in order to facilitate the making of such a determination.
Finally, if, as Koven alleges, her interests in consummating a final sale of her product are furthered by Christie's taking no action to uncover potentially unfavorable information, that interest is similarly implicated by pre-sale inquiries, which are equally capable of rendering Koven's pastel unsalable. Thus, the Court does not perceive any reasonable explanation as to why, given the entire Consignment Agreement, Koven would have bargained for this particular limitation, other than that on the particular facts of this case, it appears to Koven in hindsight that such a restriction would have been beneficial to her.
Conversely, it is quite clear that Christie's would have bargained for the authority to consult experts post-sale, given its warranties to the buyer, and the prospect that rescission of the contract might be necessary. Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir. 1990) ("Under New York law, in determining motion for summary judgment involving construction of contractual language, court should accord that language its plain meaning giving due consideration to surrounding circumstances and apparent purpose which parties sought to accomplish.")
Though the Court finds that the specific language of Paragraph 9 plainly and unambiguously authorized Christie's to contact experts post-sale, it also finds that such authority is implicit in other aspects of the Consignment Agreement. See, e.g., Paper Corp. of U.S. v. Schoeller Technical Papers, Inc., 807 F. Supp. 337, 347 (S.D.N.Y. 1992) ("Under New York law, terms of contract may be found in writings either expressly or by reasonable implication.") As noted above, Paragraph 15 of the Consignment Agreement authorizes Christie's to rescind the sale of any property if Christie's "in its sole judgment determines" that the sale has subjected or "may subject" Christie's to liability under the warranty of authenticity.
Thus, Koven clearly agreed that Christie's had the right to rescind sales based on its "sole judgment", a right that obviously conflicted with Koven's interest in the finality of the sale. In order to prevail, then, Koven now must argue that while she agreed that Christie's could in its "sole judgment" "determine" whether or not to rescind the sale, she did not agree that Christie's could gather information to aid it in determining how to exercise this judgment.
There is no merit to such an argument. Koven has argued, and Christie's now apparently concedes, that Christie's exercise of its discretion under Paragraph 15 was subject to an implied covenant of good faith and fair dealing. Given this requirement, it is clear that Christie's could only satisfy its good faith obligation by honestly attempting to make an informed decision. Had Christie's not consulted experts and instead flipped a coin in deciding whether or not to rescind the sale, Koven would argue, correctly, that Christie's had acted in bad faith. To now argue, then, that Christie's violated some other duty by investigating Diamonstein's complaints eviscerates Christie's plainly recognized right to determine, in some circumstances, when a sale should be rescinded. See, e.g., Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985) ("Interpretation that gives reasonable and effective meaning to all terms of contract is generally preferred to one that leaves part unreasonable or of no effect.") Koven's argument places Christie's in a "damned if you do, damned if you don't" position which flies in the face of any remotely reasonable interpretation of the Consignment Agreement.
For all of the above reasons, I find that Christie's breached no duty to Koven when it undertook to investigate Diamonstein's complaints about authenticity. Such actions were entirely proper and authorized by the Consignment Agreement, notwithstanding that they might not have furthered Koven's interest.
Thus, while the December Opinion held that the potential existence of this duty precluded the relief sought by Christie's and Underwriters, I now hold that this issue does not preclude summary judgment on behalf of those parties. See, e.g., Brass v. American Film Technologies, Inc., 987 F.2d 142, 148 (2d Cir. 1993) ("Where contract language is plain and unambiguous, court may construe contract and grant summary judgment.")
2. Did Christie's Investigatory Actions and Subsequent Rescission Breach its Duty of Care to Koven Under the Consignment Agreement?
The other issue to be resolved is the proper standard of care to be exercised by Christie's in determining whether or not to rescind the sale, and whether or not Christie's has shown that it is entitled to summary judgment on the issue of whether that standard was met. The starting point in resolving this issue is once again the December Opinion.
Christie's argued in its summary judgment papers that the Consignment Agreement gave it complete discretion to decide when to rescind a sale. Koven argued, however, that Christie's was bound by an implied covenant of good faith, which meant that everything about its decision to rescind the sale must have been objectively reasonable. The Court agreed with Koven that this was the appropriate standard, and it further found that based on this standard, several material facts were in dispute precluding the granting of summary judgment on behalf of Christie's and Underwriters.
After reviewing the parties' submissions and reconsidering its opinion, the Court now finds that the standard of care articulated in the December Opinion is not entirely correct. It is correct that the Consignment Agreement, like all contracts governed by New York law, was subject to an implied covenant of good faith and fair dealing. See, e.g., Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir. 1980). Indeed, Christie's now appears to concede this in its supplemental memoranda. As will be explained below, however, it is not correct that Christie's right to rescind was subject to a standard of objective reasonableness.
A. The Appropriate Standard
The starting point in determining the proper standard of care is the Consignment Agreement. As discussed above, Paragraph 15 of that agreement explicitly gave Christie's the right to rescind when it had determined in its "sole judgment" that it might be subject to liability as a result of the sale. The question, then, is what standard is to be applied in judging the propriety of Christie's exercise of this judgment.
Though research was unable to uncover any case addressing the specific contractual clause at issue here, the Court finds the body of law dealing with so-called "satisfaction clauses" to be highly analogous here. Such clauses typically condition a party's performance of an obligation on that party's satisfaction with the performance of the obligee, or with something else not within the control of the obligee. E. Allen Farnsworth, Farnsworth on Contracts, Vol. II, § 8.4 (1990) ("Farnsworth"). Generally speaking, such clauses often require courts to decide whether the parties intended that the party whose performance is conditioned upon its satisfaction be reasonably satisfied (objective standard), or honestly, albeit unreasonably, satisfied (subjective standard). Id; Royal Bank of Canada v. Beneficial Finance Leasing Corporation, 1992 U.S. Dist. LEXIS 9496, 1992 WL 167339 (S.D.N.Y. 1992).
The clause in this case closely resembles a "satisfaction clause". Christie's consummated a sale on behalf of Koven, but its obligation to refrain from rescinding that sale was expressly conditioned upon its satisfaction that the continuing affirmation of the sale would not subject it to liability. If Christie's were not so satisfied, it would be entitled to rescind.
The question of whether dissatisfaction was meant to be reasonable, or simply honest, is a question of law. Misano di Navigazione SpA v. United States, 968 F.2d 273, 275 (2d Cir. 1992). Though the cases and commentaries caution against the imposition of a subjective standard, they do so only when an ambiguous contractual provision is at issue. Id.; Restatement (Second) of Contracts, § 228, comment a (1981). In such cases, the preference is for an objective standard which provides greater protection to the obligee. Farnsworth, § 8.4.
In this case, the contractual language is clear that a subjective standard was to apply. Christie's was authorized to "determine" in its "sole judgment" whether or not it might be subject to liability. This language is a clear indication that only Christie's judgment was to be relevant in its determination as to potential liability. See, e.g., Farnsworth, § 8.4 ("Words such as 'personal' or 'entire' satisfaction and 'sole judgment' help to show that honest satisfaction was intended.") (emphasis added); Kaplan v. City of New York, 10 A.D.2d 319, 200 N.Y.S.2d 261 (App. Div., 1st Dep't 1960) (standard of satisfaction was subjective, where party was to be "sole judge" of whether condition had been satisfied).
B. The Role of Good Faith
The fact that the subjective standard applies, however, does not in itself entitle Christie's to summary judgment. As noted above, Christie's obligations to Koven were subject to an implied covenant of good faith and fair dealing. While both parties now appear to agree that this covenant applies, they have predictably different views on how it constrained Christie's conduct. It is thus necessary to articulate how the covenant of good faith interacts with the subjective standard of dissatisfaction articulated in the Consignment Agreement.
Koven clearly bargained away an important right when she surrendered to Christie's the authority to rescind based upon Christie's own view of a particular set of facts. There is an obvious danger in such a clause, in that Christie's could conceivably develop a purpose for rescinding that was improper, having nothing to do with its thoughts on liability.
It is thus essential that Christie's not be able to insulate its decision from judicial scrutiny merely by holding up the Consignment Agreement and pointing to its authorization to take this action. The covenant of good faith effectuates this need. See, e.g., Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 526 (2d Cir. 1994) ("Implied covenant of good faith and fair dealing... precludes each party from engaging in conduct that will deprive the other party of the benefits of their agreement.") It mandates that an action authorized to be taken for a particular reason actually be taken for that reason. As Professor Farnsworth wrote, in the context of an owner's agreement to pay a contractor only upon the owner's satisfaction with the work:
"If the contract is interpreted to require actual satisfaction, the contractor is not entirely at the owner's mercy. The owner cannot avoid liability merely be expressing dissatisfaction; the owner's judgment must be exercised in good faith, and the dissatisfaction may not be solely with the bargain itself or with the matters of which the owner was aware when the contract was made." Farnsworth, § 8.4.
The requirement that Christie's honestly believe it might be subject to litigation prior to rescinding is undoubtedly not the level of protection Koven would like, but it is significant protection in assuring that Christie's not use its broad power with indifference to Koven's interest. If Koven sought greater protection than the minimal protection the law gives parties to a contract, she should have bargained for that in the Consignment Agreement.
The issue, thus, is not, as Koven contends, whether it was reasonable to consult the Laurens, whether Claude or Quentin Laurens is the true expert, or whether a holder of the droit moral should have been presumed an expert. Rather, the issue is simply whether Christie's honestly believed it might be subject to liability when it rescinded the sale. Koven's attempt to make the inquiry whether Christie's should have held this belief would limit Christie's to rescinding the sale only when it was reasonable to do so. Such a restriction upon Christie's right to rescind was not bargained for, and the requirement of good faith cannot be construed to create such a restriction. See, e.g., Doubleday & Co., Inc. v. Curtis, 763 F.2d 495, 500 (2d Cir. 1985) (holding, in case where publisher was contractually entitled to reject a manuscript that it found unsatisfactory, that "although we hold that publishers must perform honestly, we decline to extend that requirement to include a duty to perform skillfully.")
It should also be noted, because the parties address it, that the applicability of this lower standard of care is not changed by the general principle that a compensated agent with special skills is held to the standard of care of similar agents in that locality. This heightened standard of care is a general principle of agency law, but as was noted above in the discussion of the duty of loyalty, many agency duties may be modified by contract. Section 379 of the Restatement reads:
379. Duty of Care and Skill