It Takes Two to Tango: The Importance of Artist-Gallery Contracts

By Scotti Hill*

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Creative Commons.

Of course galleries are venues of intellectual engagement and social activity, but it can be easy to forget that they also act as hubs for commercial exchange. The same mechanisms that govern relationships between blue-chip artists and mega-galleries ought to be in place to protect emerging artists and pop-up galleries as well. Beneath the veneer of originality and artistic merit lie monetarily-driven representation agreements and consignment contracts. The status quo is driven by mutual interest: galleries need artists to create their inventory so their clients have something to buy, and artists need galleries for their infrastructure and access to art buyers. By creating a roadmap that enables both parties to navigate their working relationships, contracts are at once practical and imperative. So, given the importance of a well-drafted and carefully negotiated contract in almost all areas of commerce, why do artists and galleries often fail to formalize the nature of their relationships in contractual form?

On July 19, 2016, Center for Art Law hosted an art law mixer entitled “Good Fences Make Good Contracts” to explore the question of contracts between artists and galleries. As a follow up, this article examines the intricacies of standard representation and consignment agreements, while also delving into the legal basis for such contracts–namely the Uniform Commercial Code Sect. 9-102 and the New York Arts and Cultural Affairs Law §12.01, Artist and Merchant Relationships. To illustrate benefits of having carefully crafted contracts between artists and galleries, some high-profile relationships, such as the representation and the rumored split between Richard Prince and the Gagosian Gallery highlight select  issues that may arise in an artist-gallery relationship.

Introduction to the Standard Artist-Gallery Contract

Screen Shot 2016-08-15 at 1.04.59 PMWhen entering into a commercial relationship, an artist or gallery may choose to draft a standard representation agreement whereby the gallery agrees to work as an agent on the artist’s behalf. The scope of this agency is negotiated by the parties, as some galleries hope to serve as an artist’s exclusive agent in a geographic area (New York City, for example), while others agree to serve as agent for one specific medium or collection the artist produces. Such agreements set provisions for matters like how revenue is shared after a sale, whether the gallery receives commissions on work sold from the artist’s studio, and the duration and scope of consignment. The following items are also commonly included in artist-gallery contracts:

  • Duration of contract including renewal and termination clauses;
  • Commission structure, terms of payment and other accounting procedures;
  • Transportation procedures;
  • Gallery promotion, marketing and copyright;
  • Coverage and provisions of insurance policies.

After establishing representation with a gallery, artists then consign their artwork to them for safekeeping with the expectation the gallery will sell their inventory. By definition, consignment is the act of assigning the property of one party (consigner, be it an artist or a collector) to that of another (consignee, here a gallery), for sale under contract. As part of the larger representation contract, a consignment agreement should list all the works given to a gallery by the consignor, with an authority to sell a specified group of the artist’s work and providing an indexical record of works in the gallery’s possession.

Uniform Commercial Code (UCC) Sect. 9-102, and New York Arts and Cultural Affair Law §12.01, Artist and Merchant Relationships

While the Uniform Commercial Code is the overarching body of laws concerning the sale of goods and commercial transactions federally, each state has adopted its own commercial code. UCC Section 9-102 sets guidelines for parties engaging in commerce regardless of the existence of a written contract. As it relates to the consignment relationship between artist and gallery, the UCC dictates important provisions that have been upheld over time by case law, namely the criteria and value of goods classified under ‘consignment’ and consignor’s rights in the event of bankruptcy. See Jacobs v. Kraken Inv. Ltd., (In re Salander-O’Reilly Galleries, LLC), 506 B.R. 600 (Bankr. S.D.N.Y. 2014)

In addition to the UCC, thirty-one states have adopted statutes to address the specific circumstances governing art transactions. In New York, for example, the New York Arts and Cultural Affairs Law (NYACAL), Article 12, provides a governing structure for interpreting contracts between artists and galleries. On November 6, 2012, New York’s consignment law was updated to include additional protections for artists by imposing stricter measures on galleries and dealers as consignors. The updated NYACAL addresses three fundamental weaknesses in earlier consignment law: requiring dealers and galleries to place sale funds in a protected trust, awarding attorneys fees for successful petitioners and requiring that critical sections of the consignment agreement be memorialized in writing. The 2012 amendment directly addresses the UCC’s problematic rendering of consigned artwork eligible for seizure by creditors, which is perhaps one of the UCC’s most controversial points.

Before the 2012 revision to the law, creditors could legally seize artworks in a consigner’s possession in order to fulfill unpaid debts. Although galleries do not own artworks on consignment, the creditor exists as a third party outside of, and therefore not bound by, the terms of a contract forged between the artist and gallery. The lack of solid legal remedies for consignors is what has propelled many states to revise their laws to deal specifically with the consignment of art, while in New York, the mammoth Salander-O’Reilly Galleries lawsuit became a catalyst for the amendment.

As such, an important provision exists in many amended state laws: that the gallery be rendered trustees to the artist’s property, which necessitates they hold revenue from the sale of an artwork in a special trust–apart from other gallery funds–that will be paid in full to the artist at an agreed upon time. This amendment works to 1) prevent creditors from seizing consigned art because the value of such works is protected in a trust, and 2) protect trust funds from being improperly used by the galleries to fulfill other financial obligations.

Indeed both parties may take advantage of vague contractual terms or actively work against the creation of a contract. Amended laws aim to prevent this by adding specific fiduciary responsibilities for both parties. Ultimately, if the artist-gallery partnership exists in a state without a comprehensive consignment statute, the parties can, and should, provide through contract the provisions missing from state law.

Richard Prince and Gagosian Gallery Split

After more than a decade and a string of highly successful exhibitions together, news broke in June 2016 that Richard Prince and Gagosian Gallery were going their separate ways. Neither the  veracity of the news nor the details of the alleged split are known, but if true may be explained by the mounting costs from legal battles involving the pair in recent years, which implicate and name Larry Gagosian and his gallery as a contributory infringer.  See Graham v. Richard Prince, Gagosian Gallery, Inc., and Lawrence Gagosian, Cariou v. Prince, Gagosian Gallery, Inc. and Lawrence Gagosian, and Dennis Morris v. Richard Prince, Gagosian Gallery, Inc. and Does 1 through 10 inclusive.

As part of his famous appropriation work, Prince takes the copyright-protected work of other creators and repurposes it in new contexts. While critics and collectors have repeatedly lauded this process, photographers whose work has been used without permission have taken a different approach. From 2014-2016, three copyright infringement lawsuits were filed against Prince by photographers Patrick Cariou, Donald Graham and Dennis Morris. In Cariou v. Prince, 714 F.3d 694 (2nd Cir. 2013), the Second Circuit Court of Appeals held that Prince did not infringe the copyright of 25 of the 30 images he appropriated from Patrick Cariou’s collection of photographs under the fair use exception of copyright law. For his use of the remaining five images in the collection, Prince settled out of court. The infringement cases brought by Graham and Morris are ongoing.

As agents working on the artist’s behalf, galleries accompany artists through creative peaks and declines. While much is made about how important contracts are for artists, galleries are wise to incorporate a termination clause in the contract in order to guard themselves from potential problems that may arise in the course of the relationship. A well-drafted termination clause, for example, is helpful in providing a protocol for the  manner in which the parties can terminate their professional relationship; a termination clause affords the party on the receiving end of the “breakup” adequate time to prepare for the transition. This is particularly important in instances where the gallery has crafted an exhibition or otherwise made plans with specific artworks. A typical clause of this kind would require the party initiating the split to give notice of anywhere from one to three months to the other party.

We do not know if Prince had a contract with Gagosian, but at the very least, it is likely the two agreed upon such critical provisions as payment and consignment of inventory. Despite news of the split earlier this summer, Prince is still featured on Gagosian’s website, which may indicate the two have yet to part ways. And even then, the separation may only be temporary.  After all, artist Damien Hirst reunited with the Gagosian Gallery for 2016’s Frieze New York following a three year split.

Conclusion

Although many states have amended their consignment laws, still other states have yet to follow suit. In areas of the nation where art represents a decidedly small segment of the larger economy, less incentive exists to add in the necessary protections that have been greatly appreciated in large art markets. On a practical level, however, artists can protect themselves by being vocal about their desire for a consignment contract. Contracts create a roadmap for the artist-gallery relationship and can offer clarity  if/when any unforeseen grey areas arise in the course of doing business together. When entering into a business relationship with a gallery, artists are wise to seek out feedback from their peers about the gallery’s reputation and its willingness to negotiate mutually beneficial terms at the outset. Various resources exist online, most important of which are copies of the standard representation and consignment agreements that can serve as a starting point for both parties. Ultimately, if an artist is faced with unique circumstances relating to their practice or needs, they may wish to seek legal representation before, and oftentimes during, their formal acceptance of a gallery’s offer of representation.

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Photo by Luis Nieto Dickens | @vla_newyork

On July 19, 2016, Center for Art Law (the “Center”) hosted “Good Fences Make Good Neighbors,” a Summer Art Law Mixer made possible with support from the New York Volunteer Lawyers for the Arts. The event focused on contracts between artists and galleries and how attorneys negotiate on behalf of their clients. Moderated by the Founding Director of the Center, Irina Tarsis, the panel featured three speakers, all attorneys specializing in art law. Dean Nicyper, a litigator with Withers Worldwide, and involved with revising the NYACAL law, provided a general overview of the legal considerations of artist-gallery contracts, Amelia Brankov of Frankfurt Kurnit Klein & Selz, spoke about the ways in which artists can advocate on their own behalf in forging contracts with galleries and Katherine Wilson-Milne of Schindler Cohen & Hochman, commented on what considerations galleries have when drafting contracts with artists. Attendees, including practicing attorneys, students and artists, asked questions ranging from the appropriate etiquette of negotiating such contracts to how to best situate oneself to prevent and later reconcile potential legal issues that arise from this union. One main take-away from the evening was that that clear terms of a consignment agreement between artists and dealers make for good symbiotic relations between the two key players in the art market.

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About the author: Scotti Hill is a J.D. Candidate, 2018 from the S.J. Quinney College of Law at the University of Utah. She serves as a summer 2016 legal intern for the Center for Art Law, and works as an art critic and curator. Prior to law school, she received a Master’s Degree in art history and visual studies. She can be reached at scottiaustinhill@gmail.com

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Case Review: Scher v. Stendhal Gallery, Inc., et al.

By Chris Michaels, Esq.

Puala Scher, “South America”

A recently decided case out of the New York Supreme Court, Appellate Division, First Department may have some New York galleries re-evaluating the contracts they have with their artists. On 27 March 2014, the court decided whether Paula Scher, an artist, had ownership of 320 unsold fine-art silk-screen prints made from her paintings that the Gallery had printed for approximately $300,000. Based on the agreement between the parties, the court held that the Gallery had left itself exposed upon the agreement’s termination and, even though it had laid out the costs for production, Scher was the sole owner of the prints.

Plaintiff in the case, Paula Scher, a nationally known graphic designer, is also a well-recognized fine art painter. She has a BFA from the Tyler School of Art at Temple University in Philadelphia and has been a principal at Pentagram, one of the world’s largest independent design consultancies, since 1991. As a graphic designer, she has developed branding and marketing for clients including Coca-Cola, Perry Ellis, and Microsoft. Her artwork is in the permanent collections of some of the most distinguished museums in the United States, including the Museum of Modern Art, the Philadelphia Museum of Art, and the Denver Art Museum.

At the heart of the lawsuit Scher brought against the Stendhal Gallery, Inc., a New York art gallery established in 1990, was an agreement both parties entered into in 2005 for the sale of a series of 12 map-based paintings Scher created.  The consignment agreement between Scher and the Gallery indicated that the Gallery would sell the map paintings and any future works Scher might create during the agreement’s term.

Specifically, the agreement noted that, “[t]he Artist [Scher] appoints the Gallery to act as Artist’s exclusive agent in the following geographic area: exclusive worldwide for the exhibition and sales of artworks in the following media: original paintings / Works on Paper / limited edition prints published exclusively by Gallery and Digital / electronic art for computers.” While the written agreement was in effect, Scher and Maya Stendhal, at the time a principal of the Gallery, entered into a separate oral agreement whereby Scher granted the Gallery a license to produce prints based on Scher’s Map paintings. Pursuant to the second agreement, the Gallery would produce the prints at the Gallery’s expense and the proceeds of any prints that sold would be split with 90% going to the Gallery and 10% going to Scher.

After Scher and Stendhal entered into the second agreement, the Gallery then hired a printer to make the prints. The Gallery took possession of the prints from the printer and incurred approximately $300,000 in costs between printing and selling some of the prints. The prints were then advertised for sale for between $3,000 and $15,000. The Gallery generated $1,388,680 from sales of the Map paintings, but paid Scher only $15,000. Pursuant to the oral agreement, she was due $138,868.

In May of 2010, counsel for Scher notified the Gallery that the 2005 written agreement and the oral agreement were terminated and, at the same time, demanded that the Gallery return any unsold paintings and prints. Shortly thereafter, Scher initiated her lawsuit against the Gallery for, among other things, the unsold prints that the Gallery possessed.

In the underlying case, the Supreme Court’s initial judgment granted ownership of the 320 unsold prints to Scher. At the same time, however, the court ruled that the Gallery was entitled to 90% of the proceeds of the re-sale value of the unsold prints. In the ruling, the Court looked to New York Arts and Cultural Affairs Law §12.10, which deals with artist-merchant relationships. The court held that under the law, Scher owned the prints but that it did not defeat the Gallery’s contractual right to 90% of their resale value. In response to the Court’s ruling, Scher moved for re-argument to eliminate the Gallery’s right to a portion of the resale value, among other things.

On re-argument, the Court held that the oral argument between Scher and the Gallery established a split of proceeds only at such time as the prints were sold. In its amended judgment, the Court granted Scher ownership of the 320 prints and held that the Gallery was not entitled to any share of the value of the unsold prints but was, however, entitled to recover the costs incurred in having the prints made. The Gallery appealed this ruling, seeking full ownership of the prints under the Uniform Commercial Code or, in the alternative, a 90% share of the resale value of the unsold prints.

On appeal, the Appellate Division did not look to either the UCC or the New York Arts and Cultural Affairs Law in deciding the case. Instead, it simply relied on the 2005 contract between Scher and the Gallery. The Court noted that the agreement provided that the Gallery would act as Scher’s “exclusive agent” for the exhibition and sales of the prints. Therefore, the Court reasoned, when it hired and paid the printer to make the prints, “it did so as Scher’s agent and, hence, fiduciary.”  The Court further reasoned that as Scher’s fiduciary, the Gallery was obligated to disclose to Scher that it would own the prints after they were made, if that is what the Gallery’s understanding was. The Court noted that if the Gallery wished to own the prints that it financed, it could have sought to reach a separate agreement with Scher regarding ownership. Further, the Court noted that the Gallery, “left itself exposed by going forward with the print deal based on only a vague, unwritten agreement that left nearly all of the terms up in the air . . . .”

Additionally, the Court stated that the Gallery, as a fiduciary, acted carelessly in dealing with its principal. The Court was especially hard-pressed to give any leeway to the Gallery as fiduciary because the 2005 written agreement provided that any modification of its terms must be in writing and signed by both parties.

Ultimately, the Court awarded full ownership of the unsold prints to Scher and held that she had no obligation to reimburse the Gallery for either printing costs or resale value. The Court’s ruling here should act to remind Galleries that under consignment deals such as this, before any substantial amount of money is laid out for the creation of prints, Galleries, as fiduciaries to the artists with whom they contract, should be very clear about their intentions to own unsold prints.

Plaintiff was represented by Judith M. Wallace, Jeffrey L. Loop, and Michael H. Bauscher of Carter Ledyard & Milburn LLP. The Gallery was represented by Michael C. Ledley and Melissa A. Finklestein of Wollmuth Maher & Deutsch, LLP.

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About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaels88.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.