Selling Artwork is Tricky: Buyers aren’t the only ones who should beware

By Judge Gerald A. Williams

Every January, the Education Services Division of the Arizona Supreme Court sponsors a new judge orientation. Each year, I teach a contract law session. I call one of my examples “Everyone’s Antiques Roadshow Fantasy.”

The case is now over 20 years old, but it remains good law. It happened at an estate sale in Tucson.

The co-personal representatives of an estate (sometimes called executors) hired someone to appraise the value of the recently deceased’s personal property. The appraiser specifically stated that their firm did not appraise art and the client would need to hire a separate art appraiser if appropriate. They did not do so.    

A potential buyer responded to a newspaper advertisement, attended the public estate sale, and purchased two oil paintings for the total asking price of $60. He had purchased art before, but he was not an expert and had never made more than $55 on any single piece. In this case, he bought one of the paintings because he liked it and the other because he liked the frame.

When he got home, he looked through an art book and the paintings he purchased seemed similar to the works of Martin Johnson Heade, an American painter known for landscapes, seascapes, and portraits of tropical birds. He died in 1904.

The buyer sent pictures of the two paintings to Christie’s in New York. Their experts authenticated the paintings and offered to sell them. Christie’s then sold the paintings for $1.072 million. After expenses and commissions, the buyer at the estate sale received a pre-tax amount of $911,780.

When the sellers heard of this sale, they predictably cried foul. They alleged that the sale of the paintings was not valid due to the mistake as to the value of the two paintings. They lost at the trial court level and appealed to the Arizona Court of Appeals.

The appellate court followed a standard legal maxim that a mutual mistake as to value, even an extreme one, does not invalidate a purchase contract. In this case, neither side had a specialized knowledge of fine art. In addition, there was no negotiation. The buyer simply paid the seller’s asking price.

The Arizona Court of Appeals had some fairly harsh language for the sellers. The judges wrote, “The estate had ample opportunity to discover what it was selling and failed to do so. Instead, it ignored the possibility that the paintings were valuable and attempted to take action only after learning of their worth as a result of the efforts of the (buyer).  Under these circumstances, the estate was a victim of its own folly, and it was reasonable for the court to allocate to it the burden of its mistake.”

This legal concept is not new. There is a famous case from 1885 where a person found a small pretty stone and sold it to another for $1 because both believed it to be topaz. It turned out to be an uncut diamond worth nearly $1,000. Because it was an honest mutual mistake, and because each side took a risk that it was more or less valuable than the agreed upon sales price, a court declined to invalidate the sale.   

Nearly everyone has heard the legal phrase “buyer beware.” It is also often equally important that the seller beware. The case from Tucson is Estate of Martha Nelson v. Rice, 12 P.3d 238 (Ariz. Ct. App. 2000).