In Favor of Artists

Some thought our client Vinnie was nuts, but we preferred to think of him as merely impressionable, or perhaps just absinthe-minded. The Parisian painter e-mailed us in a panic with a pressing problem: He had consigned pictures to several American galleries and was terrified that if they suddenly went bust (as famously happened to dealer Salander O’Reilly), their creditors would claim the works.

Vinnie may have been bipolar with suicidal urges, but after hearing his story, we didn’t think his fears were so crazy. To begin with, we learned that he had consigned paintings to several New York dealers without signing written agreements. We always advise clients to sign these, since they spell out the artist’s rights and the gallery’s obligations, avoiding misunderstandings. Still, even if Vinnie had signed such a contract, it would not by itself have shielded his art against claims from secured creditors in the event the dealers went bankrupt.

Vinnie would, however, be protected in New York by a special art-consignment statute passed in 1966. Like similar legislation subsequently enacted in 30 other states, the New York law ensures that pieces an artist consigns to a dealer for sale are beyond the reach of the dealer’s creditors, stating specifically that such work “is trust property in the hands of the consignee for the benefit of the consignor” and “no such trust property or trust funds shall be subject or subordinate to any claims, liens or security interest of any kind or nature whatsoever.” By specifying that both the consigned art and the proceeds from its sale are held in trust by the dealer, the New York law makes the dealer criminally as well as civilly liable for misappropriation of the property.

Vinnie then told us that he had consigned several paintings to a woman who didn’t sell art full-time but was just moonlighting while she worked for his ear doctor. Since, arguably, she wasn’t a true art dealer, would she be subject to the New York law?

Luckily for Vinnie, the answer is yes. The New York statute has been broadly interpreted in favor of artists, so it would still protect his works if the woman were to go bankrupt. In fact, in the 1996 New York Supreme Court case Wesselmann v. International Images, Inc., the court ordered International Images, a publisher of limited-edition prints created by Tom Wesselmann, to return all works created by the famous Pop artist despite the defendant’s contention that it was technically a publisher, not an art merchant, and therefore not subject to the statute. According to the court, the plaintiff’s “artworks and the proceeds from sales of such artworks are trust funds in the hand of defendants for the benefit of Tom Wesselmann.”

Although the pictures that Vinnie had consigned in New York appeared to be safe, he was concerned about some sunflower paintings he had sent for exhibition (but not for sale) to a gallery in Miami. The good news was that the Florida statute covers consignments for exhibition as well as for sale. The bad news was that Florida’s statute is trickier for artists than the New York one.

Under the Florida law, artists cannot claim the right to their consigned artworks over that of a secured creditor unless they have given “notice to the public by affixing to such work of art a sign or tag which states that such work of art is being sold subject to a contract of consignment.” Since Vinnie had not complied with these requirements, he would not be protected by Florida’s statute.

An example of how strictly such rules are applied is found in the 1990 Florida Court of Appeals case Shuttie v. Festa Restaurant, Inc. The painter Zois Shuttie had consigned to John Guggenheim 16 paintings for sale, which the Coral Gables-based art dealer then gave to Festa Restaurant to exhibit and as security for a $25,000 loan. When Guggenheim abruptly disappeared, Shuttie sued to recover his paintings from the restaurant but lost. The court reasoned that the restaurant had a first claim to the pictures since the artist had not followed the state’s requirements for notifying the public that they were being sold on consignment.

In our view, having to comply with the sort of conditions imposed by the Florida law defeats the main purpose of the art-consignment statues: automatically protecting artists’ claims to their works. We nonetheless advised Vinnie either to post the statutory notice required by Florida law or to pull his pictures from the gallery’s exhibit.

Next our client told us of his consignment to a fledgling gallery in Malibu. Vinnie had promised one starry night that he would waive his rights to the works should the dealer go bust, a pledge the artist now regretted. We reassured him that the California art-consignment statute, passed in 1975, does not permit such waivers, so his promise was unenforceable. (In contrast, the New York law does allow a limited written waiver.)

Vinnie’s consignment to the Malibu gallery had an interesting wrinkle: Two of the paintings involved were not by him but were gifts that his brother Theo had received from another artist, who specialized in garish cabaret scenes. We pointed out that since Vinnie hadn’t actually created those works, he could not seek protection under the California consignment law and might be out of luck in the event the gallery went under.

We further explained that art consigned to a dealer by a collector — unlike art consigned by artists, their heirs or their representatives — is typically subject to the claims of the dealer’s creditors unless the dealer is generally known to his creditors to be substantially engaged in selling goods belonging to others or the collector files a UCC-1 financing statement that records his security interest in the work. The exceptions are the statutes in states such as Michigan and Connecticut, which give artists and nonartists the same benefits of the fiduciary relationship when consigning to dealers. For more on the rights of collectors who consign art, we referred Vinnie to our August 2006 article “The Perils of Consigning.”

When last we heard from our client, he wasn’t doing too well. Vinnie was so hard-pressed that he actually wanted to give us, in lieu of our small fee, several paintings. We naturally refused. Unlike our client, we aren’t crazy.

Charles and Thomas Danziger are the lead partners in the New York firm Danziger, Danziger & Muro, specializing in art law.

Some facts have been altered for reasons of client confidentiality or, in some cases, created out of whole cloth. Nothing in this article is intended to provide specific legal advice.

“In Favor of Artists” originally appeared in the October 2009 issue of Art+Auction.