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The Law and Martin Johnson Heade

Martin Johnson Heade (1819-1904) was a nineteenth century American painter. His major works were landscapes, florals, still lifes and tropical scenes. He was a member of the Hudson River School, yet with a career spanning 65 years, it is difficult to put a single label on his art.

A number of his paintings are reproduced below. They are typical of his work.

His paintings (real and forged) are featured prominently in a number of court cases. Three in particular are worthy of note and illuminate different legal principles.

The first case, The Estate of Martha Nelson v. Carl Rice and Ann Rice, 198 Ariz. 563, 12 P.3rd , 238 (2000) involves every flea market, tag sale and estate sale attendee's fantasy. In response to a newspaper ad, Carl Rice attended an estate sale held by the Estate of Marta Nelson and paid $60, the asking price for two paintings. The price had been set by the co-personal representatives of the estate, Edward Franz and Kenneth Newman, who had engaged an appraiser, Judith MacKenzie-Larson, to appraise the estate's personal property. She told the personal representatives that she did not appraise fine art and that, if she saw any, they would need to hire an additional appraiser. She did not report finding any fine art and, relying on her silence and the appraisal report, the price was set.

Carl Rice bought the painting because he liked the subject matter of one, and the frame of the other. At home Carl checked the signature on the paintings with a book of artist's signatures and noticed that they were similar to those of Martin Johnson Heade. The Rices sent photographs of the works to Christie's in New York, which authenticated them as the work of Heade. At a subsequent auction conducted by Christie's, the paintings sold for $1,072,000.

When the estate found out about the sale in February 1997, it sued the appraiser, believing she was responsible for the entire loss. Unfortunately for the estate, the appraiser had no assets with which to pay damages, and the case was quickly settled.

In January 1998, the estate sued the Rices, claiming a mutual mistake (neither party had known what was involved) and unconscionability (extreme unfairness). After both parties had exchanged summary judgment motions, the trial court concluded that, although the parties had been mistaken about the value of the paintings, the estate bore the risk of that mistake. It also held that the contract was not unconscionable since Carl Rice had paid the price the estate had set on the paintings. An appeal ensued. The estate pressed its claims of mutual mistake and unconscionability to the Appellate Court. The Court noted that a party seeking to rescind a contract, on the basis of mutual mistake, must show by clear and convincing evidence that the agreement should be set aside. The trial court had concluded that the estate bore the risk, since it acted on the basis of limited knowledge but treated its limited knowledge sufficient. The Appellate Court held that by relying on the opinion of someone who was admittedly unqualified to appraise fine art to determine itsexistence, the personal representatives consciously ignored the possibility that the estate's assets might include fine art, thus assuming the risk. The Court concluded this section of its decision by noting, under the circumstances, the estate was a victim of its own folly, and it was reasonable for the trial court to allocate to it the burden of its mistake.

The estate also pressed its claim of unconscionability, after all, it sold paintings in excess of $1,000,000 for $60. The Appellate Court said "no." There was no negotiation, the estate dictated the terms of the contract by setting the price and Carl Rice paid the asking price. The Appellate Court ruled in favor of the Rices.

What we learn from this case:

1. If you are involved in handling an estate and there is the possibility that fine art might be involved, make sure you use an appraiser who knows it when he sees it.

2. If you are a collector and you see something at an estate sale that looks like an incredible bargain (if authentic), pay the asking price. Trying to save a few dollars could cost you $1,000,000.

The second case, Ketcham v. Franklyn Gesner Fine Paintings, Inc., 181 Ga. App. 549, 353 S.E. 2nd 44 (1987) involves discovery of a different sort. In early September 1980, Ray Ketcham, a Georgia art dealer, received a call from one Jerry Melton, who lived in Atlanta. Melton offered Ketcham a painting supposedly by Martin Johnson Heade, which he had received from his brother's widow in payment of a $5,000 debt owed to him by his late brother. According to what he told Ketcham, Melton ran into trouble with the IRS and sought to sell the painting for $35,000. He brought the painting to Ketcham who examined it under both a strong white light and a "black light", looking for discrepancies. He also checked it against known Heades and concluded, based on his efforts, that the painting was genuine. Ketcham agreed to pay Melton $25,000 upon the sale of the painting, for which he was given a week. Anything above $25,000 would be Ketcham's. Melton required that the receipt for the painting be made out to his son, Michael, because of his IRS troubles.

On September 11, 1980, Ketcham called Franklyn Gesner, a dealer in nineteenth century American paintings in Largo, Florida, and told him about the Heade painting. Ketcham told Gesner that the painting had come from an estate in North Carolina (home of the dead brother). Ketcham did not tell Melton's story (the brother's debt, the IRS issues).

Gesner flew to Atlanta, examined the painting in the same manner as Ketcham had and satisfied himself that it was by Heade. He offered $32,500. Gesner had purchased a similar Heade a few months earlier from a young woman in Florida, which he sold a half interest in. The owner of the half interest noted that the work was not one of Heade's best efforts, yet a major art auction house offered transparencies to the leading American expert on Heade paintings prior to including it in its auction catalog. That expert, based on his examination of the transparencies, authenticated the painting.

On the day before the auction of the Florida Heade, as fate would have it, the expert was conducting a tour of art students through the auction gallery. When he saw the Florida Heade in person, he was struck by the "brightness" of the picture. Apparently, the contrasts between the light and dark sides of the painting were unusual for Heade. The expert made an effort to examine the painting more carefully, became concerned and told the auction house to withdraw the painting from sale. Gesner admitted the expert and told him about the Georgia Heade. The expert agreed to examine both. The expert determined that one long board had been cut in half and used for each painting. Also, a type of paint was used that postdated Heade's death. Both paintings were the work of the same forger.

Gesner contacted Ketcham and asked for his money back ($32,500), or the consignment fee and a claim against Ketcham's original seller. Ketcham refused. Gesner sued Ketcham claiming breach of contract, fraud, and rescission (to reverse sale). The case went to the jury on the fraud and breach of contract counts. The jury awarded Gesner $32,500, plus $6,263 in punitive damages and $31,337 in legal fees, for a total of $70,100 based on fraud.

Ketcham appealed. The Appellate Court noted, for the jury verdict to stand, the following had to be present:

1. Ketcham represented to Gesner that the painting was by Heade.

2. At the time of the representation, Ketcham knew the work was not by Heade (i.e. a lie), or had substantial reasons to doubt the authenticity of the painting.

3. The false representation was made by Ketcham to deceive Gesner.

4. Gesner relied on the representations.

5. Gesner suffered loss as proximate (legal) result of the false representations.

The Appellate Court examined the record. While it concluded that the evidence showed Ketcham represented the painting to be by Heade and that Gesner suffered a loss as a result, it found the other elements were not present.

First, the Court was satisfied that Ketcham believed the painting to be by Heade based on his own examination. Gesner performed his own similar examination, and believed the painting to be a Heade. The expert, based on his examination of the transparency, believed it (even when the painting was confirmed to be a forgery, the expert said it was a "good one"). It is important to note that the Court reached this conclusion, even though Ketcham was less than candid of the painting's provenance.

Ultimately, the Court concluded that, since Gesner had satisfied himself of the painting's authenticity through his own exam, he did not rely on Ketcham's false but innocent representations.

What we learn from this case:

1. Beware of what is too good to be true.

2. Satisfy yourself as to the provenance of a painting.

3. Don't simply rely on expert opinions (especially if based on a transparency or photo examination only).

4. Experts are not infallible.

The third case, Spanierman Gallery Profit Sharing Plan v. Arnold (US District Court SDNY No. 95 Civ. 446a, 1997 WL 139522 (SDNY)), involves a dispute among two art dealers. Arnold contacted Spanierman in May 1992 and told him he represented a private collector seeking to sell a painting by Martin Johnson Heade entitled "Two Hummingbirds and Orchid". Arnold said he was to receive a 10% commission. Spanierman paid $330,000 for the painting.

Subsequently, Spanierman sued Arnold claiming that he had misrepresented his interest in the property (he actually owned an interest in it) and that, as a result of the misrepresentation, Spanierman suffered a loss. This claim was asserted despite the fact that Spanierman resold the painting at a profit in excess of $100,000.

The legal theory put forward was unjust enrichment based on misrepresentation. Spanierman claimed that had he known Arnold owned the painting, he would have paid less, because everyone knows that the value of a painting in the hands of a dealer is less than it would be in the hands of a private individual. Had he paid less, Spanierman would have made a greater profit, hence the basis for his claimed loss.

The Court made short shrift of the plaintiff's arguments. A $100,000 profit made an unjust enrichment claim questionable at best. The contract between the parties which governed the sale made the doctrine inapplicable.

The plaintiff also urged the Court to find that the defendant had violated the implied covenant (promise) of good faith and fair dealing inherent in every contract. The Court saw no basis in the trade for the claim that the failure among dealers to inform a buyer that the dealer owned the work in question breaches reasonable commercial standards.

Spanierman lost, and had to be content with his profit.

What do we learn from this case:

1. Pick your battles. A profit in excess of $100,000 is not going to garner any judicial sympathy. A judge or a jury will bring common sense to the table

2. In the legal world, the identity of the seller of an authentic work of art, will likely be irrelevant (assuming the seller owns and has the right to sell the painting).

When Martin Johnson Heade began his long and illustrious career, he probably gave little thought to law. Nevertheless, much as his paintings have delighted eyes, they have also illuminated the law.

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