Home
About
Cases of
Interest
Clients
Articles
Contact
LAW OFFICES OF NICHOLAS A. CARLIN
Artist - Dealer Relationships
by Nicholas A. Carlin (Art West 1995)
In this article I will discuss some of the legal issues that arise in the context of the artist/dealer relationship.
First, we must define what we mean by an “art dealer”. Under California law, an art dealer is someone who is engaged in the business of selling fine art. This includes anything from large commercial galleries to individuals working out of their own homes, but auctioneers are specifically excluded from the definition. “Collectors” are distinguished from dealers in that collectors primarily buy art for their own pleasure or for investment, rather than as a business. But if a collector starts engaging in a substantial amount of buying and selling, she risks stepping over the line and being held to the, generally higher, legal standards imposed upon a “dealer”. [There are also significant tax and estate planning distinctions which depend on whether a person is classified as a dealer or a collector. Such considerations are beyond the scope of this article.]
Consignments
When an artist wishes to sell her art to the public, she generally will do so through a dealer. Sometimes a dealer will purchase a work outright from an artist, but by far the most common arrangement is a consignment: i.e., the artist will consign a work to the dealer to sell on her behalf in exchange for which the artist will pay the dealer a commission.
In general, any delivery of a work of art to a dealer for the purpose of exhibition or sale on a commission, fee or other basis of compensation, is considered a consignment, unless the delivery is pursuant to an outright sale where the artist is paid in full upon delivery.
Risk of Loss
One question that arises frequently is who bears the risk of loss of or damage to a consigned work of art? Under California law, the dealer bears the risk. This is a “non-waivable” right of the artist, meaning that any contract provision which purports to shift the risk of loss to the artist is void and unenforceable. While the dealer bears the risk of loss, the prudent artist should also make sure that the dealer carries sufficient insurance to cover any loss or damage to the artwork.
Fiduciary Duties
A dealer is considered the artist’s agent and thus a fiduciary of the artist. As a fiduciary, the dealer owes the artist various duties, among them:
1 To care for and manage the works prudently;
2. To deal fairly and honestly with the artist, including disclosure of all information that a reasonable person would consider relevant;
3. To provide periodic accounting; and
4. To hold any sales receipts in trust for the artist.
What is the practical effect of these requirements? One is that a dealer should not buy work from an artist he is representing without full disclosure of all relevant facts. For example, let's say that the dealer knows a buyer who will pay $10,000 for a work by one of the dealer's artists. If the dealer doesn't disclose this fact to the artist and then buys the work from the artist outright for $5,000 in order to make the quick $5,000 profit, he has clearly breached his fiduciary duty to the artist.
A particularly egregious example of this kind of self-dealing and conflict of interest involved the Estate of Mark Rothko. One of the executors was Bernard J. Reis, a director and officer of Marlborough Gallery in New York, which had been Rothko’s dealer, at a 10% commission. Less than one month after being appointed executor, Reis (and the other executors) consigned almost 700 of Rothko’s works to the Marlborough Gallery at a 50% commission rate! The Court of Appeals of New York State (New York’s highest court) eventually upheld a lower court’s finding that Reis and the other executors had breached their fiduciary duties to the Estate, and the executors were fined millions of dollars by the court.
More common is the situation where a dealer handles the work of two or more artists who are of a similar school or style. Is it a breach of the dealer’s fiduciary duty to handle both artists where they are in essence in competition? This sounds ridiculous because it is so commonly done, but technically it could very well be deemed a breach of fiduciary duty because of the potential for divided loyalty and conflict of interest. To be on the safe side, the dealer should require that the artist acknowledge in writing that the dealer handles work by other artists who may be in competition with the artist.
Exclusivity
Frequently, the dealer will wish to be the exclusive agent for the artist. In this case, the parties should specify in writing the geographical area contemplated as well as the duration, or “term”, of the agency.
One point that is often misunderstood in connection with exclusive agencies is whether the artist has the right to sell her own works directly to buyers without having to pay the dealer’s commission. If the dealer is merely an “exclusive agent”, the artist can sell works without incurring a commission! It is only when the dealer is also given an “exclusive power to sell” that the artist must pay a commission on direct sales. This question should be discussed by the artist and dealer before entering into their contract, and whatever they decide should be included in the contract.
Another consequence of an exclusive agency is that the dealer has a legal obligation to use “best efforts” to promote sales. A breach of this duty by the dealer could result in the artist being able to get out of a long term agency agreement.
Dealer’s Potential Tort Liability
There are a number of areas of potential tort liability that dealers should be aware of. For example, whenever a dealer/gallery displays an artist’s work, the dealer could potentially be held liable (along with the artist) for copyright infringement, defamation, invasion of privacy or violation of an individual’s right of publicity. If the works contain names or likenesses of real people, the dealer should at least consider getting releases from those people. The dealer should also obtain warranties from the artist that the works do not violate any of these rights and a promise to indemnify the dealer if they do. Of course, galleries should carry comprehensive general liability insurance.
Dealers should also be wary of soliciting or signing artists who are already signed to other agents or dealers. This could result in the dealer being sued for interference with business relations or inducing breach of contract.
Importance of a Written Contract
As always, the parties should have a written contract specifying their various rights and duties, and in some cases a written contract is required by the Statute of Frauds. There are many examples of artist/dealer disputes which could have been avoided (along with hefty legal fees) if there had only been a written contract. In one such case, Doris Bry claimed that Georgia O’Keeffe had agreed to make her an exclusive agent for O’Keeffe’s lifetime, executor of O’Keeffe’s Estate, and exclusive sales agent after O’Keeffe’s death. None of this was in writing, however, and eventually (after much litigation) the courts rejected Bry’s claims, undoubtedly costing her millions of dollars. A cautionary tale indeed!
Copyright 1995, Nicholas A. Carlin
