Nelson v. Rice

• Decision Date: 31 October 2000
• Docket Number: No. 2 CA-CV 99-0085.,2 CA-CV 99-0085.
• Citation: 12 P.3d 238,198 Ariz. 563
• Parties: The Estate of Martha NELSON, deceased, by Copersonal Representatives Edward P. Franz and Kenneth C. Newman, Plaintiff/Appellant, v. Carl RICE and Anne Rice, husband and wife, Defendants/Appellees.
• Court: Arizona Court of Appeals

12 P.3d 238

198 Ariz. 563

The Estate of Martha NELSON, deceased, by Copersonal Representatives Edward P. Franz and Kenneth C. Newman, Plaintiff/Appellant, v. Carl RICE and Anne Rice, husband and wife, Defendants/Appellees.

No. -0085.

Court of Appeals of Arizona, Division 2, Department B.

October 31, 2000.

Mesch, Clark & Rothschild, P.C. by Douglas H. Clark, Jr., and Scott H. Gan, Tucson, Attorneys for Plaintiff/Appellant.

Joseph W. Watkins, P.C. by Joseph W. Watkins, Tucson, Attorney for Defendants/Appellees.

OPINION

ESPINOSA, Chief Judge.

¶ 1 Plaintiff/appellant the Estate of Martha Nelson, through its copersonal representatives Edward Franz and Kenneth Newman, appeals from a summary judgment in favor of defendants/appellees Carl and Anne Rice in the Estate's action seeking rescission or reformation of the sale of two paintings to the Rices. The Estate argues that these remedies are required because the sale was based upon a mutual mistake. The Estate also contends that enforcing the sale "contract" would be unconscionable. We affirm.

Facts and Procedural History

¶ 2 We view the evidence and all reasonable inferences therefrom in the light most favorable to the party opposing the summary judgment. Hill-Shafer Partnership v. Chilson Family Trust, 165 Ariz. 469, 799 P.2d 810 (1990). After Martha Nelson died in February 1996, Newman and Franz, the copersonal representatives of her estate, employed Judith McKenzie-Larson to appraise the Estate's personal property in preparation for an estate sale. McKenzie-Larson told them that she did not appraise fine art and that, if she saw any, they would need to hire an additional appraiser. McKenzie-Larson did not report finding any fine art, and relying on her silence and her appraisal, Newman and Franz priced and sold the Estate's personal property.

¶ 3 Responding to a newspaper advertisement, Carl Rice attended the public estate sale and paid the asking price of $60 for two oil paintings. Although Carl had bought and sold some art, he was not an educated purchaser, had never made more than $55 on any single piece, and had bought many pieces that had "turned out to be frauds, forgeries or ... to have been [created] by less popular artists." He assumed the paintings were not originals given their price and the fact that the Estate was managed by professionals, but was attracted to the subject matter of one of the paintings and the frame of the other. At home, he compared the signatures on the paintings to those in a book of artists' signatures, noticing they "appeared to be similar" to that of Martin Johnson Heade. As they had done in the past, the Rices sent pictures of the paintings to Christie's in New York, hoping they might be Heade's work. Christie's authenticated the paintings, Magnolia Blossoms on Blue Velvet and Cherokee Roses, as paintings by Heade and offered to sell them on consignment. Christie's subsequently sold the paintings at auction for $1,072,000. After subtracting the buyer's premium and the commission, the Rices realized $911,780 from the sale.

¶ 4 Newman and Franz learned about the sale in February 1997 and thereafter sued McKenzie-Larson on behalf of the Estate, believing she was entirely responsible for the Estate's loss. The following November, they settled the lawsuit because McKenzie-Larson had no assets with which to pay damages. During 1997, the Rices paid income taxes of $337,000 on the profit from the sale of the paintings, purchased a home, created a family trust, and spent some of the funds on living expenses.

¶ 5 The Estate sued the Rices in late January 1998, alleging the sale contract should be rescinded or reformed on grounds of mutual mistake and unconscionability. In its subsequent motion for summary judgment, the Estate argued the parties were not aware the transaction had involved fine art, believing instead that the items exchanged were "relatively valueless, wall decorations." In their opposition and cross-motion, the Rices argued the Estate bore the risk of mistake, the doctrine of laches precluded reformation of the contract, and unconscionability was not a basis for rescission. 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. The court ruled the contract was not unconscionable, finding the parties had not negotiated Carl's paying the prices the Estate had set. Accordingly, the court denied the Estate's motion for summary judgment and granted the Rices' cross-motion. The Estate's motion for new trial was denied, and this appeal followed.

Standard of Review

¶ 6 Summary judgment is proper when the evidence presented by the party opposing the motion has so little probative value, given the required burden of proof, that reasonable jurors could not agree with the opposing party's conclusions. Orme School v. Reeves, 166 Ariz. 301, 802 P.2d 1000 (1990). We determine de novo whether any genuine issues of material fact exist and whether the trial court erred in applying the law. Construction Developers, Inc. v. City of Phoenix, 194 Ariz. 165, 978 P.2d 650 (App. 1998); Toy v. Katz, 192 Ariz. 73, 961 P.2d 1021 (App.1997).

Mutual Mistake

¶ 7 The Estate first argues that it established a mutual mistake sufficient to permit the reformation or rescission of the sale of the paintings to the Rices.¹ 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. Emmons v. Superior Court, 192 Ariz. 509, 968 P.2d 582 (App.1998). A contract may be rescinded on the ground of a mutual mistake as to a "`basic assumption on which both parties made the contract.'" Renner v. Kehl, 150 Ariz. 94, 97, 722 P.2d 262, 265 (1986), quoting Restatement (Second) of Contracts § 152 cmt. b (1979). Furthermore, the parties' mutual mistake must have had "`such a material effect on the agreed exchange of performances as to upset the very bases of the contract.'" Id., quoting Restatement § 152 cmt. a. However, the mistake must not be one on which the party seeking relief bears the risk under the rules stated in § 154(b) of the Restatement. Emmons; Restatement § 152.

¶ 8 In concluding that the Estate was not entitled to rescind the sale, the trial court found that, although a mistake had existed as to the value of the paintings, the Estate bore the risk of that mistake under § 154(b) of the Restatement, citing the example in comment a. Section 154(b) states that a party bears the risk of mistake when "he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient." In explaining that provision, the Washington Supreme Court stated, "In such a situation there is no mistake. Instead, there is an awareness of uncertainty or conscious ignorance of the future." Bennett v. Shinoda Floral, Inc., 108 Wash.2d 386, 739 P.2d 648, 653-54 (1987); see also State Farm Fire & Cas. Co. v. Pacific Rent-All, Inc., 90 Hawai'i 315, 978 P.2d 753 (1999).

¶ 9 The Estate contends neither party bore the risk of mistake, arguing that § 154 and comment a are not applicable to these facts. In the example in comment a, the risk of mistake is allocated to the seller when the buyer discovers valuable mineral deposits on property priced and purchased as farmland. Even were we to accept the Estate's argument that this example is not analogous, comment c clearly applies here and states:

Conscious ignorance. Even though the mistaken party did not agree to bear the risk, he may have been aware when he made the contract that his knowledge with respect to the facts to which the mistake relates was limited. If he was not only so aware that his knowledge was limited but undertook to perform in the face of that awareness, he bears the risk of the mistake. It is sometimes said in such a situation that, in a sense, there was not mistake but "conscious ignorance."

¶ 10 Through its personal representatives, the Estate hired two appraisers, McKenzie-Larson and an Indian art expert, to evaluate the Estate's collection of Indian art and artifacts. McKenzie-Larson specifically told Newman that she did not appraise fine art. In his deposition, Newman testified that he had not been concerned that McKenzie-Larson had no expertise in fine art, believing the Estate contained nothing of "significant value" except the house and the Indian art collection. Despite the knowledge that the Estate contained framed art other than the Indian art, and that McKenzie-Larson was not qualified to appraise fine art, the personal representatives relied on her to notify them of any fine art or whether a fine arts appraiser was needed. Because McKenzie-Larson did not say they needed an additional appraiser, Newman and Franz did not hire anyone qualified to appraise fine art. By relying on the opinion of someone who was admittedly unqualified to appraise fine art to determine its existence, the personal representatives consciously ignored the possibility that the Estate's assets might include fine art, thus assuming that risk. See Klas v. Van Wagoner, 829 P.2d 135, 141 n. 8 (Utah App.1992) (real estate buyers not entitled to rescind sale contract because they bore risk of mistake as to property's value; by hiring architects, decorators, and electricians to examine realty, but failing to have it appraised, purchasers executed sale contract knowing they "had only `limited knowledge' with respect to the value of the home"). Accordingly, the trial court correctly found that the Estate bore the risk of mistake as to the paintings' value.²

¶ 11 The Estate asserts that the facts here are similar to those in Renner, in which real estate buyers sued to rescind a contract for acreage upon which they wished to commercially grow jojoba after discovering the water supply was inadequate for that purpose. The supreme court...