A federal appeals court in New York has affirmed that the buyers of a Picasso painting were not liable to the owner, who never received from his agent the sale proceeds that should have been transmitted through intermediaries.
The painting by Pablo Picasso, “Le peintre et son modèle”, belonged to Sture Hjalmar Graffman. In 1992, Mr Graffman contracted to make Miguel Espel, and Mr Espel’s company MTS Minor Trading SA, exclusive agents to sell the painting.
Through intermediaries, the painting was purchased in New York by a couple, who have been referred to in the lawsuit only as the “Does.” The Does paid $875,000 for the Picasso, but the seller, Mr Graffman, never got his money.
Mr Graffman authorised the agents, Mr Espel and MTS, to sell the painting through intermediaries. Mr Espel asked his brother-in-law Michael Delecea, an art dealer, to help him sell the painting, and shipped it to Mr Delecea in New York. There, Mr Delecea asked the Avanti Gallery to help sell the painting, and Avanti sold it to the Does. The Does paid $875,000 to Avanti, Avanti delivered the painting to the Does, and Avanti paid the amount due from it to Mr Delecea.
The process apparently broke down here. Mr Delecea used $200,000 of the purchase proceeds to pay Mr Espel’s New York debts, and wired Mr Espel $550,000 over a period of two and one half months. But Mr Espel never paid Mr Graffman. Mr Graffman sued the Does, Mr Espel and Avanti, seeking recovery of the painting or damages, plus punitive damages. Mr Graffman argued that Mr Delecea’s sale of the painting was unauthorized.
But the painting was “entrusted” to Mr Delecea under the US Uniform Commercial Code (UCC), the court held, because Mr Graffman made no objection after being informed of Mr Delecea’s custody of the painting and efforts to sell it.
The UCC lays out rules to stabilize commercial dealings. Under it, said the court, when a person “knowingly delivers his property into the possession of a merchant dealing in goods of that kind, that person assumes the risk of the merchant’s acting unscrupulously by selling the property to an innocent purchaser.” The UCC provision is designed “to enhance the reliability of commercial sales by merchants who deal in the kind of goods sold,” the court said, by placing the risk of loss on the party who left his objects with the merchant.
Because the painting was entrusted to Mr Delecea, a merchant who dealt in artworks, then if the defendants bought the Picasso in the ordinary course of business they would have received all rights that Mr Delecea had in the painting, the court said.
But to be a buyer in the ordinary course of business, the purchase has to be in good faith. Mr Graffman argued that Avanti had not bought in good faith because it had failed to check provenance. Avanti countered that it only had to do so if there were warning signs that something was wrong with the transaction. The court ruled that Avanti would have to go to trial to establish whether it had met the reasonable commercial standards of the art industry.
But Mr Graffman also argued that the Does too had not bought in good faith, because they did not check provenance either, and had relied instead on Avanti.
“As a matter of law, the Does had no obligation to investigate the provenance of the painting,” the court said, distinguishing the case from others where the buyers had been art dealers who were required under the UCC to adhere to the standards of a merchant in the industry. “The Does are not art dealers and are under no obligation to adhere to commercial standards applicable to art dealers,” the court said.
It should be noted that the court’s rejection of a required provenance check by the buyer did not arise in a stolen art lawsuit. Instead, the court was rejecting an owner’s attempt to target the ultimate buyer for a non-payment which occurred after sale, at the other end of the same transaction.