"Carson, a banker, wishes to start a modern art collection. While passing Derby’s gallery, Carson sees a notice prominently displayed in the window stating ‘Member of the Association of Modern Art Dealers’. A friend in the art trade has advised Carson that he should only buy from an Association member as the Association imposes a strict code of conduct on its members as regards sales to the public.
An hour later, Carson agrees to buy from Derby a painting by an up-and-coming young artist, Fred Smith, at a price of $700,000. Carson is very pleased with his purchase.
One year later, however, Fred Smith’s paintings are no longer fashionable. At the same time, Carson discovers by chance that Derby was not a member of the Association of Modern Art Dealers at the time that Carson purchased the painting. Derby had forgotten to pay his annual subscription and his membership had expired the previous month.
While the price of $700,000 which Carson paid reflected the painting’s market value at that time, the painting is now worth just $100,000. Carson wants to return the painting to Derby and get his money back."
Required:
1. Discuss misrepresentation as a defense in contract formation
2. Advise Carson.
