Warranties in Art and Collectibles Transactions

Buying art and collectibles is a passion for Americans. Billions of dollars are spent every year searching for objects that are interesting or that will increase in value over time (hopefully, both). But these unique items create unique legal concerns when buying or selling art and collectibles.

Most legal problems in art and collectible transactions relate to whether items conform to the seller’s description regarding authenticity, type, quality, rarity, provenance, etc. While the Uniform Commercial Code (UCC) governs warranties of these transactions as it does the sale of any goods, the unique nature of art and collectibles holds many traps for unwary buyers. Warranties—assurances from the seller that the item is what it is represented to be—keep the risk of nonconformity on the seller so that buyers can demand a refund or other remedy if necessary.

Warranties are absolute: The seller is responsible regardless of whether the seller knew of such nonconformity at the time of sale or was in any way negligent in providing this information to the buyer.

Creation of Warranties

Express warranties are those made in writing or orally at or before the sale and which become part of the contract. They are the warranties the seller makes directly to the buyer, as opposed to warranties that are implied by the nature of the transaction or by indirect statements by the seller. If these representations become part of the basis for the bargain between buyer and seller, the seller is expressly warranting that the goods will conform.

What statements become warranties is sometimes tricky in the art and collectibles field. Judges look at whether a statement is the type on which purchasers in that particular market reasonably rely. If a dealer says a painting is “the best example I’ve ever seen from Pablo Picasso’s ‘blue period,’” purchasers could conclude that the painting is by Picasso and perhaps that it dates from Picasso’s “blue period,” but not that it is “the best” from that period. However, with rare coins, a dealer’s statement that a particular coin is the “finest known” of a particular date would probably be a warranty because that is an industry term with a generally understood meaning.

Careful buyers will demand that a seller put in writing any of its representations about the item on which the buyer is relying in deciding to purchase the item. For example, all buyers should demand express, written, and detailed representations relating to provenance. Stolen items may be seized and returned to their rightful owners, and items of cultural significance may be seized at customs and returned to their country of origin. Express warranties as to provenance ensure that if the item is seized, the seller shall bear that loss and refund the buyer.

In some states, such as New York and California, special state laws were passed in reaction to chronic abuses in collectibles. For example, in the sale of autographed sports collectibles, a written certificate of authenticity is required, including identifying information about the dealer as well as an express warranty relating specifically to the authenticity of the autograph, and these express warranties cannot be negated or limited even if they are, purport to be, or are capable of being merely the dealer’s or the supplier’s opinion.

The UCC also recognizes that what a seller doesn’t say is sometimes more important than what he or she says in inducing the buyer to make a purchase. The most important implied warranty is the warranty of merchantability. Merchantability includes conforming to the contract description (as that would be interpreted within the relevant industry), fitness for a particular use, and promises or affirmations of facts made on any container or label associated with the goods.

Some years ago, one of the authors attended a collectibles convention and saw a Matisse print being offered for sale. But the dealer did not actually say it was a Matisse. It was in Matisse’s style and bore Matisse’s signature, but the print was marked only with a price and no other description. In other words, even where a dealer has made no express warranties regarding authenticity, attribution, or quality, those types of warranties might be implied into the sale by virtue of the catchall category of “merchantability.”

Enforcing Warranties

Warranties don’t last forever. UCC §2-725 gives buyers four years from the date of sale to bring suit for breach of any express or implied warranty created by the UCC, regardless of when the buyer learns that there was a breach. The UCC warranties relieve buyers of art and collectibles of the need to thoroughly research their purchases ahead of time, but once the sale is consummated, the buyer must take care to verify any material facts about the item before four years have elapsed or risk losing his or her right to get legal satisfaction from the dealer.

A buyer may avoid the four-year limitation period by bringing tort claims, usually for common law fraud, as well as breach of fiduciary duty, negligence, and product liability, where the statute of limitations is tolled until the buyer discovers the problem. These claims require proving that the seller knowingly deceived the buyer regarding a material aspect of the purchase but also make available certain additional rights and remedies, such as recovery of what the item would be currently worth if genuine.

The best practical example is Rosen v. Spanierman, in which plaintiffs purchased a painting in 1968 represented to be by John Singer Sargent and in 1987 learned from Christie’s that the painting was a fake. While the plaintiffs’ breach of warranty claim relating to a fake painting was dismissed because the UCC’s four-year statute of limitations had expired, plaintiffs’ fraud claim was allowed to continue because fraud claims may be brought on the later of (1) six years from the date of the fraud or (2) two years from the date the fraud was or could have been discovered. Note the due diligence requirement. See Hope v. Klabal, where the limitations period was not tolled for a buyer of more than $10 million in artworks because the court found her to be a sophisticated businessperson who could have easily appraised the works earlier and learned the facts underlying her claims.

Ultimately, while tort claims remain an option, warranties place the risk of “honest mistakes” squarely on the seller, making breach of warranty a very powerful legal tool for collectors and investors in art and collectibles.