Will the Statute of Frauds Add Transparency to the Art Trade?

In his seminal 1982 article, Harvard Law Professor Paul Bator noted that the art trade is shrouded in mystery. In the thirty years since Bator examined the international art market, little has changed with respect to the basic information which is made available when works of art are bought and sold at auction. Auction house catalogues typically include little more than a cursory “this work is from a private collection”. That may change, at least in New York when the State’s highest court will take up a recent auction dispute.

In September of 2008, a 19th century “fine Russian silver/enamel covered box with gilt interior” was slated to be auctioned by the William J. Jenack Auctioneers. Prior to the auction, the auction house received an absentee bid from Albert Rabizadeh. This absentee bidder’s form included Mr. Rabizadeh’s name, phone number, address, email address and credit card number. The defendant was assigned bidder number 305 as indicated on his form, and his bid for a price of $400,000 was the winning bid for the antique box. This dispute arose, as so many of them do, when the winning bidder refused to pay for the antique. Auction houses rely on the binding nature of these bids in conducting their business, so it should come as no surprise that the Jenack auction house brought a suit against the allegedly derelict bidder. The low of contract might ordinarily be sufficient to require Mr. Rabizadeh to pay the asking price. At the initial trial Mr. Jenack successfully sued and the trial court held Rabizadeh was required to make good on his winning bid. However a well-established principle of English and American law, the statute of frauds requires that certain agreements be reduced to writing. And the district court ruling was overturned on appeal.

Heneage Finch, 1st Earl of Nottingham
Heneage Finch, 1st Earl of Nottingham

The statute of frauds was called an anachronism as far back as 1928 in an influential article appearing in the Indiana Law Journal. The Statute itself was passed by Parliament in 1677 and has been adopted by statute or common law by most American states. The statute of frauds has a simple purpose: to prevent any fraud caused by perjury. In essence ensuring that the legal system would wrongfully not enforce certain important legal agreements. These included: conveyances of land (what lawyers call real property); trusts; wills; and certain contracts which were made in consideration of marriage, contracts which couldn’t be performed within one year, or contracts for the sale of goods which exceed a certain value.

Under New York’s version of the Statute, if the disputed goods are sold at a public auction, an auctioneer can satisfy the statute of frauds if the auctioneer at the time of the sale enters into the sale book the nature of the object sold, the sale price, the name of the purchaser, and the name of the person on whose account the sale was made. In the Russian box auction, Mr. Rabizadeh’s name was not reduced to writing.

Mr. Rabizadeh successfully convinced a four judge panel of the New York appellate court that the law requires the name of the purchaser be in writing, and the incomplete paperwork by the Jenack auction house did not comply with the New York Statute of frauds. At present the case is pending before New York’s highest appellate court, and the court has two likely options to choose from. First, the court could hold that the auction house could have complied with the Statute by merely requiring a signature on the bidders form, which would have collectively created a sufficient body of written evidence that could have successfully prevented a perjury in this case. The court could look to the origins of the Statute and hold that this extra information would be sufficient to prevent perjury.

But the second, less likely option could have far-reaching consequences for the art market. The court may decide that buyers could back out of any purchase where the name of the buyer or seller is not provided. That would quickly remedy the anonymous buyer and seller problem in the art market. And with one simple decision—that this auction house initiated to punish a reluctant buyer—the art market in New York could be dramatically changed.

(this editorial appeared in the Spring 2013 edition of the Journal of Art Crime).


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