Sable v. Global Auctioneers, Inc. (In re Craig Coal Mining Co.)
Docket: Bankruptcy No. 81-2259; Adv. No. 82-2540
Court: District Court, W.D. Pennsylvania; August 11, 1983; Federal District Court
Trustee's Complaint for Turnover of Monies alleges that the auctioneer, Global Auctioneers, retained proceeds exceeding the amounts specified in the auction agreement, which was modified by various terms, including adjustments to auctioneer commissions, limits on expenditures for sale preparation, and proration of advertising costs. Trustee claims authority based on a subsequent agreement with the auctioneer’s agent, despite the auctioneer's assertion that the agent lacked authority for such modifications.
The case relates to a Chapter 11 bankruptcy filed by Craig Coal Mining Company in 1981, leading to an agreement between the Trustee and Global Auctioneers for the sale of equipment. Initial negotiations resulted in a "Consignment Contract," which was not signed by the Trustee due to unsatisfactory terms regarding auction expenses. Further negotiations led to a signed auction agreement that included specific commission rates and spending limits for advertising and preparation. Notably, the agreement stipulated that the auctioneer would not earn a commission on equipment bid by the secured creditor, Irving, provided the auctioneer received a minimum commission of $20,000. Modifications to the agreement included handwritten changes to commission language, reflecting prior oral agreements between the Trustee and the auctioneer’s president, Joe Bailey.
The contract lacked provisions regarding the auctioneer's commission for equipment bid by Irving, minimum upset bids to protect Irving's interests, advertising, and auctioneer's commission for equipment sold to third parties before the auction. It also did not address equipment repair, as no repairs were anticipated at that time. Joe Bailey returned the signed auction agreement with handwritten changes on February 21, 1982, which was approved by the Court on March 11, 1982. Following this, Trustee communicated with Bailey, but after March 4, 1982, all communications shifted to Tex Boyles, Global's agent, who was designated by Bailey. Boyles was authorized to find sellers, conduct appraisals, and manage repairs, without any limitations communicated to Trustee regarding his authority.
Initially, Trustee did not see the need for repairs but reconsidered in mid-March to maximize sale prices. On April 28, 1982, Boyles provided a handwritten estimate for repairs of $30,000-$35,000, which Trustee forwarded to Irving's counsel on May 20, 1982. However, on May 26, Trustee instructed Boyles not to proceed with repairs. A meeting on June 4, 1982, resulted in an agreement for Trustee to seek Court approval for repairs, contingent on Irving's consent. Boyles informed Trustee about including equipment from two companies in the auction, with consignment contracts submitted as evidence. A follow-up letter from Trustee on June 7, 1982, confirmed plans to petition the Bankruptcy Court for repair expenditures, subject to Court approval and any objections from Irving Leasing, with the requirement for itemized receipts for all repairs.
The letter outlines an understanding regarding the sale of equipment, including the prorating of common sale expenses such as advertising among parties involved. Joe Bailey received the letter but did not respond. On June 16, 1982, counsel for Irving informed the Trustee that items 3-12 from Plaintiff’s Exhibit I would not be approved without an independent investigation into necessary repairs. A meeting on July 1, 1982, between the Trustee, Irving's counsel, and Boyles focused on authorized repairs and a $20,000 limit on auctioneer expenditures for cleaning, painting, and transportation, which was orally reduced to $10,000. A follow-up letter dated July 6, 1982, confirmed agreements made during the meeting, specifying a total of $20,461 for repairs authorized at the meeting, in addition to prior repairs. The Trustee had previously advanced $6,652.09 for repairs and an additional $19,862, bringing the total to $26,514.09. The July 6 letter was shared with Boyles, who acknowledged its accuracy. All negotiations regarding repairs were conducted with Boyles, who suggested hiring day labor and used parts for cost savings. Bailey claimed an agreement for Global to provide its mechanic at $28 per hour; however, the Trustee maintained that their last conversation occurred on March 4, 1982, and no such agreement existed. Mechanic Don Droney worked at the auction site from July 4 to July 28, 1982, logging 203 hours at a pay rate of $620 biweekly plus expenses. The auction on July 23, 1982, resulted in Irving bidding $57,000 for two loaders, and prior to the auction, the Trustee sold a Davey Drill for $77,000, with no commission charged by Global, as agreed with Boyles.
The July 23, 1982 sale of Craig Coal equipment and machinery generated total gross proceeds of $397,270, which included $57,000 from equipment bid in by Irving. Total commissions charged amounted to $28,456, with $4,620 representing a 6% commission on the sale of the Davey Drill, and $3,420 on the Irving bid. Global deducted $14,700 for cleaning, painting, and transportation, while the Trustee had previously advanced $3,678.13 for transportation, bringing total expenses in that category to $18,378.13—$8,378.13 over the $10,000 limit agreed upon by the Trustee, agent Boyles, and Irving's counsel on July 1, 1982. Global also deducted $10,000 for advertising from the sale proceeds, despite total advertising costs being $15,489.98, and $14,949.57 for mechanical repairs.
The plaintiff contends that the corporate defendant's agent had the authority to negotiate terms with the Trustee, including allowing secured lenders to bid without auctioneer commissions and modifying limits on repair and transportation costs. The defendant, however, disputes any knowledge of these negotiations and denies that Boyles had the authority to bind them through oral agreements. They acknowledge a commission error on the Irving bid but refute claims of an agreement exempting the Davey Drill from auctioneer’s commission.
The court refers to case law regarding an agent's authority, which includes express, implied, apparent authority, and authority by estoppel. Apparent authority allows a principal to be bound by an agent's actions that others reasonably believe the agent is authorized to perform. The court concludes that agent Boyles had apparent authority to alter the auction agreement, specifically exempting the Davey Drill from commission and reducing the maximum for cleaning, painting, and transportation from $20,000 to $10,000 during the July 1 meeting.
Parties agreed that additional repairs would not exceed $20,461, plus $6,652.09 previously advanced by the Trustee. At a meeting on June 4, 1982, advertising expenses for the auction were to be prorated between N.M.S. Coal Company, Limited and P.B.S. Coals, Inc. Evidence supports the finding of authority by estoppel, where a principal may be held liable for an agent's actions due to negligence in preventing unauthorized conduct.
The Court determined that the Trustee is entitled to $4,620 for a commission charged on the Davey Drill and $3,420 for an erroneous equipment commission. The total amount authorized for repairs was $27,113.09, with the Trustee having advanced $26,514.09. The Trustee is owed $14,350.57 for repairs, calculated as $14,949.57 charged for repairs minus $599, which is the difference between the total authorized repairs and total advanced by the Trustee.
For cleaning, painting, and transportation, the Trustee claims $8,378.13, as Global deducted $14,700 from sale proceeds, and the Trustee had advanced $3,678.13 prior to the auction. Advertising expenses totaled $15,489.98, with gross sale proceeds of $625,295, and the Trustee is owed $1,573.46 for an overcharge in advertising, having been charged $10,000. Overall, the Trustee is entitled to a total return of $32,342.16, which includes items like the Davey Drill M8B and a Ford Truck with attachments.
