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.

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