ART ON CONSIGNMENT:
It's All in the Contract
by
Cindy Ellen Hill, Esq. for Fine Art Registry™
What happens when you send an artwork, antique, or collectible off to an auction house to be sold – and the auction house then refuses to sell it? This question was recently posed by a Fine Art Registry™ reader. A collector of a particular variety of ceramics, this reader sent off a few items to a large, well-known auction house for inclusion in an auction of related items, only to have the items returned to her without being included in the auction. This collector wondered whether they could legally do this, and what recourse if any she might have.
The answer is that the terms of an auction or consignment sale are contained within the contract between the owner of the item and the auction house or store or dealer selling the item. While there are laws on the books relating to outright fraud or the terms of a credit transaction, there are no laws that dictate the precise terms of something like a consignment sale. The ‘rules’ of such things are the rules which the people involved in the sale agree to between one another.
The contract must only follow the laws regarding the structure of contracts. The contract can not contain an agreement to commit a crime or defraud the buying public; the contract can not contain terms that would limit sales on the basis of the buyer’s race, age, religion, or other improper factors; the contract can not be for an illegal purpose, like selling art for drugs or stolen credit cards. These would be examples of illegal contracts that could not be enforced in a court of law. But assuming the contract is not illegal, the terms of a consignment sale are those terms contained within the contract.
The first question therefore is, "Is there a contract"? The answer to that one is that almost certainly there is a contract of some type. When people ask this question they are usually referring to whether or not there is a written contract – but even in the absence of a piece of paper, there is an oral contract or 'handshake agreement.' An oral contract is also enforceable in a court of law – but of course, it is much harder to enforce, since the people involved are likely to remember the terms differently, to misremember what was said in the course of conversation, or to have skipped over all discussion of the one issue that winds up being the sticking point of the arrangement.
"Reputable auction houses and consignment stores and dealers offer clear written contracts which spell out all the terms of the agreement."
The law of contracts does not require that most kinds of contracts be in writing. However, getting any contract in writing and making sure you fully understand its terms – and amending any terms that you don't agree with – is the best idea. Having a piece of paper that both people involved in the transaction have read and signed means that everyone is, literally, on the same page.
Reputable auction houses and consignment stores and dealers offer clear written contracts which spell out all the terms of the agreement. A professional, reputable business will encourage you to read the contract thoroughly, ask any questions you may have about it, and even to take it to your lawyer to review before you sign it. If the contract involves large sums of money or potential tax consequences, having an attorney review it before signing is a prudent move. But in many cases, applying simple common sense in your review of the contract will avert most problems.
These links provide you with some samples of clear, understandable contracts which are posted online by firms who are to be lauded for promoting this kind of transparency in their art business dealings:
Raynor's historical collectible auctions, http://www.hcaauctions.com
http://www.hcaauctions.com/con_term.html
Cegur's Chimera Gallery http://www.cegur.com
http://www.cegur.com/html/consignment.html
These are two very different businesses, with Raynor's Historical Collectible Auctions selling historical documents, photos, and other antique items primarily related to American history, and Cegur’s Chimera Gallery being an artist-run, mostly-online purveyor of rather colorful current artworks. You will notice that the contract styles are quite different as well, in terms of the formality of their writing and in terms of what is left to the artwork owner to provide for information.
Read through them, and compare them to whatever contract you are offered by an auction house or consignment dealer. As you read through them, ask yourself the kinds of common sense questions that might arise in your sale: What happens if the items get lost or broken; who will have to pay for them? What happens if no one bids on them or buys them? What happens if the auction house decides not to sell them; am I entitled to my costs of shipment? Am I entitled to an explanation as to why they withdrew the sale? What is the auction house or consignment dealer going to do to promote the sale of these items? How do I know that they won’t slack off on promotion and then leave me stuck with a bargain basement sale price that I can’t back out of? How much will I get paid, by what method, and how fast?
All these questions, and whatever else you can think of, can and should be answered in your contract. If the answers to these questions are not already in the written contract offered to you, you can insert them – as long as the auction house agrees to accept your terms. If they do not, then you have the choice of whether to do business with them under their terms, or take your business elsewhere so that you can control the terms of sale (one of the reasons that eBay is so popular!).
"Read through them, and compare them to whatever contract you are offered by an auction house or consignment dealer."
You might notice that the two contracts (one is termed a 'receipt' but functions as a contract) which I've provided links to, answer very different questions from one another. The Cegur's Chimera Gallery consignment agreement includes a provision which precludes the Gallery from loaning out or displaying artworks placed on consignment without the owner/artist’s permission, and clarifies that all copyright remains with the artist. If you are placing out original artworks for sale, these are terms you’d like to see included, as well as any other provisions you feel necessary to protect your ongoing copyrights and moral rights in the artwork. The Cegur consignment form also includes spaces for carefully describing the artwork by size, subject, medium etc.; the Raynor’s contract leaves it to the item’s owner to provide their own description on a separate sheet of paper. But the Raynor contract is much more precise in its financial terms as well as regarding the terms by which the item might be withdrawn.
Both these contracts contain clear provisions regarding terms of payment; however, I am somewhat surprised to see that neither contract contains a provision regarding an ‘end-date’ upon which the contract concludes or when, if the item is not sold, it should be reclaimed by the owner; it appears that these contracts anticipate either prompt sale or that the items will simply be left until sold. As the seller, you might want to include such a term so that if a sale does not occur through this venue after a reasonable time, you can try another avenue.
So, what happens when the auction house ships back your ceramics and says they were inappropriate for inclusion in their auction? It depends – on the terms of the contract.
— by Cindy Ellen Hill, Esq. | May 9, 2007
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