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24 N.Y.2d 91, 246
N.E.2d 742, 298 N.Y.S.2d 979, 6 UCC Rep.Serv. 330 Erna Menzel,
Plaintiff-Respondent, v. Albert A. List, Defendant-Appellant, and Third-Party
Plaintiff-Respondent. Klaus G. Perls et
al., Doing Business under the Name of Perls Galleries, Third-Party
Defendants-Appellants. Court of Appeals of
New York Argued January 7,
1969; Decided February 26,
1969. HEADNOTES Damages—breach of warranty of
title—painting—proprietors of New York art gallery purchased
painting from Parisian art gallery, which had been owned by plaintiff and her
husband and taken by German authorities—proprietors of art gallery
subsequently sold painting—measure of damages to be awarded to
purchaser against proprietors of art gallery is not price which purchaser from
art gallery paid for painting but is value which purchaser would have been able
to obtain if sellers had conveyed good title—interest runs not from
date of purchase but from date when purchaser’s possession was disturbed. (1) In 1932 plaintiff and her husband purchased a painting in
Belgium. In 1946 they found that the German authorities had removed the
painting and left a receipt. In 1955 the proprietors of a New York art gallery
purchased the painting from a Parisian art gallery for $2,800. Thereafter, they
sold the painting for $4,000. In a replevin action by plaintiff against said
purchaser, he impleaded the sellers, proprietors of the art gallery, alleging
that they were liable to him for breach of an implied warranty of title. The
trial court charged the jury that, if it found for plaintiff, it should assess
the value of the painting at such an amount as represented its present value.
As a result of the action, the purchaser returned the painting to plaintiff.
The jury found for the purchaser as against the sellers in the amount of
$22,500, the present value. That judgment, as against the sellers, should be
reinstated. (2) The purchase price which the purchaser from the proprietors of
the art gallery paid for the painting is not the applicable measure of damages.
The proper measure of damages for the breach of an implied warranty of title to
the painting is the present market value of the painting%the value which the
purchaser would have been able to obtain if the sellers had conveyed good
title. Had the warranty been fulfilled, the purchaser would have possession of
a painting currently worth $22,500. (3) The purchaser was not damaged until his possession was
disturbed, and there is no basis upon which to predicate the inclusion of
interest from the date of purchase. Interest should be included from the date
on which plaintiff’s judgment was entered. Menzel v. List, 28 A D 2d 516, reversed. SUMMARY Appeals, by defendant, third-party plaintiff, and third-party defendants,
from an order of the Appellate Division of the Supreme Court in the First
Judicial Department, entered May 11, 1967, which modified, on the law, and, as
modified, affirmed a judgment of the Supreme Court, entered in New [***979] [**742] [*92] York County
upon a verdict rendered at a Special and Trial Term (Arthur G. Klein, J.;
opinion 49 Misc 2d 300), in favor of plaintiff and in favor of defendant
third-party plaintiff against third-party defendants. By the modification the
Appellate Division reduced the amount of the award in favor of defendant,
third-party plaintiff, from $22,500 to $4,000, together with interest from
October 14, 1955. Defendant, third-party plaintiff, appealed from so much of
the order of the Appellate Division as modified the judgment of the Supreme
Court. Third-party defendants appeald from so much of the order as failed to
dismiss the complaint of defendant, third-party plaintiff, and awarded interest
from October 14, 1955 and denied costs and disbursements to third-party defendants. POINTS OF COUNSEL George A. Raftery, Edmund C. Grainger, Jr. and Rudolph H. Bruer
for defendant-appellant and third-party plaintiff-respondent. I. List was
entitled to recover the full value of the painting at the time it was
established that his seller had breached the warranty of title in the sale from
a reputable art gallery to a collector, rather than the price paid. The holding
by the court below to the contrary was illogical, against the weight of
authority throughout the United States and unsupported by the New York cases
relied upon. (Staats v. Executors of Ten Eyck, 3 Caines 111; Armstrong
v. Percy, 5 Wend. 535; Case v. Hall, 24 Wend. 102; Blasdale v. Babcock, 1 Johns. 517.) II.
List, an innocent purchaser, relied on the superior knowledge of Perls
Galleries. (Hoe v. Sanborn, 21 N. Y. 552; Carleton v. Lombard, Ayers
& Co., 149 N. Y. 137; McClure v. Central Trust Co. of N. Y., 165 N. Y. 108.) III.
The measures of damage should be the value of the painting at the time
List’s possession was disturbed. (Pinney v. Geraghty, 209 App. Div. 630; Furniss
v. Ferguson, 34 N. Y. 485; Burt v. Dewey, 40 N. Y. 283; McConkey Realty
Corp. v. Wildermuth, 214 App. Div. 395; Lunt v. Brown Bros. Co., 172 App. Div. 31; Spillane
v. Corey, 323 Mass. 673.) Gilbert S. Edelson for Klaus G. Perls and another, third-party
defendants-appellants. I. The measure of damages in an action for breach of
warranty of title to personal property is the value of the property at the date
of sale and not the value at time of dispossession. (Hadley v. Baxendale, 9 Exch. 341; [*93] Mathes v.
McCarthy, 195 N. Y. 40; Muller v. Eno, 14 N. Y. 597; Moran v. Standard
Oil Co.,
211 N. Y. 187; Globe Refining Co. v. Landa Cotton Oil Co., 190
U. S. 540; Czarnikow-Rionda Co. v. Federal Sugar Refining Co., 255 N. Y. 33; Chapman
v. Fargo, 223 N. Y. 32; Andersen Trading Co. v. Brody, 205 App. Div. 47.)
II. In accordance with the general rule of damages, the measure of damages for
breach of warranty of title is the value of the property at the time of
delivery. (Hunt v. Hay, 214 N. Y. 578; Wheeler v. State of New York, 190 N. Y. 406; Olmstead
v. Rawson, 188 N. Y. 517; Utica, Chenango & S. V. R. R. Co. v. Gates, 8 App. Div. 181; Staats
v. Executors of Ten Eyck, 3 Caines 111; Armstrong v. Percy, 5 Wend. 535; Case
v. Hall,
24 Wend. 102; Burt v. Dewey, 31 Barb. 540, 40 N. Y. 283; Atkins v.
Hosley,
3 Thomp. & C. 322; Cary v. Gruman, 4 Hill 625.) III. The Appellate Division
erred in awarding interest from the date of List’s purchase. Interest
should have been awarded from the date of judgment. (Buffalo Oil Term. v.
Kimmins & Sons, 42 Misc 2d 499, 23 A D 2d 970; Bergerman & Hourwich v.
Harman,
51 Misc 2d 414; Delaware Bank v. Jarvis, 20 N. Y. 226; Moore v. Maddock, 224 App. Div. 401,
251 N. Y. 420; McConkey Realty Corp. v. Wildermuth, 214 App. Div. 395; Elliott
v. Gian,
19 A D 2d 196; Brown v. Godefroy Mfg. Co., 278 App. Div. 242.) OPINION OF THE COURT [***980] [*93] JUDGE: Burke, J. In 1932 Mrs. Erna Menzel and her husband purchased a painting by
Marc Chagall at an auction in Brussels, Belgium, for 3,800 Belgian francs (then
equivalent to about $150). When the Germans invaded [**743] Belgium in 1940, the Menzels fled and
left their possessions, including the Chagall painting, in their apartment.
They returned six years later and found that the painting had been removed by
the German authorities and that a receipt for the painting had been left. The
location of the painting between the time of its removal by the Germans in 1941
and 1955 is unknown. In 1955 Klaus Perls and his wife, the proprietors of a New
York art gallery, purchased the Chagall from a Parisian art gallery for $2,800.
The Perls knew nothing of the painting’s previous history and made no
inquiry concerning it, being content to rely on the reputability of the Paris
gallery as to authenticity and title. In October, 1955 the Perls sold the
painting to Albert List for $4,000. However, in 1962, Mrs. Menzel noticed a reproduction
[*94] of the Chagall
in an art book accompanied by a statement that the painting was in Albert
List’s possession. She thereupon demanded the painting from him but he
refused to surrender it to her. Mrs. Menzel then instituted a replevin action against Mr. List and
he, in turn, impleaded the Perls, alleging in his third-party complaint that
they were liable to him for breach of an implied warranty of title. At the
trial, expert testimony was introduced to establish the painting’s fair
market value at the time of trial. The only evidence of its value at the time
it was purchased by List was the price which he paid to the Perls. The trial
court charged the jury that, if it found for Mrs. Menzel against List, it was
also to “assess the value of said painting at such an amount as you
believe from the testimony represents its present value.” The jury
returned a verdict for Mrs. Menzel and she entered a judgment directing the
return of the painting to her or, in the alternative, that List pay to her the
value of the painting, which the jury found to be $22,500. (List has, in fact,
returned the painting to Mrs. Menzel.) In addition, the jury found for List as
against the Perls, on his third-party complaint, in the amount of $22,500, the
painting’s present value, plus the costs of the Menzel action incurred
by List. The Perls appealed to the Appellate Division, First Department,
from that judgment and the judgment was unanimously modified, on the law, by
reducing the amount awarded to List to $4,000 (the purchase price he had paid
for the painting), with interest from the date of the purchase. In a
memorandum, the Appellate Division held that the third-party action was for
breach of an implied warranty of quiet possession and, accordingly, held that
the Statute of Limitations had not run on [***981] List’s claim since his
possession was not disturbed until the judgment for Mrs. Menzel. In addition,
the court held that the “applicable measure of damages was the price
List paid for the painting at the time of purchase, together with
interest”, citing three New York cases (Staats v. Executors of Ten
Eyck,
3 Caines 111, 113; Armstrong v. Percy, 5 Wend. 535; Case v. Hall, 24 Wend. 102). List filed a notice of appeal as of right from the unanimous
modification insofar as it reduced the amount of his judgment to $4,000, with
interest from the date of purchase. The Perls filed a [*95] notice of cross
appeal from so much of the Appellate Division’s order as failed to dismiss
the third-party complaint, denied costs and disbursements and fixed the date
from which interest was to run on List’s judgment. The Perls have now
abandoned the cross appeal as to the failure to dismiss the third-party
complaint and the denial of costs and disbursements, leaving only the issue as
to the date from which interest should run. List’s appeal and the Perls’ cross appeal
present only questions of law for resolution, the facts having been found by
the jury and affirmed by the Appellate Division (its modification was on the
law as to the proper measure of damages and the running of interest). The issue
on the main appeal is simply what is or should be the proper measure of damages
for the [**744] breach of an implied warranty of title (or quiet
possession) in the sale of personal property. The cases cited by the Appellate
Division do not hold that the measure of damages is the purchase price plus
interest. The Staats case (supra.;) was an action for breach of a real property
covenant in which there was dicta to the effect that the rule was the same for
personal property. The dicta was compromised one year later by the same jurist
(Chief Justice Kent) who wrote the opinion in Staats in Blasdale v. Babcock (1 Johns. 517 &
[1806]) where it was held that the buyer was entitled to recover in damages the
amount which he had been compelled to pay to the true owner, the actual value
of the chattel. In Armstrong v. Percy (5 Wend. 535, supra.;) the buyer recovered
the purchase price but only because the chattel, a horse, was found to have
depreciated in value below the price paid. In Case v. Hall (24 Wend. 102, supra.;), there is contained
a statement which is pure dicta to the effect that warranty damages are the
purchase price (the action was in contract for goods sold and delivered). The
parties have cited no New York case which squarely meets the issue and it is,
therefore, concluded that, contrary to the countterassertions of the parties,
neither “purchase plus interest” (Perls) nor “value
at date of dispossession” (List) is presently the law of this State.
In fact, there is a marked absence of case law on the issue. One legislative
source has described this paucity of case law with the understatement [***982] that “[t]he
implied warranty of title under the Uniform Sales Act [N. Y. Personal Property
Law, ¤94] has seldom been invoked.” [*96] (1955 Report of
N. Y. Law Rev. Comm., Vol. 1, p. 387, n. 68, citing Pinney v. Geraghty, 209 App. Div. 630, a
case dealing with the effect of the vendor’s ignoring a vouching-in
notice.) Furthermore, the case law in other jurisdictions in this country
provides no consistent approach, much less “rule” on this
issue and it is difficult even to add up jurisdictions to pinpoint a
“majority” and a “minority”. One attempt to
collect and organize the law in this country on this issue concludes that there
are at least four distinct “rules” for measuring the damages
flowing from the breach of a personal property warranty of title: purchase
price plus interest; “value”, without specification as to the
time at which value is to be determined; value at the time of dispossession;
and value at the time of the sale (Ann., Breach of Warranty of Title —
Damages, 13 ALR 2d 1369). Interestingly enough, the annotator was able to find
New York cases each of which used language which would apparently suggest that
a different one of these four “rules” was the rule. (Ann.,
supra.;, p. 1380.) In the face of such unsettled and unconvincing
“precedent”, the issue is one which is open to resolution as
a question which is actually one of first impression. At the time of the sale to List and at the commencement of the
Menzel replevin action, there was in effect the New York counterpart to section
13 of the Uniform Sales Act (N. Y. Personal Property Law, § 94 [PPL])
which provided that “In a contract to sell or a sale, unless contrary
intention appears, there is 1. An implied warranty on the part of the seller that .
. . . . . . . . . . he has a right to sell the goods .
. . . . . . . . . . 2. An implied warranty that the buyer shall have and enjoy quiet
possession of the goods as against any lawful claims existing at the time of
the sale”. In addition, section 150 of the PPL provided for remedies for
breach of warranty and subdivision 6 provided: “The measure of damages
for breach of warranty is the loss directly and naturally resulting, in the
ordinary course of events, from the breach of warranty”. Subdivision 7
applies, by its terms, only to a breach of warranty of quality and is,
therefore, not controlling on the question of damages for breach of warranty of
title and quiet enjoyment. (3 Williston, Sales [**745] [rev. ed.],
[*97] § 615,
n. 9.) Thus, the Perls’ reliance on this subdivision is misplaced. The
Perls contend that the only loss directly and naturally resulting, in the
ordinary course of events, from their breach was List’s loss of the
purchase price. List, however, contends that that loss is the present market
value of the painting, the value which he would have been able to obtain if the
Perls had conveyed good title. The Perls support their position by reference to
the damages recoverable for breach of the warranty of quiet possession as to
real property. However, this analogy has been severely criticized by a leading
authority in these terms: “This rule [limiting damages to the purchase
price plus interest] virtually confines the buyer to rescission and
restitution, a remedy to which the injured buyer is undoubtedly entitled if he
so elects, but it is a violation of general principles of contracts to deny him
in an action on the contract such damages as will put him in as good a postion
as he would have occupied had the contract been kept.” (11 Williston,
Contracts [3d ed.], § 1395A, p. 484 [emphasis added].) Clearly, List
can only be put in the same position he would have occupied if the contract had
been kept by the Perls if he recovers the value of the painting at the time
when, by the judgment in the main action, he was required to surrender the
painting to Mrs. Menzel or pay her the present value of the painting. Had the
warranty been fulfilled, i.e., had title been as warranted by the Perls, List
would still have possession of a painting currently worth $22,500 and he could
have realized that price at an auction or private sale. If List recovers only
the purchase price plus interest, the effect is to put him in the same position
he would have occupied if the sale had never been made. Manifestly, an injured
buyer is not compensated when he recovers only so much as placed him in status
quo ante since such a recovery implicitly denies that he had suffered any
damage. This rationale has been applied in Massachusetts in a case construing a
statute identical in language to section 150 (subd. 6) of the PPL where the
buyer was held entitled to the value “which [he] lost by not receiving
a title to it as warranted. . . . . . . . . . . . His loss cannot be measured by the [price]
that he paid for the machine. He is entitled to the benefit of his
bargain” (Spillane v. Corey, 323 Mass. 673, 675 [1949]; see, also, [*98] Pillgrene v.
Paulman, Inc., 45 Del. 225-226 [1950] [“The purpose of compensatory
damages is to place the buyer in as good condition as he would have occupied
had the title been good.”]). This measure of damages reflects what the
buyer has actually lost and it awards to him only the loss which has directly
and naturally resulted, in the ordinary course of events, from the
seller’s breach of warranty. An objection raised by the Perls to this measure of damages is
that it exposes the innocent seller to potentially ruinous liability where the
article sold has substantially appreciated in value. However, this
“potential ruin” is not beyond the control of the seller
since he can take steps to ascertain the status of title so as to satisfy
himself that he himself is getting good title. (Mr. Perls testified that to
question a reputable [***984] dealer as to his title would be an
“insult.” Perhaps, but the sensitivity of the art dealer
cannot serve to deprive the injured buyer of compensation for a breach which
could have been avoided had the insult been risked.) Should such an inquiry
produce no reasonably reliable information as to the status of title, it is not
requiring too much to expect that, as a reasonable businessman, the dealer
would himself either refuse to buy or, having bought, inform his vendee of the
uncertain status of title. Furthermore, under section 94 of the PPL, the seller
could modify or exclude the warranties since they arise only “unless
contrary intention appears”. Had the Perls taken the trouble to
inquire as to title, they could have sold to List subject to any existing
lawful claims unknown to them at the time of the sale. Accordingly, [**746] the
“prospects of ruin” forecast as flowing from the rule are not
quite as ominous as the argument would indicate. Accordingly, the order of the
Appellate Division should be reversed as to the measure of damages and the
judgment awarding List the value of the painting at the time of trial of the
Menzel action should be reinstated. On the cross appeal by the Perls, the issue is as to the time from
which interest should run on the judgment in favor of List against the Perls.
The Appellate Division indicated that interest should be recovered from the
date of purchase in October, 1955, but it did so only in conjunction with its
determination that the measure of damages should be the purchase price paid by
List on that date. Manifestly, the present-value measure of damages has no
necessary connection with the date of purchase [*99] and is, in
fact, inconsistent with the running of interest from the date of purchase since
List’s possession was not disturbed until the judgment directing
delivery of the painting to Mrs. Menzel, or, in the alternative, paying her the
present value of the painting. Accordingly, List was not damaged until that
time and there is no basis upon which to predicate the inclusion of interest
from the date of purchase. Accordingly, on the cross appeal, the order of the
Appellate Division, insofar as it directed that interest should run from the
date of purchase, should be reversed and interest directed to be included from
the date on which Mrs. Menzel’s judgment was entered, May 10, 1966. Judges Scileppi, Bergan, Breitel and Jasen concur; Chief Judge
Fuld and Judge Keating taking no part. Order reversed, with costs to third-party
plaintiff-appellant-respondent, and case remitted to Supreme Court, New York
County, for further proceedings in accordance with the opinion herein. |