrative Order No. 1996-4
because opinions had been issued before and after Nieves that negated the reasonableness requirement.
Phinney, supra at 536. Recognizing that this specific issue has not been raised by the parties in this
matter, we decline at this time to express an opinion on the issue other than to state that we consider
ourselves bound, pursuant to MCR 7.215 (the successor to Administrative Order No. 1996-4), to
follow Nieves for the reasons stated by the panel in Novak, supra at 689-690.
14
As was noted previously, a claim of innocent misrepresentation does not require a showing that the
plaintiff knew the challenged representation by a contracting party was false. M & D, Inc, supra.
Plaintiffs here have alleged a prima facie case of innocent misrepresentation.
15
The Auction Group defendants erroneously asserted in their brief in support of their motion for
summary disposition that plaintiffs’ breach of fiduciary duty claim was based in contract.
16
See In the Matter of Green Charitable Trust, 172 Mich App 298, 313; 431 NW2d 492 (1988)
(noting that, in the absence of evidence of bad faith, unfair dealings, or a conflict of interest, the liability
of a trustee may be limited by the terms of the trust instrument).
17
Plaintiffs’ first amended complaint alleged that, as part of the oral agreement, defendant William Bone
proposed that “[i]f after the recess, the bidding did not reach a level that was sufficient to Plaintiffs, . . .
[the Auction Group], itself, would make the final bid on Crooked Island.” Plaintiffs further alleged that
“[b]ased upon the terms and conditions of the New Agreement offered by William Bone, Plaintiffs
agreed to proceed with the auction.”
18
In fact, the trial court’s written opinion indicated that plaintiffs’ “fraud” claims against defendant Hall
were frivolous. However, plaintiffs’ complaint did not specifically allege fraud or misrepresentation
against Hall. Instead, based on the trial judge’s statements on the record, it is clear that the judge meant
to find plaintiffs’ conspiracy and intentional infliction of emotional distress claims against Hall to be
frivolous.
19
See Septer v Tjarksen, 233 Mich App 694, 705-707; 593 NW2d 589 (1999), to determine the
liability of counsel’s law firm with regard to the payment of sanctions.
-27
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