Buyer’s Remorse Does Not Constitute Duress, Holds First Department
March 04, 2022
A recent decision from the First Department reminds us that New York courts are not sympathetic to duress claims when the alleged acts or threatened acts fall within the ambit of the defendant’s rights under a valid agreement.
In Zhang Chang v Phillips Auctioneers LLC, the First Department affirmed Manhattan Commercial Division Justice Jennifer G. Schecter’s Decision and Order dismissing plaintiff’s causes of action for breach of contract, unjust enrichment, and declaratory judgment.
Defendant Phillips is a world-renowned auction house, catering to international collectors for the purchase and sale of 20th-century and contemporary works of art, among other things. As taken from the Complaint, Phillips and the Plaintiff-art collector entered into a standard Guaranty Agreement, in which Plaintiff committed to a minimum bid guarantee in the amount of $27.13 million for the scheduled auction of a painting by Gerhard Richter entitled, “Düsenjäger.” Per the Guaranty Agreement, if no bid was received at auction in excess of the guaranteed minimum price, Plaintiff was required to purchase the painting for the $27.13 million guarantee amount.
Following the auction (in which the Düsenjäger received no higher bids), Phillips sought to enforce the terms of the Guaranty Agreement, but Plaintiff resisted. Ultimately, the parties settled their dispute, as captured by a Settlement Agreement requiring Plaintiff to pay $26 million in exchange for title to the Düsenjäger and to consign to Phillips a diptych (in which Plaintiff retained an interest) by the artist Francis Bacon as collateral for the settlement amount.
Plaintiff failed to make timely and complete settlement payments, with $23 million outstanding at the end of the payment term. Accordingly, Phillips listed the Düsenjäger for auction, with the proceeds to be applied to the outstanding sums owed by Plaintiff. Plaintiff was advised that he could either pay the entire outstanding amount under the settlement in exchange for title of the painting, or he would be permitted to participate in the auction in which, on top of any winning bid, he would be charged a standard “buyer’s premium” fee.
Plaintiff elected to bid on and acquire the painting at auction and signed an Acknowledgment stating the total amount of his remaining debt to defendant, including the buyer’s premium. Plaintiff paid the entire amounts acknowledged and took possession of both the Düsenjäger and the Bacon artwork.
Plaintiff then commenced litigation claiming that he overpaid the “buyer’s premium” in excess of the amounts owed under the Settlement Agreement, claiming that he only signed and ratified the Acknowledgment under duress for fear of losing the Düsenjäger and the Bacon artwork in a threatened “fire sale” by Phillips.
The First Department affirmed Justice Schecter’s decision and order granting dismissal of Plaintiff’s claims in their entirety. The Appellate Court held that that the parties’ agreements unambiguously provided that Phillips—not Plaintiff—retained title and possession of the Düsenjäger until Plaintiff paid off the debt by a certain specified date, which Plaintiff failed to do. Phillips was, therefore, entitled to list the artwork at auction for which Plaintiff was liable for the costs incurred and for the “buyer’s premium.” This act could not constitute duress as a matter of law, as Phillips was simply exercising its rights under the parties’ agreements.
Furthermore, the Appellate Court held that no further consideration was required in exchange for Plaintiff’s countersignature on the Acknowledgement because the Acknowledgement merely restated Plaintiff’s obligations under the parties’ prior agreements. Indeed, the Acknowledgment was ratified, not voided, by Plaintiff as Plaintiff countersigned the Acknowledgement, paid the entire amount listed in the Acknowledgment, and took possession of the artworks thus accepting the benefit of the bargain.
Finally, the Appellate Court held that the unjust enrichment claim was properly dismissed as duplicative of the breach of contract claim.
At the end of the day, Plaintiff’s own actions in defaulting under the Guaranty Agreement, defaulting under the Settlement Agreement, and countersigning and ratifying the Acknowledgement proved fatal to his duress claim. It goes without saying that litigants would be well advised to carefully consider the terms of any agreement they enter into before they sign; once you sign and act, it is hard to walk it back.