Private Sales

2 Private Sales n recent years, the commercial fragility of what were perceived to be preeminent New York art galleries was laid bare in newspaper head- lines and lawsuits that highlighted the financial woes of the hap- less collectors who consigned art to be sold, and the art purchasers Iwho acquired more (or less) than they bargained for. That fragility renders art transactions commercially unique when it is combined with the in- trinsic properties of fine art. The artwork, for one thing, is often singular and ir- replaceable. Moreover, its value, which largely depends on the artist’s reputation at the time of the sale, may fluctuate extensively because an artist’s reputation is largely subject to public whim. And artwork is frequently purchased on impulse by a shockingly uninformed buyer: The buyer often turns a blind eye to securing a written purchase contract (let alone to having the contract reviewed by legal counsel), neglects to have the property physically inspected or professionally ap- praised, fails to do a title search, and, if the work is a fine-art multiple, makes no inquiry about the technique of production. Defects abound in artwork as frequently as in other property. Accordingly, the art buyer should observe the same precautions ordinarily used by the prudent buyer in other commercial transactions of like value. Those precautions are ad- dressed at length throughout the three main sections of this chapter: Sales by Dealers, Sales by Collectors, and Secured Transactions. SALES BY DEALERS Whether the dealer is a private dealer, a single commercial gallery, or a gallery with numerous branches or franchised outlets, the dealer’s art sales are governed by principles of contract and tort law, by federal and state penal statutes, and in certain jurisdictions by specific legislation regulating sales of art. The art dealer may be selling works of art consigned to it by the artist (see chapter 1), works of art it owns, or works of art consigned to it by a collector. The most important commercial statute, the Uniform Commercial Code (U.C.C.), applies to most of 87 88 a r t l aw the issues arising from the sale of artwork, including assurance of authenticity. It is here, therefore, that the discussion begins. Warranties Art’s unique characteristics argue against total applicability of the U.C.C. to all art transactions. The U.C.C. deals exclusively with transactions of tangible personal property, and not all art is personal property. Art can also take the form of real property, such as buildings, earthworks, and such temporary installation pieces as Christo and Jeanne-Claude’s The Gates, consisting of 7,503 orange nylon fab- ric constructions that adorned New York City’s Central Park in February 2005.1 However, to keep this discussion manageable, whenever artworks are referred to in this chapter, we are referring to those traditionally regarded as personal property. Moreover, art that is tangible personal property embodies significant intangible rights that are more or less ignored by the U.C.C. Further still, many states—New York,2 Iowa,3 and others4—doubting the sufficiency of the U.C.C. alone to safeguard art buyers, have enacted legislation that in some cases over- rides the U.C.C. Nevertheless, the U.C.C. governs an array of issues arising in art transactions, and our discussion of warranties, therefore, mandates a review of both U.C.C. principles and legislative and judicial expansions of protection. Express Warranties Under common law, the buyer of goods generally labored under the rule of caveat emptor, absolving the seller from all responsibility for the quality of the goods sold unless the quality was expressly guaranteed. As the law evolved, the courts turned a compassionate ear to the purchaser, whereupon the rule of caveat emptor was relaxed, and the doctrine of express warranty emerged. An express warranty is created without the use of particular words of guarantee as long as the buyer can reasonably understand that the seller is affirming essential quali- ties of the goods and the buyer relies on such affirmation in good faith.5 The U.C.C. codified the judicially created rule. The foundation of the express- warranty provision as codified in the U.C.C.6 is twofold: It rests, first, on the core description of goods to be sold7 and, second, on those statements of the seller that become “part of the basis of the bargain.”8 Express warranties may arise regardless of a seller’s intention; good faith is no defense to the falsity of an as- sertion.9 They may arise in documents other than a sales contract; affirmations in catalogs,10 brochures,11 or advertisements,12 for example, may give rise to express warranties if the buyer knows of and relies on the affirmation. Further, an advertisement need not necessarily set forth the precise warranty asserted by the buyer as long as it conveys the essential idea underlying the claimed warranty.13 Express warranties may arise from assertions made before, after, or dur- ing a sale.14 Express warranties may also arise from oral representations made by the seller; the U.C.C. does not require that all material terms of an agreement be included in a written contract.15 Private Sales 89 Warranty by Affirmation of Fact or Promise The U.C.C. provides that an express warranty arises on “any affirmation of fact or promise made by the seller to the buyer which relates to the goods and be- comes part of the basis of the bargain.”16 If the goods do not conform to the affirmation or promise made, the warranty is breached, and an action may be brought, regardless of the seller’s good-faith or malicious intentions in making the false statement. If the documentation alone of a work of art has been forged, that, too, constitutes a breach of warranty17 as the authorship of the work has been rendered questionable. In such a case, at least one commentator has sug- gested18 that the seller reimburse the buyer for any diminution in value caused by the lack of certification or compensate the buyer for expenses reasonably in- curred in resolving the question of attribution through scientific analysis or ex- pert opinion and that punitive damages be allowed if the seller acted in bad faith. An example of breach of express warranty is illustrated by the New York federal court case of Tunick v. Kornfeld,19 a case of apparent first impression in New York and in the Second Circuit.20 The case underscores the imperfect fit between the U.C.C. and fine art. The New York gallery of David Tunick, a preeminent dealer in the United States in Old Master prints, purchased at auction in June 1990 from the gallery of E.W. Kornfeld, a noted Swiss dealer in nineteenth- and twen- tieth-century prints, a print of a Minotaur that Kornfeld represented was signed by Pablo Picasso. Tunick paid Kornfeld $1.4 million for the print. Subsequent to the purchase, Tunick began to have doubts about the Picasso. Although Tunick originally believed that the artwork was made by Picasso in the 1930s, he came to suspect that the signature was a forgery. Tunick informed Ko- rnfeld of his suspicion, offered to return the print to Kornfeld, and demanded his money back. Kornfeld refused to rescind the contract but did offer to exchange the print for another print in the series of the Minotaur that also was allegedly signed by Picasso. Tunick rejected Kornfeld’s offer and, some sixteen months after the purchase, filed suit against Kornfeld. Among other claims, Tunick alleged that Kornfeld breached express warranties that (1) the signature on the print was authentic and (2) the print had been signed in 1942 and had gone directly from Picasso to a private collector, whose widow had consigned it to Kornfeld for sale at auction. Kornfeld, seeking dismissal on summary judgment, contended that even if the signature was not authentic, his offer to exchange the print for another print in the series, also allegedly signed by Picasso, constituted an exercise of his right under New York’s U.C.C. section 2-508(2) to substitute conforming goods for the allegedly nonconforming goods rejected by Tunick. Kornfeld claimed that because his offer met the standards of the U.C.C. provision, Tunick could not properly reject the offer and seek other recourse. That claim raised an issue of apparent first impression. Does section 2-508 of New York’s U.C.C. apply to artwork? That is, can a nonconforming tender of a work of art be cured by an offer of a different but similar work? The federal district court in New York determined that two prints by the same artist and from the same plates are not interchangeable. Therefore, New 90 a r t l aw York’s U.C.C. section 2-508 “does not, as a matter of law, obligate a buyer to ac- cept in lieu of a nonconforming print, a substitute print from the same series of prints.”21 In making its determination that prints are not interchangeable, the court noted that prints, unlike petroleum or produce, are not purchased strictly for utilitarian pur- poses. A print is selected by a purchaser because the traits of that print please the purchaser’s aesthetic sensibilities. Thus, whether prints in a series are largely similar or slightly different is of no critical importance. The real fact to be considered is that the purchaser chose a given print because he viewed it as uniquely beautiful, interesting, or well suited to his collection or gallery.

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