Due Diligence and Clear Title from Object ID

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To Buy Or Not To Buy

Excerpt taken from Object ID

The associations representing art dealers also seek to combat the illicit trade by encouraging proper business practices, for example, through codes of ethics and codes of practice. A number of national and international organizations representing the trade now have such codes.⁶ These non-statutory codes are not legally enforceable, and rely on non-legal sanctions to ensure compliance with the norms of conduct they require. They are taken into consideration by a court only insofar as the code is accepted as indicative of good practice in a particular sphere of activity.⁷

Increasingly, courts refer to codes of practice and codes of ethics to establish whether or not due diligence was exercised in particular cases. In the context of buying art objects, exercising due diligence has been defined as "a phrase which, by usage and custom, has come to mean taking care by all reasonable means available that you do not knowingly purchase an item which has been reported as stolen property or which by its very nature, may have been illegally obtained."⁸ In recent years the concept of due diligence has become more clearly established through written decisions in various court cases concerning personal property.

The importance of practicing due diligence is underlined by the European Union's Regulation on the Return of Cultural Objects, article 7(2) of which states that a court shall not order payment of compensation to a possessor of a returned object "unless it is satisfied that the possessor exercised due care and attention in acquiring an object."⁹ Similarly, article 4 of the UNIDROIT Convention on Stolen and Illegally Exported Cultural Objects (1995) states that the possessor of a stolen cultural object who is required to return it shall be entitled to fair compensation only if it can be proved that he or she "exercised due diligence when acquiring the object."¹⁰ In 1996 the Council for the Prevention of Art Theft (U.K.) undertook to establish the principle of due diligence in all transactions through art and antique dealers by providing them with a voluntary code of conduct.¹¹

The existence of adequate descriptions of objects is an essential prerequisite for any workable system of ascertaining whether due diligence has been exercised. The UNIDROIT convention, for example, states that "In determining whether the possessor exercised due diligence, regard shall be had to the circumstances of the acquisition, including the character of the parties, the price paid, whether the possessor consulted any reasonably accessible register of stolen cultural objects, and any other relevant information and documentation which it could have reasonably obtained."

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6 Confédération Internationale des Négociants en Art (CINOA), Syndicat Suisse des Antiquaires et Commerçants d'Art, Association du Commerce d'Art de la Suisse, Comité des Galeries d'Art, Chambre Syndicale de l'Estampe, du Dessin et du Tableau, Syndicat National des Antiquaires Négociants en Objets d'Art, Professional Art Dealers Association of Canada, National Antique and Art Dealers Association of America Inc., Art and Antique Dealers League of America, International Association of Dealers in Ancient Art, United Kingdom Code of Practice for the Control of International Trading in Works of Art (parties to this code are Christie's, Sotheby's, the Society of London Antique Dealers, the British Antique Dealers' Association, the Society of Fine Art Auctioneers, the Antiquarian Booksellers' Association, the Royal Institute of Chartered Surveyors, the Fine Art Trade Guild, the British Association of Removers, and the Antique Dealers' Association). See P. O'Keefe, Feasibility of an International Code of Ethics for Dealers in Cultural Property for the Purpose of More Effective Control of Illicit Traffic in Cultural Property (Paris: UNESCO, 1994).

7 R.B. Ferguson, "The Legal Status of Non-Statutory Codes of Practice," Journal of Business Law, Vol. 12 (1988), 12-19.

8 Trace, February 1996, 5.

9 The Return of Cultural Objects Regulations 1994, European Union, Statutory Instruments, No. 501, 1994.

10 UNIDROIT Convention on Stolen and Illegally Exported Cultural Objects, Rome, 1995. UNIDROIT (the International Institute for the Unification of Private Law) was created in 1926 at the instigation of the League of Nations as an independent body to work on the harmonization of international laws. For more information about the work of UNIDROIT, contact the International Institute for the Unification of Private Law, via Panisperna 28, 00164 Rome, Italy.

11 Trace, February 1996, 6.

To Buy or Not To Buy

Recently a close friend of mine visited the Isabella Stewart Gardner Museum in Boston. While admiring the tremendous collection, he happened upon several vacant wall spaces that represented the last known resting places for several important pieces of art, stolen from the Museum in a late night theft. Upon returning from the Museum, his first question for me was: Who owns the artwork if it mysteriously appears in a gallery or auction house?

Believe it or not, a "black market" exists for the sale and purchase of expensive, rare, and stolen works of art. After time, most stolen pieces will reappear on the scene. This reappearance may not occur for many years or even centuries. However, when the works do emerge, a number of people, undoubtedly, claim ownership.

When a collector inquires about the purchase of a rare and expensive piece of art, or any piece of art for that matter, I always advise him or her to closely examine the chain of title of the work. As a matter of case law and statute, in the United States of America, even if you are a bona fide purchaser, if a work of art is later found to be stolen, the work can be taken from the purchaser or unauthorized "owner". (This is not necessarily the case in Europe, where a purchaser will most likely be able to keep the stolen work and avoid facing the prospect of losing the artwork.) (I)

All collectors, both active buyers and collectors who have had items stolen, need to have a basic understanding of Massachusetts law with regard to stolen property and artwork. Below I have briefly outlined issues that need to be addressed both when buying art and when attempting to recover stolen artwork.
Under Massachusetts and United States law, in general, a purchaser cannot take good title from a thief. (II) Often times a naïve collector will automatically assume that if an art gallery or a person claiming to be an "art broker" offers a piece of artwork for sale, that they have ownership and the right and authority to sell the work. This is not always the case. Massachusetts case law has supported the notion that mere possession of a chattel does not vest the individual with the apparent authority to sell. (III) In fact, the trend throughout the United States is a frightening one for collectors. American collectors who unknowingly purchase stolen art, more likely than not, will lose the artwork with little to no compensation. According to an article in the November 5, 1999 edition of the Wall Street Journal by Ken Bensinger, the Art Loss Register, a private New York organization, has listed more than 100,000 works of stolen art since 1991. The age of the Internet and electronic commerce has made the sale of stolen art a relatively easy endeavor. The same Wall Street Journal article reported that eBay has been the source of many sales, or attempted sales, of stolen artwork. Without adequate due diligence, a collector can very easily find himself or herself without the purchased work and without compensation.

After hearing the above statistics, many collectors want to know how they can protect themselves and their newly purchased piece of art from a potentially illicit past. With the state of the law as it is today, collectors cannot be 100% covered from losing their collectible. However, there are certain steps that collectors can take to help protect themselves and bolster their position in the face of such a loss.

The first piece of advice I always render is an oft overlooked piece of common sense: investigate the piece and its provenance before purchasing. A Buyer must always attempt to solidify his or her position by making himself or herself into a buyer in the ordinary course of business. A Buyer in the ordinary course of business is

"a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in the ordinary course from a person in the business of selling goods of that kind..." (IV)

In other words, a buyer will not meet the test to qualify as a buyer in the ordinary course of business if he or she does not inquire into the seller's authority to sell the work and the status of the party who sold the work to the merchant. Failure to inquire can result in the courts finding that a collector has not acted in good faith, and the collector will be subject to having his or her title to the property challenged and the property removed without any compensation to the collector.

Secondly, Massachusetts provides a small degree of protection for purchasers who are good faith purchasers for value. (V) The elements to avail oneself of this defense are (1) payment of valuable consideration, and (2) good faith in purchasing the item. The collector will sustain the burden of proof in this case. I recommend that collectors retain receipts, canceled checks, and any other evidence of payment. I also recommend that they retain all correspondence and evidence in relation to the provenance and chain of title that they receive in connection with a piece of art. These items will all be key to a successful invocation of this law, as well as proof of a good faith effort to determine that the merchant has good title to the property.

Thirdly, in the instance where a collector faces a potential claim against a piece of work he or she possesses, the collector may be protected by the expiration of the statute of limitations to bring suit for recovery of the artwork. The two most common actions for recovery are replevin, an action to reclaim the property, or, conversion, an action for unlawful control and dominion over the artwork. In most states, an action for replevin and an action for conversion accrue when a good faith purchaser acquires the stolen property, not when the rightful owner discovers the sale or discovers the purchaser's identity. (VI) Thus, as soon as a good faith purchaser takes possession, the clock begins on the time period to file suit. In Massachusetts, tort claims must be brought within 3 years. And after the 3-year period expires, the purchaser is insulated from action on the tort.

The rise in high priced sales of art has created a storm of thefts over the past few years. As a result, many innocent collectors have had purchases taken from their collections and returned to the rightful owners. Collectors must use deliberate and extreme caution when purchasing artwork and should employ common sense, due diligence, and good faith efforts to fully understand the provenance and chain of title of any work of art. With due diligence and executing proper procedures in acquiring artwork, one can ensure many years of enjoyment from a piece.

— Peter J. Caruso II, Esq.

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I. Ken Bensinger, Art & Money, Wall Street Journal (November 5, 1999)

II. Charles D. Webb, Jr., Title Disputes and Resolutions in Art Theft Cases, 79 Kentucky L.J. 883, 884 (1991) citing Uniform Commercial Code, §2-402(1), §1-201(32), §1-201(33); In re 1973 John Deere 4030 Tractor, 816 P.2d 1126, 1133(Okla.1991)

III. Brown University v. Kasminski, 1994 WL 879757 (Mass.Super.1994)

IV. Ralph E. Lerner and Judith Bresler, Art Law, Practising Law Institute (NY 1989), p. 79; U.C.C. §1-201(9)

V. G.L. c. 106 §2-403(1)

VI. Ralph E. Lerner and Judith Bresler, Art Law, Practising Law Institute (NY 1989), p. 83, quoting 51 Am. Jur. 2D Limitation of Actions §125, at 694 (1970 Supp. 1989)

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