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Consignment Sale, Buyer Beware!

Published on 3 January 2012 at 13:40

Art objects are often sold on consignment through art dealers. This means (under Dutch law) that the art dealer is not the owner of the art object.

 

The work of art (as a rule) is owned by a principal who has commissioned the art dealer to sell the object acting in his or her own name, and for the account of the principal, and to deliver the object to the purchaser.

 

As the art dealer acts in his or her own name, a given purchaser is not always aware of the existence of the principal. The purchaser may, nevertheless, be impacted by (restrictions in) the terms of the agreement between the principal and the art dealer, as is illustrated by a decision of the Dutch Supreme Court of 14 January 2011 (HR 14 January 2011, RvdW 2011, 132). It may therefore be worthwhile to make further inquiries when acquiring art.

 

Facts

Claimaints (the Owners) inherited a painting of the Dutch artist H.W. Mesdag. The Owners placed the painting (the Mesdag) in the care of Art Dealer 1 and commissioned this art dealer to sell the painting. Art Dealer 1, in its turn, handed over the painting to a second art dealer, Art Dealer 2, on the basis of a (written) consignment agreement.

 

The consignment agreement is not explicitly regulated under Dutch law. It is a form of lastgeving in eigen naam (commission to act in one's own name) as per art. 7:414 para 1 and para 2 of the Dutch Civil Code. This means that an object (the Mesdag) is placed in the care of an intermediary (Art Dealer 2) in order to be sold by the intermediary, acting in its own name, for the account of the (indirect) principal (the Owners).

 

The consignment agreement at hand had two additional clauses, being (1) the Mesdag had to reach a minimum sales price of 135,000 euro, and (2) consultation between the two Art Dealers prior to conclusion of a sale.

 

A few days after receipt of the Mesdag, Art Dealer 2 delivered the Mesdag to the purchasers. At that time, parties laid down in writing that the value of the Mesdag was 80,000 euro and that the transfer if the Mesdag entailed a set-off of a debt of Art Dealer 2 with the purchasers (pursuant to an earlier transaction). There had been no consultation among the to Art Dealers prior to the sale.

 

Decision

In first instance, the Breda District Court concluded that the purchasers had acquired the Mesdag from a party who had no power of disposition over the painting, since Art Dealer 2 had failed to observe the terms of the consignment agreement (both in terms of pricing and consultation obligations). The District Court further held that the purchasers could not validly invoke the protection as good faith purchasers. The Owners therefore had remained owners and were able to claim the Mesdag as their own.

 

On appeal, the appellate court of Den Bosch annulled the decision of the district court. The appellate court held that, although Art Dealer 2 failed to observe the terms of his consignment agreement, this did not impact on its power to dispose over the Mesdag. On the basis of the findings of the appellate court, the purchasers, therefore, had become owners of the Mesdag.

 

Subsequently the case was heard by the Dutch Supreme Court. The Dutch Supreme Court annulled the decision of the appellate court and sent the case back to the appellate court for further handling and decision. 

  • The Supreme Court (para 3.3.3) held that the restrictions in the consignment agreement, restricted Art Dealer 2's power to dispose over the Mesdag in the sense of art. 3:84 of the Dutch Civil Code.
  • The Supreme Court furthermore held (para 3.6.1) that the appellate court was incorrect to find that the purchasers acted in good faith with respect to Art Dealer 2's power to dispose over the Mesdag. The appellate court did not adequately provide reasons for its findings that the purchasers were "non-professionals", in view of the Owners' assertions that the purchasers were well aware of the value of art. The fact that the Mesdag was sold for an "exceptionally low amount" can cast doubt over whether Art Dealer 2 had the power to dispose over the object, in combination with the fact that Art Dealer 2 faced financial problems and the fact that he had owned up to "lies and frivolous excuses".

 

In other words: by failing to live up to the terms of the consignment agreement, the Art Dealer 2 was unable to give good title. In order to enjoy protection of good faith purchasers, the purchasers will have to assert circumstances that justify that they were right to believe that Art Dealer 2 had the power to dispose over the Mesdag and that rule out that they had reason to doubt the existence of that power.

 

Practicality of the decision

The decision shows that in the acquisition of works of art (particularly expensive works of art), it can be of importance to establish whether the selling art dealer is the owner of the object, or whether the art dealer is selling on consignment.

 

If the latter is the case, it may be worthwhile for a purchaser to ask for proof that the principal agrees with the sale. One might consider asking for a copy of the consignment agreement, to avoid discussions after the fact as to whether the art dealer had power to dispose over the object.

 

Sources and literature

  • NJB 2011, 179, Rechtspraak.nl (LJN: BO3521, Hoge Raad, 09/02089), RvdW 2011, 132
  • Beschikking en beschikken over een Mesdag, Over de vervreemding van roerende zaken via middellijke vertegenwoordiging, mr. A.P. Wenting, Maandblad voor het Vermogensrecht (MvV), 2011, nummer 12. (Wenting discusses various legal constructions of how a purchaser can acquire good title in the event of a sale through an intermediary acting in his or her own name.)

 

Findings and literature
NJB 2011, 179, Rechtspraak.nl (LJN: BO3521, Hoge Raad, 09/02089), RvdW 2011, 132

 

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