Error Apparent: Brothers In Law on Mutual Mistake

Our client Leon was a short Corsican art dealer with a huge ego and grand ambitions. He also had an interesting legal problem he wanted to discuss with us over a plate of his favorite mille-feuille at a neighborhood patisserie.

A private collector named Wellington had recently sold him an expensive portrait, which both the seller and Leon believed was by the 19th-century painter François Gérard. We found this surprising, since we thought Leon dealt exclusively in contemporary art.

“Did you have the painting authenticated by a Gérard expert before purchasing it?” we asked.

Mais non!” said Leon. “What for? Although I didn’t know the artist, my wife, Josephine, and I saw the work and liked it, and I bought it on the spot.” Wellington gave him a bill of sale stating that the work was by Gérard, Leon wired funds, and that was that. Or so our client believed.

A few months later, Leon continued, he and Josephine were looking to raise cash for an island vacation home on Elba. He showed the portrait to an auction house and two independent experts, all of whom declared it to be a clever fake. Outraged, Leon asked Wellington to unwind the sale and return his money (with interest), but Wellington flatly refused.

Leon was incensed. “That English dog!” he railed. “Isn’t this a simple case of mutual mistake?” A master strategist, Leon had apparently done some legal research of his own.

“Not so simple,” we replied. “In fact, the doctrine of mutual mistake is one of the most complex and confusing areas we encounter in our practice.”

Mutual mistake occurs when both parties are in error about an underlying fundamental element in their contract. The classic example, brooded over by every first-year law student, is the 1887 Michigan case Sherwood v. Walker, in which the court allowed the seller of a cow that was thought to be barren—but which was actually pregnant—to rescind the sale, because both purchaser and seller were wrong in their assumptions regarding the cow.

Unfortunately, Leon hadn’t bought a cow. Worse still, the fact that he hadn’t taken the precaution of authenticating the painting before buying it might well preclude him from successfully claiming mutual mistake.

Impossible!” our client sputtered.

Au contraire,” we said. We explained that a court might not view his predicament as a mutual mistake but rather as a case of “conscious ignorance”—meaning that Leon assumed the risk of the mistake by proceeding with the purchase even though, as he admitted, he didn’t know anything about Gérard’s work.

Wood v. Boynton, the most famous case involving conscious ignorance, was decided in Wisconsin in 1885 and concerned Clarissa Wood, who had brought a stone to jeweler Samuel Boynton for sale. Both Boynton and Wood thought it might be topaz but were unsure; nonetheless Wood agreed to sell it for $1. When the stone later turned out to be a diamond worth $700, the court refused to rescind the sale on the basis of mutual mistake, reasoning that Wood knew, and assumed the risk, that the gem might have been worth more than the price paid.

“Are there any more recent cases?” demanded Leon. “I don’t live in the 19th century, you know!”

We told him about the 2013 District Court case ACA Galleries, Inc. v. Kinney. ACA’s president, Jeffrey Bergen, had purchased the Milton Avery painting Summer Table, Gloucester from collector Joseph Kinney after inspecting it at a New York storage facility. Shortly thereafter, the Milton and Sally Avery Arts Foundation determined that the work was not by Avery.

ACA sued Kinney in an attempt to rescind the sale, arguing that both parties had thought the painting was authentic, but the court held for Kinney, stating that in New York, mutual mistake “may not be invoked by a party to avoid the consequences of its own negligence”— particularly where “the party wishing to invoke the doctrine bears the risk of the mistake because he was aware of his limited knowledge but acted anyway.”

Different courts have used the seemingly simple theory of mutual mistake to arrive at different outcomes. In contrast to the result reached in ACA Galleries, Inc. v. Kinney, two New York Supreme Court decisions—Uptown Gallery, Inc. v. Doniger in 1993 and Feigen & Co. v. Weil in 1992—allowed purchasers to rescind sales contracts on the grounds that the parties mistakenly assumed that an artwork was authentic.

In the former, Uptown Gallery bought a painting from Marjorie Doniger that both the gallery and the seller believed was by Bernard Buffet. The work bore Buffet’s signature and was accompanied by an invoice with his name. When Uptown Gallery discovered the painting was a forgery, it demanded a refund, but Doniger refused, arguing that by purchasing the work, the gallery had assumed the risk of its being fake. Here the court held for the gallery, determining that there was “no reason why defendant should be entitled to a windfall based on its sale of a painting that was not what either party believed it to be.”

Similarly, in Feigen & Co. v. Weil, art dealer Richard Feigen sold what he believed was a genuine Matisse drawing, Le vase d’opaline, signed “H. Matisse ’47,” to Tom Hammons in 1989. The sale was for $165,000, and Feigen passed along $100,000 to the drawing’s owner, Frank Weil. In 1990, when Hammons was ready to sell it, the Matisse estate declared the work a forgery. Feigen demanded that Weil return the money, but Weil refused. Citing the pregnant cow case, the court ruled for Feigen.

“What happens if a work is believed to be authentic at the time of sale, but experts later change their opinion?” asked Leon. “Can a contract be rescinded for mutual mistake then?”

The answer was no. Expert opinions may change, but that does not provide a legal basis to undo a sale.

As a practical matter, when representing a buyer we sometimes try to address the thorny issue of what happens if an authentic work later becomes “de-authenticated” by including a provision in our purchase contracts. We ask for the right to rescind the purchase for a certain period of time, typically two years, if there is a change in expert opinion. Some auction houses put similar clauses in their consignment agreements (but without the time limit), giving them the right to rescind a sale if they believe the sale would subject them to liability for a breach of warranty of authenticity.

The good news for Leon was that there were legal theories apart from mutual mistake that might support his case. For example, our client might have a valid fraud claim if Wellington had knowingly made a false representation with the intent to deceive. Or he might argue breach of warranty if Wellington’s representations did not have a reasonable basis in fact.

Leon chewed this over as he finished his pastry, then shot us a devilish grin. “I might just have a ‘diamond’ I can sell to Wellington,” he said. “My philosophy is ‘Never interrupt your enemy when he is making a mistake.’”

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