The First Department’s recent decision in Zhang Chang v. Phillips Auctioneers LLC seems to have ended the long, turbulent dispute over Gerhard Richter’s 1963 painting of a fighter jet, Düsenjäger. The decision affirmed the unremarkable proposition that parties to a contract cannot avoid their obligations merely by claiming economic duress.

The saga began in October 2016 when Mr. Zhang Chang, a wealthy Chinese citizen and art collector, placed an irrevocable $27,130,000 bid for the work$24,000,000 for the painting and $3,130,000 to cover the buyer’s premium fee.[1] In reliance on Mr. Zhang’s guarantee, Phillips Auctioneers paid the consigner of the work $24,000,000 for title to Düsenjäger.[2] But when Mr. Zhang won the auction, he refused to pay Phillips.[3]

On May 30, 2017, Phillips sued Mr. Zhang for breach of the guarantee agreement.[4] The parties ultimately settled pursuant to an agreement that required Mr. Zhang to complete his purchase of Düsenjäger by July 2018 for $26,000,000.[5] As part of the agreement, Mr. Zhang consigned title and possession of another artwork—a 1967 diptych by Francis Bacon entitled Study for Head of Isabel Rawsthorne and George Dyer—to Phillips as collateral for the settlement amount. In the event that Mr. Zhang breached the agreement, Phillips retained the right to sell both paintings to fund the settlement amount.[6]

After paying Phillips only $3,000,000, Mr. Zhang defaulted on his obligation under the agreement.[7] Phillips then placed Düsenjäger up for auction, as contemplated in the settlement agreement.[8] Mr. Zhang sought to participate in the auction, which Phillips consented to provided that Mr. Zhang place $15,000,000 in his Phillips account and pay the buyer’s premium if he submitted the winning bid.[9] Mr. Zhang agreed and successfully bid on the painting.[10] After the auction, Mr. Zhang signed an acknowledgement memorializing his outstanding debt to Phillips, which included the balance of the settlement amount as well as the buyer’s premium.[11] Mr. Zhang subsequently paid his debt in full, and Phillips delivered the painting to Mr. Zhang in China.[12]

Mr. Zhang then sued Phillips to recover the buyer’s premium fee.[13] He argued that Phillips had breached the settlement agreement and was unjustly enriched because the second buyer’s premium required him to pay more than the agreed upon settlement amount of $26,000,000.[14] Moreover, Mr. Zhang alleged that he had signed the acknowledgment under economic duress.[15]

On July 12, 2021, the Commercial Division dismissed the complaint,[16] and earlier this year, the First Department affirmed.[17] The panel held that Phillips had not breached the settlement agreement because the agreement permitted Phillips to auction the artwork if Mr. Zhang did not pay the balance of his debt by July 2018.[18] The panel also held that Mr. Zhang did not sign the acknowledgement under duress, as Philips was not “compelled to agree to its terms by means of a wrongful threat which precluded the exercise of its free will.”[19] The Court held that Phillips was “doing no more than exercising its right under previous agreements.”[20] Mr. Zhang’s duress claim was also barred because he ratified his promise to pay the buyer’s premium by paying that amount to Phillips and receiving the Richter work.[21] Finally, the unjust enrichment claim failed because such claims “may not be maintained where a contract exists between the parties covering the same subject matter.”[22]

This case serves as an important reminder that courts are hesitant to invalidate agreements under a theory that the mutually agreed upon contract terms, even if unfavorable in hindsight, constitute economic duress.