First Appellate Division declines to extend mutual mistake doctrine to commercial art transaction.

In an interesting application of mutual mistake in an art deal transaction, the First Appellate Division, in a split opinion, affirmed in Jerome M. Eisenberg, Inc. v. Hall, 2017 NY Slip Op 01437 (February 23rd, 2017) that the Plaintiff was not entitled to summary judgment for the breach of contract pursuant to the doctrine of mutual mistake.

The Plaintiff, Jerome Eisenberg, purports to be an expert in classical antiquities and is a buyer and seller of various antiquities.  The Plaintiff is also a Qualified Appraiser of the Appraisers Association of America and also has PhD in Roman, Egyptian and Near Eastern Art.

Defendant, Maurice E. Hall, Jr. is an art dealer who transacts primarily in 16th to 19th century European art, and in particular, Renaissance art. He self-proclaims to be only an amateur collector with regards to ancient antiquities. The subject matter between the parties were two pieces: (1) marble head or bust of Faustina II (“Faustina”) and (2) a bronze warrior statue purported to be either from the Etruscan or Roman Era (“Etruscan”). it should be noted that both these pieces are considered to be ancient.

In 2009, the Plaintiff purchased the Faustina from the Defendant’s townhouse and later sold the piece to Mougins Museum of Classical Art in France. In September 2011, the Plaintiff was informed by the Museum that the Faustina was a fake and substantiated their position by submitting two expert valuations.

In April 2011, the Plaintiff purchased the Etruscan and a bronze helmet. At a later stage ,the Plaintiff submitted photographs and the statute to various experts who concluded that based on the style and metallurgical analysis, the Etruscan was produced in the 19th or 20th century which would not qualify it as ancient.

Plaintiff moved for summary judgment and argued that the contract should be voidable under the doctrine of mutual mistake.

The Majority cited the standard set In Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993] and P.K. Dev. Elvem Dev. Corp., 226 AD.2d 200 (First Dept., 1996) as to whether the plaintiff bore any risk of the mistake due to its “conscious ignorance” of the items’ authenticity. Furthermore, the Court reiterated that where the doctrine of mutual mistake applies, the contract is subject to rescission because it does not represent the meeting of the minds of the parties. In addition, the said mistake must exist at the time of the formation of the contract and must be substantial (internal citations omitted).

The Majority reasoned that while both parties mistakenly assumed that the item in question was ancient, nevertheless there were “ancient, issues of facts exist as to whether plaintiff bore the risk of that mistake due it its “conscious ignorance” of the items’ authenticity”.

The Majority re-iterated that a contract would be voidable if it is entered under a mutual mistake since it does “not represent the meeting of the minds’ of the parties”.   Furthermore, such mutual mistake shall exist at the time of entering the contract and must be substantial (internal citation omitted).

Regardless, there are exceptions where such a mutual mistake may not apply, such as a party’s own negligence. Where a party should “in the exercise of ordinary care, should have known or could have easily ascertained the relevant fact, then the party is deemed to have been “consciously ignorant” and barred from seeking rescission or other damages.  The Majority emphasized that the relevant party “must go beyond its own efforts in order to ascertain relevant facts”.

Thus, under the Majority’s reasoning, the Plaintiffs simply failed to conduct sufficient due diligence despite having the ability and the access to the relevant expertise. It was noted that during previous transactions, the Defendants had produced items with questionable authenticity and thus Plaintiff should have had notice as to the authenticity of the current item.

The Dissent’s fairly expansive reasoning disagreed with one aspect of the Majority’s decision and that is if the Plaintiff was consciously ignorant of the items’ authenticity.

The Dissent supported the Plaintiff’s position that that he genuinely did not believe the artwork in question was inauthentic. However, the disagreement with the Majority’s position was that the Dissent believed that “there is no evidence that the plaintiff consciously ignored its uncertainty as to a crucial fact”. Despite having notice that the Defendants sold inauthentic pieces in the past, with respect to the pieces at hand, there is no indication that the Plaintiff was “uncertain to a crucial fact”. The record did not indicate the circumstances of the details of the previosu transactions, and nevertheless the Plaintiff was refunded for all monies paid and thus suffered no financial loss.

However, the critical distinction between the Majority and the Dissent is that pursuant to Richard L. Feigen & Co. v. Weil, 1992 NY Misc LEXIS 711, aff’d 191 AD.2d 278 (First Dept. , 1993), the Dissent relied on the assertion that “there is no authority for the proposition…that in a contract between an expert and non-expert, rescission based on mutual mistake is unavailable to the expert” (internal citations omitted). The Dissent also cited Uptown Gallery, Inc. v. Doninger (1993 NY Misc LEXIS 661 [Sup. Ct. , New York County 1993]) where the conscious ignorance claim was also set aside on grounds that there was no uncertainty involved in the underlying painting, but the parties simply assumed that the painting was an authentic piece painted by a certain artist.

Ultimately, the majority decided that the Plaintiff bore the risk of the transaction and in essence, could have conducted further due diligence on the pieces whereas the Dissent focused on that such due diligence was unnecessary since there was no apparent uncertainty on the onset of the formation of the contract.

First Department reverses Supreme Court decision on”holdback”provision in stock purchase agreement.

In a rare reversal, the Court in Golden Tech. Mgt., LLC v. NextGen Acquisition, Inc., 138 AD3d 625 (2016) granted defendant’s motion for summary judgment dismissing a breach of contract cause of action.

As part of the terms of a stock purchase agreement, the defendants were to make an initial cash deposit at the time of closing.  In addition, they were also to deposit a “holdback” amount in an escrow account of non-party NextGen Fuels, Inc.   The deposit would then be returned to the plaintiffs after one year.

Plaintiffs filed a cause of action for breach of contract approximately seven years after the closing date, but within six years of the time that the deposit should be disbursed to the plaintiffs.

The Court delineated the contract provision to include two obligations: (1) a deposit to be made into an escrow account and (2) the payment obligation whereby the plaintiffs would receive the amount deposited after one year.

Here, the plaintiff intended to enforce the payment obligation and the Court noted that while it was not time-barred under CPLR  213(2), nevertheless the defendants were “not responsible for the breach” and the correct party was non-party NextGen Fuels, Inc.

 

First Appellate Division grants Akon reprieve in breach of contract case.

In Belgium v. Mateo Prods., 2016 NY Slip Op 02730, (April 12th, 2016, First Department), the Plaintiff, Lofraco Belgium (Front Row Entertainment) entered a contract with Defendant, Kon Live Touring (KLT), who was also Akon’s management company.  Akon was scheduled to perform at a concert in Belgium.  However, on the day of the concert, Akon claimed he was too sick to perform.  The plaintiff filed a breach of contract claim against Akon for the $125,000 advance given.  Subsequently, both parties filed motions for summary judgment.  In a split decision, the Court held that there was a triable issue of fact as to the ther there was a breach of contract and denied both motions.

On August 7th, 2009, the parties entered into an agreement whereby Akon was to perform on October 16th, 2009 at a concert.  The plaintiff paid $125,000 to Akon’s management team.  The concert was re-scheduled to December 9th, 2009, but on the day of the concert, Akon stated he wasn’t going to appear due to illness.  Akon claimed he was still suffering symptoms from his surgery that took place on November 16th, 2009 and thus could not perform.

The agreement signed between the parties had a force majeure clause whereby it stated that “If ARTIST is unable to perform in the event of sickness or accident then this will be considered Force Majure’ [sic] by ARTIST and ARTIST shall not be subject to any liability…Monies will be returned for any nonperformance that is not covered under the scope of force Force Majure’ [sic].”

A force majeure clause is enforceable where the “expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties” quoting United Equities Co. v First Natl. City Bank, 52 AD2d 154, 157 [1st Dept 1976], affd 41 NY2d 1032 [1977].  The burden remains on the defendant to prevail on a force majeure defense .

KLT moved for summary judgment and submitted two key pieces of evidence: (1) records from Akon’s surgery and (2) testimony from Akon’s surgeon that claimed the symptoms suffered by Akon were “consistent with tearing of scar tissue following the surgery he had undergone a few weeks before the concert date.”   The lower court denied the motion for summary judgment as KLT failed to meet the burden on numerous grounds.  Firstly, despite testimony from the surgeon, KLT failed to submit any evidence that Akon was ill on that particular day.  Furthermore, the Court held that the lack of an explanation as to  why such medical records were not submitted, despite being in KLT’s control, was a factor in denying the summary judgment motion.

The majority also reversed the lower court’s ruling granting summary judgment to the plaintiff.  In order to prevail on the summary judgment motion, the Court stated that two elements needed to be satisfied: (1) Akon was able to perform and (2) Akon was not sick and thus was in a position to perform.  Here, the plaintiff only argued that the lack of medical records provided by Akon was enough to show that Akon was not sick.  However, the majority disagreed and stated a trial was needed.

The dissent agreed in part with the majority in that KLT should have been denied summary judgment, but dissented on the grounds that the plaintiff should have been granted summary judgment.

The dissent disagreed with majority and put forth many persuasive arguments as to why the plaintiff should have prevailed on the summary judgment motion.  First, the elective procedure was on November 16th, 2009 even though Akon knew he was going to perform in Belgium a few weeks later; Akon admitted in his affidavits that he was recovering from surgery quite well; he travelled to Puerto Rick for a promotional event only a few days before the Belgium concert; admittedly, Akon was ill for a period of time in Puerto Rico, but continued to appear at the promotional event and in any case such illness did not require any medical treatment; despite his defense that he seemed medical care upon return to the US, he has failed to produce any medical records to substantiate his claim.  Finally, the only treatment Akon received was a massage therapy and did not see his surgeon until December 22nd 2009.

Furthermore, the dissent noted that Akon failed to produce such medical records when requested by the Plaintiff during the discovery process.  In addition, the surgeon who treated Akon claimed that he “did not treat him for post surgery symptoms”.  Akron’s credibility was also in question when the surgeon failed to corroborate that he advised Akon to go to the emergency room for the symptoms experienced in Puerto Rico.  Nevertheless, it was the surgeon’s position that such symptoms would not have prevented Akon from performing in Belgium.

Ultimately, the issue going forward for the plaintiff is that the medical records are solely in Akon’s possession and control.  For plaintiff to prevail, such records must be produced in order to prevail on the summary judgment otherwise it comes down to a trial.