SW Legal studies in Business

Parties with Unclean Hands Cannot Get Help from Courts
Description Michigan high court held that a party who hoped to gain from a rigged auction could not bring a case against the auctioneer who failed to rig the auction as planned. Because the parties have unclean hands, they may not come to the court for help.
Topic Contracts
Key Words Auction; Fraud; Unclean Hands
C A S E   S U M M A R Y
Facts Rose owned Crooked Island in Lake Huron. He approached National Auction Group (NAG) about selling the island at auction. They had numerous discussions. Rose said he wanted, and NAG said it could get, a price of at least $850,000. They signed an agreement that NAG would sell the island at an absolute auction with no reserve. Therefore, the property was to go to the highest bidder regardless of the bid price, but Rose could remove the property from auction prior to the auction. When only five parties came to the auction, Rose wanted to withdraw but NAG assured him that if the bidding was not high enough, it would have a shill bid up the price and "win" the auction, so that Rose would get his property back secretly. At auction, the high bid was $175,000 and no shill appeared, so the property sold for that price. Rose sued NAG. Complicated litigation eventually went to the Michigan high court.
Decision

Unclean hands were involved in this deal. "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 . . . either compel its execution or decree its cancellation, not after it has been executed, set it aside, and thus restore the plaintiff to the property or other interests which he had fraudulently transferred." Rose could not reasonably have believed that it was appropriate to engage in this scheme and could not expect that he is legally entitled to have the auctioneers follow through with an illegal scheme. "In sum, the clean hands doctrine bars the present claims."

Citation Rose v. National Auction Group, Inc., 646 N.W.2d 455 (Sup. Ct., Mich., 2002)

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