Last Updated 19 | 02 | 2014 at 08:00

Business & Technology

Lent and Lost

Article By:
Patrick Barthet

It sounded like a good way to raise some much needed cash – provide a painting from the family’s art collection to a local gallery, doing so on consignment and hoping it would catch the eye of one of the gallery’s customers.  Consigning your goods to another is not a new concept.  It has been around for many, many years.  You receive a percentage of the eventual sales proceeds and the selling shop keeps the balance, with you all the while retaining ownership of the consigned item.

But what if the art gallery to whom you’ve consigned your painting goes out of business?  Can you just go back to the gallery and retrieve your painting?  After all you clearly own it and there is no question that the painting is just there on loan, right?  Maybe not, not without the right agreements being in place.

In one case directly on point, a gallery exhibiting a number of consigned paintings also had a series of loans in place. The gallery’s creditors had properly protected their interests by obtaining and recording pledges of all of the gallery’s inventory.  When the gallery couldn’t pay its bills, the creditors wanted everything in the gallery including the paintings there on consignment.  The owners of the consigned paintings cried foul, but for naught.  The court agreed with the creditors.  You see the gallery hadn’t posted any signs indicating that the paintings were there on consignment nor had the owners of the consigned paintings filed any sort of documents to legally protect their interests.  There was nothing to distinguish the consigned paintings from the rest of the gallery’s inventory.  What may have seemed like a great idea quickly turned into a very bad decision. 

If you are considering consigning any personal property, be sure to have a written agreement in place.   You’ll want to have a document which notes the gallery’s (or store’s) responsibility in case of damage or loss, the intended retail price for the consigned goods, a clear description of what is being consigned, the gallery’s fee for the consignment, an indication as to who will pay for promotional as well as miscellaneous costs such as shipping, and most importantly a requirement that the gallery (or store) post a sign or attach a notice making it clear that the art or item is there on consignment.
 
This is especially important when it comes to paintings as the following case illustrates.  A painting’s owner contracted with someone, let’s call him Mr. Smith, to sell his valuable Picasso.  While Mr. Smith was appointed the exclusive agent, he was also authorized to sell the Picasso through intermediaries. So Smith contacted his brother-in-law, a part-time art dealer in another state and shipped him the painting.  The brother-in-law approached a gallery which quickly found a buyer, whom we’ll call Mrs. Brown.  She paid a little over a quarter of a million dollars for the painting.  Apparently that much cash was too much of a temptation for Smith and his brother-in-law, as they quickly absconded with the money, leaving the painting’s original owner with nothing – no painting and no money.  The original owner was left little recourse but to sue who else but Mrs. Brown.  She wasn’t pleased and promptly claimed she was just an innocent, good faith purchaser.  The court agreed, reasoning that because she was not an art dealer with some higher obligation to investigate the provenance of the painting, she was free to keep the painting she paid for.  A sad day indeed for the original owner.

So, a word to the wise is in order.  Once consigned, any item, even a valuable painting, can be forever lost. Don’t let that happen to you – make very sure that any such transaction is properly documented.

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