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Friday, September 28, 2007

Buyer Isn't Third Party Beneficiary of Appraisal Contract

Aab_2 The buyer of a painting is not the third-party beneficiary of a contract between the seller and an appraiser who issues a faulty appraiser, says a New York trial court in a recent decision, Mandarin Trading v. Wildenstein, No. 602648/06 (N.Y. Sup. Ct. Sept. 4, 2007).  And since there is no contractual relationship, writes Justice Emily Jane Goodman, the implied covenant of good faith and fair dealing provides no relief.  The case is reported here by Law.com.

In the case, Guy Wildenstein, a "world renowned" expert on the works of Post-Impressionist painter Paul Gauguin, provided an appraisal of a Gauguin painting called "Paysage" to a man named Raymondin, who was not a party to the action.  In the appraisal, Wildenstein estimated the painting's value at $15 million to $17 million, but did not mention the fact Wildenstein at some earlier date had an ownership interest in the painting.  The appraisal was later turned over to the plaintiff buyers, who relied on it to purchase the painting from a third party for $11.8 million.  The buyers immediately arranged to have it sold by the Christie's auction house.  When the high bid came in at only $9 million, the buyers withdrew the painting and sued Wildenstein, claiming that it had issued a fraudulent appraisal and that it had failed to disclose its own economic interest.

The buyers raised several claims.  First, they claimed to be third-party beneficiaries of the contract between Wildenstein and Raymondin, and so could sue Wildenstein for breach of contract.  Goodman, however, found that there were no facts to suggest that Wildenstein knew that the appraisal was being done specifically for these buyers, and third-party duties do not run to everyone who might rely on an opinion at some time in the future.  Second, since the plaintiffs were not parties to the contract, even as third party beneficiaries, their claims for breach of Wildenstein's duty of good faith and fair dealing failed, since that obligation runs to contracting parties, not to the general public.  Third, the claim that Wildenstein had engaged in misrepresentation by failing to disclose his ownership was also dismissed because Wildenstein there was no fiduciary relationship between him and the plaintiffs that would give rise to a duty to disclose.

[Frank Snyder]

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