Extrinsic evidence is inadmissible to contradict unambiguous contract terms; a party cannot anticipatorily breach a contract obligation that does not exist

In Art Works Inc. v. Al-Hadid, Index No. 651267/2021 (N.Y. Sup. Ct., N.Y. County, May 10 2022), the New York Supreme Court held that a consignment agreement did not give an art gallery an ownership interest in an artist’s consigned work. The court also held that a party’s insistence on agreement to terms for a mediation did not constitute anticipatory breach of the contract’s mediation provision.

Plaintiff Art Works, Inc. (“Art Works”), the operator of Marianne Boesky Gallery, advanced funds to defendant and artist Diana Al-Hadid to cover costs such as studio rent, fabrication, and framing and crating costs. Id. at 1. Art Works also represented Al-Hadid and her works on consignment. Id. After Art Works terminated the representation of Al-Hadid in 2019, the parties reached a settlement agreement over “a substantial six-figure sum” for the advanced costs. Id. at 3-4. The settlement agreement provided for mediation of any disputes but did not identify the application procedure or process for mediation. Id.

A dispute later arose after Art Works claimed that it possessed an ownership interest in an unsold Al-Hadid sculpture based in part on its representation of Al-Hadid and the sculpture on consignment. Id. 1-3. Efforts to mediate the dispute foundered on disagreements over the terms of the mediation, and Art Works sued, claiming: (1) declaratory judgment of its ownership rights; (2) anticipatory breach of the consignment agreement related to the sculpture; and (3) anticipatory breach of the settlement agreement. Id. at 4.

Al-Hadid moved to dismiss, alleging that the complaint failed to state a claim and was barred by documentary evidence.  Justice Nock agreed.

The Court dismissed the declaratory judgment claim, holding that the unambiguous terms of the consignment agreement did not grant Art Works an ownership interest in the sculpture. The agreement was silent on the issue of ownership, and the terms of the agreement did not clearly evince an intent to create an ownership interest in Art Works. Id. at 6-7. Further, the court rejected Art Works’ attempt to prove its ownership based on evidence of the parties’ course of conduct. Evidence outside the four corners of a contract may not be presented to contradict the terms of an unambiguous contract, and the consignment agreement’s silence on the issue of ownership did not render the agreement ambiguous. Id. at 9-10.

The court dismissed the second cause of action for anticipatory breach of the consignment agreement as untimely and as having been waived. Id. at 13. It rejected the third cause of action for anticipatory breach of the settlement agreement as “utterly refute[d]” by documentary evidence. Id. at 14. The settlement agreement failed to specify the details of mediation process or procedure, and the email correspondence exchanged between counsel attempting to negotiate those terms did not “clearly and unequivocally express defendant’s intent to forego performance, which is required for an anticipatory repudiation.”  Id. at 14-15. The Court concluded that the mediation clause did not oblige the parties to reach agreement on the terms surrounding the commencement of a mediation and that, therefore, Al-Hadid’s refusal to mediate absent agreement on those terms could not constitute an anticipatory breach. Id.

This case underscores the value of crafting clear and unambiguous contract language; doing so can prevent a counterparty from later using extrinsic evidence to reinterpret the agreement. It also illustrates the importance of clarity in drafting mediation provisions; failing to agree to the procedural details of mediation during the drafting process risks a stalemate over those details once a dispute arises.

If you have questions about contracts interpretation or mediation clauses, please contact Michael Rakower or Travis Mock.

Art Works Decision


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