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The BUSKLAW May Newsletter: Void for Duress? The Case of the Picasso Sold for Peanuts Under Nazi Oppression

Picasso's famous (and now priceless) 1905 painting, "The Actor," hangs in New York's Metropolitan Museum of Art but not without some controversy. The estate of the painting's original owners, Paul and Alice Leffmann, sued the Museum in N.Y. Federal Court to get it back, along with $100 million in damages. The basis for the suit: the Leffmanns were German Jews, living under Nazi oppression, who were desperate to obtain the funds to flee to Switzerland (and later to Brazil). So in 1938, they were "forced" to sell the painting for a fraction of its value. The Museum defended the suit by arguing that there was no duress under either New York or Italian law. Judge Loretta Preska weighed the facts, sorted out all of the arguments, and issued her decision on 7 February 2018

There is no dispute that the Leffmanns, living in Italy at the time, were under imminent threat of deportation and death at the hands of German Nazis, who were becoming cozy with Mussolini. And because Switzerland had strict border controls with asset requirements, the Leffmanns desperately needed money to be allowed into that country. So the Leffmanns sold "The Actor" to a French private art dealer for a paltry net purchase price of $12,000. The painting was subsequently sold to Thelma Chrysler Foy for $22,500 in 1941 (a 70% increase from the price paid to the Leffmanns), who donated it to the Museum in 1952. 

The Court examined whether the facts supported the finding of duress under either Italian or New York law and determined that the laws of each jurisdiction on duress as voiding a contract were substantially the same, but legal authority justified the application of New York law. In order to constitute duress, the Leffmann estate had to show that the sale occurred by means of wrongful or threatening conduct that precluded the exercise of the Leffmanns' free will. But here's the rub: the threat must have come from the purchaser and not from "difficult circumstances" or "economic duress." And according to the Court,
although the Leffmanns felt economic pressure during the undeniably horrific circumstances of the Nazi and Fascist regimes, that pressure, when not caused by the painting's art dealer/purchaser (or the Museum), wasn't sufficient to prove duress. 

The Court also examined whether a 1945 Italian law applied that stated "rescission is allowed" for sales contracts by people affected by the Mussolini government's oppressive racial directives entered into after October 6, 1938, the date on which the anti-Semitic directives were announced. But the Leffmans couldn't take advantage of this law because they sold the painting in late June of 1938. So the outcome of the case might be different if the painting had been sold approximately 90 days later, and if the Court had determined that Italian law governed the case.

Does it seem odd that the Leffmanns' estate sued to void a contract that was made 80 years ago? Isn't there a statute of limitations defense available to the Museum? Yes, and they raised it, but the Court didn't address the merits because the finding that there was no duress made any discussion of the statute of limitations moot.  

We have sympathy for the Leffmanns' plight. But as Professor Lawrence A. Cunningham perceptively states in his book, Contracts in the Real World: Visionaries remain enamored of a world of pure freedom of contract on the (political) right hand or a world of pure social justice on the left hand. But the actual practice of contract law is neither such world. Rather, contracts in the real world reflect broader and longer-standing truisms of democratic capitalist society, where endless balancing of contending values occurs. 

This case highlights the importance of the negotiating climate when contracts are signed. The value of salable assets, including paintings, fluctuates over time. The wise seller and buyer must tread carefully when determining the opportune moment to pull the trigger on a deal. Courts are unlikely to grant relief where a party received an unfair economic benefit (or the other party suffered an unfair economic loss), even if wicked external forces motivated the transaction.  
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To those who discovered the "May may" typo in various social media posts linking to my newsletter, congratulations. That's what happens when you have insufficient caffeine at 5:30 in the morning.

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