Gordon Riewe v. Larry Baron

STATE OF MICHIGAN
COURT OF APPEALS
GORDON RIEWE, d/b/a AUCTION UNPUBLISHED
ASSOCIATES, October 20, 2015
Plaintiff-Appellee,
v No. 321318
Lapeer Circuit Court
LARRY BARON, LC No. 11-044259-CK
Defendant-Appellant.
Before: STEPHENS, P.J., and BORRELLO and GADOLA, JJ.
PER CURIAM.
In this contract dispute, defendant appeals as of right the circuit court’s order granting
judgment to plaintiff. We affirm.
I. BACKGROUND
This case involves a contract between plaintiff auctioneer Gordon Riewe and defendant
pawnshop owner Larry Baron to auction defendant’s art collection. Plaintiff’s business, Auction
Associates, was based in Lapeer, Michigan. Defendant’s business, Dave’s Casa De Empeno
(translation: Dave’s Pawn Shop) was based in El Paso, Texas. Plaintiff and defendant met
through one of plaintiff’s friends, Mark Lechner. Plaintiff made contact with defendant after
being informed that defendant had an impressive art collection. Plaintiff viewed the collection in
El Paso and the parties entered into a contract to auction “approximately 400 antique oil
paintings and other merchandise.” The contract provided a sliding commission scale based on
millions sold. The contract required that plaintiff bear the cost of the auction. It also provided
that in the event of a weak sale, plaintiff would receive a $200,000 commission. It is undisputed
that both parties anticipated high profits.
Problems arose with the sale shortly after the contract was signed. A substantial part of
the inventory was composed of what were represented as Spanish Colonial artwork pieces for
which defendant did not produce receipts. Plaintiff retained experts, with defendant’s approval,
to determine the artwork’s origin and it became apparent that the Spanish Colonial artwork might
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be implicated by a United States-Mexico treaty.1 The Spanish Colonial part of defendant’s
collection, approximately 300 pieces, could not proceed to auction without further investigation.
Both parties agreed to continue the auction with the remaining 115 pieces. Plaintiff
asked for an advance to cover costs, which defendant declined, and a compromise advance of
$10,000 on the commission was paid. The auction yielded proceeds of only $55,515. Plaintiff
demanded payment of the $200,000 commission, minus the $10,000 advance, that he was
promised under the contract in the event of a weak sale. Defendant refused to pay that amount,
plaintiff filed suit, and a bench trial ensued. Defendant argued in court that he should be
afforded the remedies of rescission, reformation, or avoidance of the contract when the parties
contracted under the mistaken belief that all of defendant’s art collection could be sold and were
unaware of the impact of the United States-Mexico treaty at the time of contracting. Defendant
also argued that the purpose of the contract was frustrated and impossible to perform because of
the treaty. The trial court rejected defendant’s arguments, determined that a valid contract
existed, and ordered defendant to pay plaintiff $134.860.75.
II. STANDARD OF REVIEW
“We review a trial court's findings of fact in a bench trial for clear error and its
conclusions of law de novo.” Chelsea Inv Group LLC v City of Chelsea, 288 Mich. App. 239,
250; 792 NW2d 781 (2010). A finding of fact is clearly erroneous if it lacks evidentiary support
and “this Court is left with a definite and firm conviction that a mistake has been made.” Id. at
251.
“Equitable issues, such as arguments for rescission or reformation, are . . . reviewed de
novo.” Kaftan v Kaftan, 300 Mich. App. 661, 665; 834 NW2d 657 (2013). Issues pertaining to
contract interpretation also present questions of law that are reviewed de novo. Rory v Cont’l Ins
Co, 473 Mich. 457, 464; 703 NW2d 23 (2005).
III. ANALYSIS
Defendant argues to void, rescind, or reform the contract on three grounds: mutual
mistake of fact, frustration of purpose, and impossibility of performance. The trial court
determined the facts of this case did not support any of the three defenses. We agree with the
trial court.
A. Mutual Mistake of Fact
Defendant first argues that the contract be rescinded, reformed, or voided based on
mutual mistake of fact. We conclude otherwise. Defendant reasons that both parties were under
the mistaken belief that defendant’s entire art collection could go to auction because neither party
knew of the existence of a United States-Mexico treaty. Defendant contends that the treaty’s
1
Treaty of Cooperation Between the United States of America and the United Mexican States
Providing for the Recovery and Return of Stolen Archaeological and Cultural Properties.
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effect of limiting the pieces to be auctioned from approximately 400 to only 115 materially
changed the agreement between the parties and their respective performances.
“Rescission of a contract is an equitable remedy to be exercised in the sound discretion of
the trial court.” Schmude Oil Co v Omar Operating Co, 184 Mich. App. 574, 586-587; 458
NW2d 659 (1990). “A contract may be rescinded because of mutual mistake of the parties.”
Shell Oil Co v Estate of Kert, 161 Mich. App. 409, 421; 411 NW2d 770 (1987). A mutual mistake
is “an erroneous belief, which is shared and relied on by both parties, about a material fact that
affects the substance of the transaction.” Ford Motor Co v City of Woodhaven, 475 Mich. 425,
442; 716 NW2d 247 (2006). “A court need not grant rescission in every case in which the
mutual mistake relates to a basic assumption and materially affects the agreed performance of the
parties.” Stanton v Dachille, 186 Mich. App. 247, 260; 463 NW2d 479 (1990).
“Reformation is an equitable remedy by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error has
been committed.” 27 MLP 2d, Reformation of Instruments, § 1. “[T]he burden of proof is upon
one seeking reformation of a written instrument.” River Rouge Bank v Fisher, 372 Mich. 558,
562; 127 NW2d 426 (1964). “[C]ourts are required to proceed with the utmost caution in
exercising jurisdiction to reform written instruments.” Olsen v Porter, 213 Mich. App. 25, 28;
539 NW2d 523 (1995). “The general theory of reformation is that where there is clear evidence
that both parties reached an agreement, but as the result of mutual mistake, or mistake on the one
side and fraud on the other, the instrument does not express the true intent of the parties, equity
will reform the instrument so as to express what was actually intended.” Ross v Damm, 271
Mich. 474, 480–481; 260 N.W. 750 (1935). “The primary goal in the construction or
interpretation of any contract is to honor the intent of the parties.” Klapp v United Ins Group
Agency, Inc, 468 Mich. 459, 473; 663 NW2d 447 (2003). Unambiguous contractual provisions
are “reflective of the parties’ intent as a matter of law.” Quality Products and Concepts Co v
Nagel Precision, Inc, 469 Mich. 362, 375; 666 NW2d 251 (2003). “In order to form a valid
contract, there must be a meeting of the minds on all the material facts. A meeting of the minds
is judged by an objective standard, looking to the express words of the parties and their visible
acts, not their subjective states of mind.” Stanton v Dachille, 186 Mich. App. 247, 256; 463
NW2d 479 (1990).
There was a mutual mistake of fact regarding how many items from the defendant’s
collection would be sold at auction. The contract provided that the “[i]nventory to be sold
consists of approximately 400 antique oil paintings and other merchandise at the discretion of the
seller.” The parties agree that the contract covered defendant’s entire collection of antique
European, American and Spanish Colonial art and that 400 was an estimate of the number of
items in the collection. There was no evidence that the parties to the contract were aware of the
treaty that reduced the number of pieces eligible to be sold to 115 when they signed the contract.
The parties signed the contract with the erroneous belief that defendant’s entire collection could
be auctioned. However, as discussed below, the parties waived any right to rescind based upon
this mutual mistake.
“Waiver is the intentional relinquishment or abandonment of a known right.” In re
Contempt of Dorsey, 306 Mich. App. 571, 590; 858 NW2d 84 (2014). After the mutual mistake
of fact was discovered here, it was waived when defendant expressly accepted the contract for
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auction of only 115 items. See Miller v Smith, 276 Mich. 372, 375; 267 N.W. 862 (1936) (where a
condition of the contract was waived based on the performance of the parties). The trial court
correctly found that both parties waived any mistake and consented to going forward with the
auction as planned and that defendant’s agreement in particular, to press on with the sale,
obligated defendant to the commission terms of the contract. Lechner testified that once all
became aware of the treaty, he and plaintiff approached defendant and asked him if he wanted to
continue with the auction and defendant said “absolutely.” Plaintiff testified that he asked
defendant multiple times if they could “just walk away” from the auction and defendant said,
“Absolutely not. I want to sell everything except the Spanish Colonial Art.” Defendant agreed
that he orally authorized the sale of the 115 items and that he was told he could withdraw from
the sale. Subsequent to agreeing to go forward with the reduced sale, defendant failed to express
or act in opposition to the auction process.
B. Frustration of Purpose
Defendant next argues that the contract should be rescinded, reformed or avoided based
on the frustration of purpose doctrine. We disagree. Defendant reasons that neither party fully
performed the contract and that both parties knew that the purpose of the contract was to auction
defendant’s entire collection. Defendant argues that the core purpose of the contract was
frustrated when a majority of the collection was held back from auction based on the United
States-Mexico treaty.
“The frustration-of-purpose doctrine provides an excuse for nonperformance of a
contractual obligation.” Rooyakker & Sitz, PLLC v Plante & Moran, PLLC, 276 Mich. App. 146,
159; 742 NW2d 409 (2007). The doctrine of frustration of purpose requires the following
conditions to be met:
(1) the contract must be at least partially executory; (2) the frustrated party's
purpose in making the contract must have been known to both parties when the
contract was made; (3) this purpose must have been basically frustrated by an
event not reasonably foreseeable at the time the contract was made, the
occurrence of which has not been due to the fault of the frustrated party and the
risk of which was not assumed by him. [Liggett Restaurant Group, Inc, 260 Mich
App at 134-135 quoting Molnar v Molnar, 110 Mich. App. 622, 626; 313 NW2d
171 (1981).].
Defendant can only meet two of the above three conditions. The contract in this instance had not
been fully performed when the impact of the treaty was realized by the parties. The trial judge
did not make an express finding of fact as to the essential purpose of the contract. While profit
was the goal of the contract, some argument could be made that the purpose of the contract was
to liquidate plaintiff’s collection for a profit. The frustration of purpose doctrine is inapplicable
to this case because there is no basis to find that there was an unforeseen event. While neither
party to the contract knew of the treaty at the time the contract was made, the treaty preceded the
contract and therefore was discoverable upon reasonable investigation. Failure to investigate a
fact does not render it unforeseeable, just unforeseen.
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The treaty also did not frustrate the purpose of the parties’ contract because defendant
waived any original intent to auction approximately 400 items when, after discovering the treaty,
he decided to continue to auction with only 115 items. Thus, even if the original intent was to
liquidate defendant’s inventory, the purpose of the parties’ agreement morphed from the sale of
at least 400 items, to the sale of 115 items with the ultimate purpose of yielding a profit. When
given the option to postpone the auction after learning of the treaty, defendant said, “I gotta do
an auction. I need the money.” “The Frustration of Purpose Doctrine does not apply to errors in
prediction as to future occurrences or non-occurrences. A party cannot enter into a contract,
expecting to make a profit, and then demand rescission when the deal turns out to be less
lucrative than he had hoped.” Tri–State Rubber & Equipment, Inc v Central States Southeast &
Southwest Areas Pension Fund, 677 F Supp 516, 520 (ED Mich, 1987).
C. Impossibility of Performance
Defendant lastly contends that he should be afforded rescission, reformation or avoidance
of the contract based on impossibility of performance. Again, we disagree. Defendant argues
that plaintiff’s $200,000 commission in the event of a weak sale was based on full performance
of the contract, which defendant interprets as the auctioning of the entire collection of
“approximately 400 antique oil paintings and other merchandise.” Defendant reasons that
exclusion of the Spanish Colonial art from auction made full performance of the contract
impossible.
“A promisor's liability may be extinguished in the event his or her contractual promise
becomes objectively impossible to perform.” Roberts v Farmers Ins Exchange, 275 Mich. App.
58, 73-74; 737 NW2d 332 (2007). “Impossibility of performance may be classified as original
impossibility or supervening impossibility. The former is impossibility of performance existing
when the contract was entered into, so that the contract was to do something which from the
outset was impossible; whereas supervening impossibility is that which develops some time after
the inception of the contract.” Rogers Plaza, Inc v SS Kresge Co, 32 Mich. App. 724, 743; 189
NW2d 346 (1971) (quotation omitted). Defendant relies on supervening impossibility.
Defendant’s argument that the contract was impossible to perform is unavailing. Plaintiff
fully performed his obligations under the contract. Plaintiff determined and publicized a date
and a place for the auction. Plaintiff catalogued the items to be sold. Plaintiff advanced all
monies related to producing the auction. Plaintiff submitted a settlement sheet to defendant
within 14 days of completion of the auction. As discussed above, defendant waived performance
of the contract to auction 400 items and authorized the auction of 115 items instead. Defendant
cannot be afforded the equitable remedies of rescission or reformation under an impossibility
defense when he excused original performance of the contract.
D. Additional Grounds
Defendant also requests the contract be reformed to reflect the performance of the parties
such that defendant should only be responsible for paying plaintiff’s actual expenses and a 15
percent sales commission. We find no support for this argument. The commission scale was as
follows:
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Commission schedule [Plaintiff] Gordon Riewe will be paid 15% of first two
million of sales, 12% of sales from two to five million, and 10% of the balance of
the sale. . . . [Plaintiff] Gordon Riewe in the event of a weak sale will receive a
two hundred thousand dollar commission to cover cost of producing said sale.
Neither party argues that the terms of the contract are ambiguous. Plainly read, the amount of
commission received under the contract is based on either: 1) the event of a “weak sale”, or 2) a
certain amount of millions sold. Neither party refutes that the auction was a weak sale.
Therefore, the weak sale provision of the contract should apply. A 15 percent commission,
according to the contract, is only paid when auction sales reach two million dollars. The net
proceeds of approximately $55,000 for defendant’s auction did not trigger the 15 percent
commission under the terms of the contract.
IV. CONCLUSION
The trial court made no error of law in finding that when the defendant specifically
authorized the reduction of the inventory to be sold, he could not rely on that reduction to seek
equity and void, rescind, or reform the rest of the contract. The trial court found that defendant
authorized the reduction in the inventory that was to be sold at auction. We defer to the trial
court’s findings of fact when they are not clearly erroneous. Keinz v Keinz, 290 Mich. App. 137,
141; 799 NW2d 576 (2010). The defendant has not directly argued nor otherwise persuaded us
that the court's fact-finding was erroneous.
Affirmed.
/s/ Cynthia Diane Stephens
/s/ Stephen L. Borrello
/s/ Michael F. Gadola
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