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Art Auctions
Art Auctions are conducted in a variety of settings. They range from
those conducted by Sotheby's and Christie's in New York and London,
where tens of millions of dollars may change hands, to a regional
auction house, like Fairfield Auction in Newtown, Connecticut, to the
traveling commercial auctions conducted as fund raising activities for
schools and other community organizations. Whatever the format, there
are basic legal principles that govern the rights and responsibilities
of the participants: auctioneers, sellers, buyers and the general
public. The auction house serves as the point of contact between
sellers and buyers. The buyers may be dealers buying for their own
account, or for customers, or members of the collecting public. The
auction house owes varying duties to its several constituencies.
AUCTIONEERS' DUTIES TO SELLERS: The auctioneer's principal duty is
to obtain the best price for the seller, consistent with the
auctioneer's fiduciary duties. Those duties do not exist in a vacuum
but are modified by varying laws and regulations promoting disclosure
and regulating conduct. Corollary obligations of the auctioneer to a
Seller include: 1. Establishing a range of value for the works
being auctioned. 2. Determining, in conjunction with the seller,
whether a reserve price or guaranty will be established.
3. Promoting the work in connection with the auction.
4. Conducting the auction in a manner designed to promote the sale.
5. Collecting the funds from the buyer and remitting them to the
seller. a. Establishing a range of values. A critical aspect of
valuing a work of art is proper identification. In some cases, this
will not be an issue where a well known work of art, with an established
provenance, comes to auction. Often, however, the work presented will
require the expertise of the auctioneer to identify it. A couple of
situations come to mind. The first involves identification of a
painting long hidden from public view whose artist is unknown. The
auctioneer owes a duty to the seller to identify and categorize the work
appropriately. If the obligation is beyond the skill or ability of a
particular auction house, it is incumbent on it to make this fact known
to the seller. Absent such disclosure, a seller has the right to rely
on the auctioneer's estimate of value. If the auctioneer has been
negligent in the performance of its duties (misidentifying a valuable
work of art, as if it were done by a journeyman painter), the auctioneer
should be liable to the seller if the work is sold cheaply and later
established to be a valuable work of art. An auctioneer runs a risk to
both sellers and buyers if it wrongly attributes a painting to a famous
artist, which subsequently proves to be either a forgery, or only of
that artist's "school". Once the auctioneer has identified the work
being auctioned, it has to establish a range of values between which the
work is likely to sell. Again, the auctioneer has a fiduciary duty to
the seller to use its best efforts to predict the market. The low end
of the estimated range typically provides the high end for any reserves
or guaranteed prices. b. Reserves and Guaranties. A reserve is
the price below which the work of art will not be sold at auction. A
guaranty is the price at which the auction house will buy the work for
its own account. The City of New York has rules and regulations
governing auctions. By law in New York, reserve price cannot exceed the
minimum estimated value, as published in any catalog, or other printed
material distributed by the auctioneer. Often the reserve is less.
Fairfield Auction, an auction house in Newtown, Connecticut
(www.fairfieldauction.com) accepts reserves on property estimated above
$2,500, where the reserve is below "conservative low estimate". The
presence of reserves and guaranties should be disclosed to respective
bidders (required disclosure under New York City's rules), although the
amount should not. c. Promoting the work in connection with the
auction. An auction house owes the duty to its sellers to take
reasonable steps to bring the auction to the attention of likely
purchasers. It can discharge this duty in a variety of ways, including
mailing catalogs to the targeted mailing list, advertising in
appropriate media and word of mouth. Making the work available for
public viewing at appropriate times is required. d. The auction
house has an obligation to conduct the auction in the manner designed to
promote the sale. The auctioneer needs to create excitement, build
momentum and stimulate bidders. An auction house can bid, under some
circumstances, certainly up to its guaranty price, typically no higher
than the reserve established. e. The auctioneer has an obligation
to its sellers to collect funds from buyers and to take reasonable
precautions in that process. For a seller, there is no successful sale
unless he gets paid. The terms and conditions of payments to sellers
and payments by buyers need to be established in advance of the sale. A
seller has a right to rely on the auction house to not deliver the
auctioned goods without proper payment.
Traditionally, as an agent of the seller, an auctioneer had no liability
to the buying community. This has changed with the passage of time, the
imposition of buyers' premiums and changes in auction house practices.
First, auctioneers are offering more and more services on behalf of
buyers, especially in the bidding process. An auction house may have
bidding instructions on a particular work of art from a variety of
bidders, who provide active telephone or Internet links to prospective
buyers and may, in the case of a reserve, be bidding on behalf of the
seller, and in the guaranty situation, be bidding on behalf of itself.
In addition, an auction house, especially the larger international ones,
may offer financing or lines of credit. Juggling its responsibilities
to buyers and sellers can be a daunting task. AUCTIONEERS' DUTIES TO
BUYERS: Auctioneers owe a duty to buyers to conduct auctions fairly
and in good faith. This means following bidding instructions from all
bidders, those physically present in the room, virtually present via
phone or Internet, and those with prior written bids. Auctioneers need
to advise buyers in a meaningful way of any disclaimer of warranties.
Auctioneers owe a duty to fairly characterize the works being
auctioned. A fundamental obligation arises out of the auctioneer's
actual perceived expertise as to the authenticity and value of the works
being offered to the public. If Christie's or Sotheby's identifies a
painting as being the work of Gzanne or Monet, the prospective buyer,
sophisticated or not, is likely to rely on the identification in
deciding if to bid, and how much to pay. Some artists are notorious for
the number of fakes in circulation, including Corot, a nineteenth
century landscape painter of the Barbizon School, and Dali, a twentieth
century surrealist. Positive identification by a major auction house
will likely have a significant impact on buyer behavior. Auction
houses have a duty to explain their warranty. Some auction houses offer
warranties as to authenticity. The warranties are not open-ended and
range from five days to five years or more. Warranties vary from house
to house. The prospective buyer is well advised to be aware of the ins
and outs of the policy period. Failure to follow the contractual
warranty provisions, especially as to the timing of assertion of a claim
of misattribution, can be fatal. The general public has the right to
rely on the integrity of the auction process and those conducting
auctions. Honesty and fair dealing, coupled with adequate disclosure of
conflicting interests (reserves, guaranties, questions of attribution
and authenticity), are critical.
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