Lending Art to a Dealer

The NY Times has an excellent article on lending art to dealers. As appraisers we should all be aware of the complications that can come from these arrangements, as we ofter work to broker or place an item with a dealer for sale instead of going the auction route. Paul Sullivan of the NY Times writing in the Wealth Matters column brings up the Salander situation where many collectors trusted Salander to sell their paintings and now he has pleaded guilty to perpetrating an art fraud of over $100 million.

The main recommendation of the article is to protect your work by filing a UCC Financing claim on the property. By filing, the artwork is considered secured property and gives the owner an extra level of protection. Sullivan also touches on theft (as opposed to dealer theft) and damage issues as well. I gave a presentation at the International Society of Appraisers Annual Conference a few years ago in Fort Worth, TX and the UCC-1 Financing Statement was one of the documents discussed.  Click HERE for a UCC-1 statement for your files. The UCC Financing Statement is not new to appraisers or the art world, but we do need to be reminded of its use and necessity every now and then.

It is a good article to not only read, but also print and file away for future reference.

Sullivan states

While a collector retains legal title to his art when he lends it to a gallery, the dealer can simply sell it. “Dealers are merchants in the kind of property you’re loaning them,” Ms. Laird said. “Once you’ve entrusted it to them, then they can sell it, and if they sell it in the ordinary course of business, that buyer gets good title to that work even if the dealer never pays you.”

There is a simple way, though, to secure your claim to your own art: file a financing statement under the uniform commercial code. These forms are a public record of the owner’s claim. If the dealer then sells the art without the owner’s consent, the sale is considered theft. But filing these forms is not common practice.

Likewise, if a gallery files for bankruptcy, as Salander-O’Reilly did in 2007, collectors who have consigned art without filing a uniform commercial code form may end up as unsecured creditors in bankruptcy court. This means their art could be counted an asset of the gallery and used to pay secured creditors first.

HUMAN ERROR The insurance industry uses the phrase “mysterious disappearance” to describe a missing item when the owner does not know how it vanished. This is not all that unusual if the missing item is an earring, but a painting by Marc Chagall? That was what happened to one collector who had had a Chagall painting displayed on his yacht.

In fact, it took the owners months to realize the painting was not on the wall. “The original had been replaced by a poor copy,” said Katja Zigerlig, assistant vice president of fine art, wine and jewelry insurance at Chartis Insurance. “The yacht had been to 30 different ports in the past year, changing crews, hosting charity events — there was no way to figure out the culprit.”

To read the full article, click HERE.