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Harvey Manes MD

Introduction - Article by Harvey Manes MD - continued

The court made its decision based on the fact that there was a "basic inequality of knowledge, expertise or economic power" between the two parties. Since there was an uninformed retail buyer, the dealer was held liable for the work of art and was required to reimburse the buyer the full purchase price no matter how many years after the original sale. This is a kind of tort remedy in which the buyer is made whole. The normal contract remedy of expectancy was not utilized since the buyer did not receive the full market value of the work of art had it been real, or the accrued interest had the money been put in a bank. This author believes that the court should examine the dealer’s culpability in deciding the damages. If there is evidence of fraud or negligence then the buyer should be entitled to expectancy damages or accrued interest.

In another case involving fraud, the court took the direct opposite position and ruled against the plaintiff when the SOL had run out. This case involved the sale of a painting attributed to the famous artist John Singer Sargent by the Spanierman Gallery (a well-known gallery in Manhattan) to another art dealer named Rosen. . The sale took place in 1968, but Spanierman, for insurance purposes, continued to send appraisals of the painting to the buyer. It was not until 1986 that the painting was disclosed to be a fake and a suit was brought for both common law fraud (a tort) and for breach of contract. The gallery stood by the fact that they sold the painting believing that it was authentic, did not commit fraud, and they were protected by the SOL of four years. The plaintiff argued that the warranty should "extend to the future when the nature of the product implies performance over an extended period of time." The court found no evidence of fraud and held against the plaintiff with regard to the SOL. The court believed that since the plaintiff was a dealer they should have done their homework within the four-year SOL and should be held equally responsible to determine if a work of art is legitimate. Although the Rosens were good faith purchasers they lost the case. The one factor, which distinguishes this case from the Balog case, is that in this case the plaintiff was another art dealer.

There is another clear avenue of redress that the courts have not addressed, which is discussed in the Restatement (Second) of Contracts; i.e. the concept of contract nullity based on a mistake. "Where a mistake of both parties at the time of the contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party…." If the artwork is misappropriated the purchaser could make the simple claim that the contract is void because of a mistake. The classic case goes back to 1887 and involves a cow that was thought to be barren but instead was fertile and worth ten times the price paid. The court ruled the contract voidable because "the mistake … went to the nature of the thing. A barren cow is substantially different… as between an ox and a cow…." Using the same logic, the dealer should be required to take back the work, refund the money regardless of the SOL, which does not apply to a contract that is null and void. Although the UCC does not use the term "mistake" a similar concept can be found in § 2-313 in which the seller makes an express warranty that the artwork is as described and if not, the warranty is breached.

The concept of mistake

Harvey Manes, M.D.


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