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.

NY City Bar tackles “Hot Topics in Art Law 2014”

By Megan E. Noh, Esq.

On  12 March 2014, the New York City Bar Association hosted a well attended panel on “Hot Topics in Art Law 2014,” moderated by the chair of its Art Law Committee, Dean Nicyper (Flemming Zulack Williamson Zauderer LLP).  The panel was comprised of three speakers:  Judith Bresler (Withers Worldwide; author of the treatise Art Law: The Guide for Collectors, Investors, Dealers and Artists), Stacy Lefkowitz (Volunteer Lawyers for the Arts), and Howard Spiegler (Herrick, Feinstein).

Judith Bresler addressed the context for the proposed addition of § 13.04 to New York’s Art and Cultural Affairs Law, explaining that an increasingly litigious environment has a chilling effect on art experts and authenticators. Further,  when these individuals are afraid to render their opinions of authenticity, it has a chilling effect on transactions and the marketplace, inviting fakes and forgeries to enter into the stream of commerce. The proposed legislation, designed to provide greater protections for authenticators, was approved by the City Association of the Bar in January 2014, and introduced as a Bill on 11 March 2014. (Text of the proposed Bill is available online).  The Bill defines  an “authenticator” as a person who is recognized as having expertise regarding the artwork in question, who has rendered an opinion of authenticity  in good faith, and who does not not have a personal financial interest in the artwork itself or in the underlying transaction (other than being paid for his/her services in rendering the opinion).  If enacted, § 13.04 would add three forms of protection for authenticators: 1) a plaintiff suing an authenticator would be required to specify the facts supporting each part of each claim (exposing frivolous claims for their lack of merit), 2) the plaintiff would be required to prove his/her claim by clear and convincing evidence (a higher burden than preponderance), and 3) the authenticator could recover legal fees if successful in defending the claim. 

Next, Stacy Lefkowitz spoke on the topic of the law applicable to art consignment transactions. She explained a clear divide in the law: artists consigning their own work receive the protection of NYACAL 12.01 (amended in 2012, partially in response to the Salander O’Reilly fraud, to provide more “teeth” through stronger definitions and enforcement provisions with cross-references to the Estates, Powers & Trusts Law, as well as the requirement of much more specific waiver language), whereas artists consigning artworks by other artists and non-artists consigning artworks receive the lesser protection of the Uniform Commercial Code. Lefkowitz also discussed the subject and jurisprudential interpretation of due diligence required by merchants acting as purchasers of artwork, including some of the common “red flags” that may suggest that a transaction is not commercially reasonable.  Finally, Lefkowitz emphasized the ability of consignors to file UCC-1 financing statements as a proactive protection, as when properly filed, such a statement will ensure that a consignor’s interest supersedes that of other creditors.

Howard Spiegler then reviewed recent developments in repatriation and restitution, including Cambodia’s recovery of statues from Sotheby’s (through settlement of a forfeiture action) and the Metropolitan Museum of Art (by agreement), as well as the December purchase by the Annenberg Foundation of Hopi objects sold at the Paris auction house Drouout for return to the tribe.  With respect to restitution of Nazi-looted Art, Spiegler outlined the aspects of New York law that cause many to view it as a favorable forum for art recovery, such as its application of a “demand and refusal” rule to trigger the statute of limitations, its minimal burden of proof, and its fundamental rule that even good faith purchasers may not obtain good title to stolen property.   Mr. Spiegler also reviewed recent restitution cases, including Baklar v. Vavra (in which a Schiele drawing was at issue), In re Flamenbaum (concerning a thirteenth century gold tablet), Cassirer v. Thyssen-Bornemisza Collection Foundation (a dispute concerning a Pissarro painting), and Chabad v. Russian Federation (a suit to recover religious texts). Spiegler closed by noting that the first “Gurlitt Horde” case has recently been filed in the U.S. District Court for the District of Columbia; this is the first of what the art law community anticipates will be many similar claims arising from the recent discovery of this trove of artworks.

The panelists’ presentations were followed by a spirited “Q&A” session, during which Dean Nicyper and audience members posed some insightful questions.  The program was an excellent review of recent developments in the art law arena, and those who attended will surely be watching the news for further updates to the legislation and cases that were covered.

About the Author: Megan E. Noh, Esq. is the Director of Bonhams Trusts & Estates department in New York. She may be reached at 212.461.6521 or megan.noh@bonhams.com.

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