The Sale of a Painting Gone Wrong, Pt. 1

Multi-party litigation.

A recently decided New York case contains several interesting lessons for art dealers. First, you may be liable for the acts of another: if you authorize someone to sell a painting for you, or if you even “reasonably give the agent an appearance of authority,” you will not only be liable for the agent’s contracts, but you will be subject to the jurisdiction of the same courts as your agent. Second, if there is a deadline in your contract and the other party misses it, it may not be a breach of contract. These issues arose out of the sale of the Gerhard Richter painting “A.B. Diffus,” which was owned by Nahum Gelber.

In December 2006, Gelber told his agent, Gasiunasen Gallery, that he was interested in selling “A.B. Diffus” for €2 million. Soon after, a prospective buyer expressed interest in the painting, and Gasiunasen Gallery informed Gelber of this. A month went by and Gelber heard nothing more of the prospective buyer. Gelber, in anticipation of an upcoming Sotheby’s sale of a similar Richter painting,   decided to take the painting off the market. Gasiunasen resisted, and “pleaded” with Gelber to allow it sell the painting to the interested buyer. Gelber relented, but he insisted on three conditions if he was to sell the painting: first, the buyer had to pay €2 million Euros; second, Gelber was to receive the money before the Sotheby’s auction on February 7; and third, the painting would not be moved until the buyer paid the full price.

Alexandre Van Damme was in the interested buyer, but he did not know Gelber was the seller, nor did Gelber know that Van Damme was the buyer. Van Damme too acted through an agent (Van de Weghe Fine Art). A fifth company, Tricolat Fine Art, acted as an intermediary between the two sides. According to one of the experts in the case, “it is the established custom in the art business for buyers and sellers to work through dealers, and that dealers would consider it improper and unethical to go around a dealer and approach its principal directly.”

Van Damme wired the sale price to his agent, Van de Weghe, who wired the money to an escrow agent. The escrow agent sent the money to Gasiunasen, who on the same day (February 5) wired the money to Gelber. But the last step of the transaction, the transfer from Gasiunasen to Gelber, did not go smoothly. The bank made an error when Gasiunasen wired the money to Gelber; it sent the money to the wrong bank account, a problem which was not discovered until after the date set in the contract for payment. In the meantime, at the Sotheby’s sale, a similar Richter painting sold for $5.5 million. Van Damme’s money would not reach Gelber until February 12, five days after the date set for payment in the contract. The money was returned to the buyers, but the buyers merely sent the money back.

The buyers sued to enforce the contract. Gelber’s defense rested on several grounds. First, that he was not subject to the jurisdiction of New York courts because he was a citizen of Monaco. Second he argued that Gasiunasen was not his agent and sold the painting without his consent. These claims were decided in two opinions, both issued by Judge Fried of the New York Supreme Court.

Agency: Was Gasiunasen an Agent of Gelber?

The question was whether Gasiunasen was an “agent” of Gelber. Gelber denied that Gasiunasen was his agent and alleged that he had never seen the contract and did not know that Gasiunasen signed it. Therefore, according to Gelber, he “was neither a party to, nor bound by, the Contract,” nor, for that reason, was he subject to the jurisdiction of New York courts.

Agency  results from the manifestation of consent of one person to permit another to act on that person’s behalf. An Agency relationship binds the principal when the agent enters into a contract within the scope of the agent’s authority. But it is important to note that authority can be direct or implied. Authority will be implied “when verbal or other acts by a principal reasonably give the agent an appearance of authority to conduct the transaction.” Even without actual authority, and principal may still be liable for the acts of his agent if “if verbal or other acts by the principal have reasonably given the agent an appearance of authority to conduct the transaction, and a third party has relied upon that appearance of authority.”

The court found that Gasiunasen was Gelber’s agent, and noted the following reasons:

• The contract made it clear that the agents were making agreements for their principals.
• Gelber testified that he did not question why the funds had been sent first to Gasiunasen’s bank, and then to his bank, rather than directly to his bank.
• Gelber admitted he “authorized the Gasiunasen Gallery to sell a Richter for two million euros,” but “subject to certain conditions.”

Agent Liability: Was Gasiunasen Liable for Gelber’s Actions?

What was Gasiunasen’s liability as an agent? Gasiunasen argued that it was not liable for Gelber’s failure to perform because it was the agent of Gelber.

With respect to this issue, the answer will depend in part upon whether the agent is fully disclosed, partially disclosed, or undisclosed.

Fully Disclosed: an agent of a fully disclosed principal cannot be personally liable under a contract, unless the agent separately assumes individual liability.

Here, Gelber’s identity was not disclosed; Van Damme did not know Gelber was the seller. However, Van Damme’s agent, Van de Weghe Fine Art, suspected that Gelber was the seller based on a piece of mail he saw when he was inspecting the painting. Thus, the principal was “partially disclosed.”

Partially Disclosed: When a principal’s identity has not been disclosed, although the agency relationship is known. Generally, the agent for a partially disclosed principal “will be liable on any contracts that he makes on behalf of his principal,” unless the parties to the contract “expressly and effectively agree that the agent will not be liable.”

The court held that since Gasiunasen was a partially disclosed principal, Gasiunasen’s argument failed.

Ultimately, the court held that Van Damme was entitled to “specific performance,” meaning Gelber was forced to sell the painting.

Van Damme v. Gelber, 2009 WL 2045568, N.Y. Slip. Op. 51515(u)