Laws Governing Art Consignment

Art Consignment Overview

Do you have valuable pieces of artwork that you'd like to sell, but aren't sure how to do it? You may want to consider art consignment. Perhaps you are a gallery owner and want to begin accepting consignments. Either way, you'll want to know the law before you do so.

When you consign art you stand to make more money when it sells than you do by selling it outright. However, the converse to consigning art is that you only make money when it sells. When it fails to sell, you don't make any money. The stronger the market, the better the chances the art will sell and the more viable consignment becomes.

Keep in mind, art consignment comes with a lot of risks. Three types of laws protect consignors: the Uniform Commercial Code, state consignment laws, and written art consignment agreements.

Uniform Commercial Code

The Uniform Commercial Code (UCC) is a set of acts that tries to harmonize state laws. The UCC states that if your artwork is damaged due to the gallery's negligence, the gallery must compensate you for your loss.

One of the more common issues in the art world concerns who is financial responsible in the event the gallery goes bankrupt. The UCC provides that the gallery's creditors can seize your consigned goods to pay for the gallery's debts. All of the gallery's creditors stand in line to collect before you. If there are funds left after the creditors are paid, the judge in bankruptcy court can award you compensation for your art. If the gallery has a lot of debts or there are too many artists to compensate, you may see little or no compensation for your art. The UCC protects artists in art consignment if the artists fulfill certain requirements:

1. File a UCC-1 form in the county where the gallery is located at the time of the art consignment. This creates a lien -- a legal claim to the property -- which will put you ahead in line to receive compensation in bankruptcy court. If and when your work is sold, you must remove the lien.
2. In some states, you can have the gallery post a sign notifying the public that the works are consigned and that the crafts in the gallery are sold under the terms of consignment agreements. This may seem awkward, but galleries usually cooperate.
3. Show that the creditors knew or had reason to know that the gallery sold consignment arts and crafts. Proving this can be difficult; so, many artists send the gallery's creditors a copy of the consignment agreement. Even this can be hard, since most artists don't know who the creditors are or even have a written consignment agreement.

State Consignment Laws

Many states have enacted their own art consignment laws to protect artists from creditors seizing consigned goods in the case of the gallery's bankruptcy: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin. Many of these states require that a written consignment agreement exists between the artist and the gallery for these protections to exist. Artists will probably need an attorney to help enforce these protections and filing claims in bankruptcy courts.

Written Art Consignment Agreements

Until recently, artists have traditionally used oral consignment agreements. However, as more state laws require written consignment agreements in order to protect the artists, it is important to establish consignment agreements in writing. Furthermore, oral agreements can be hard to enforce, as parties can disagree as to what was contracted and agreements can change over time. Written art consignment agreements should include:

• The scope of the agency between the two parties;
• The duration of the contract agreement
• The gallery's liability for damages to the art
• The inventory of specific consigned works
• The retail prices for the consigned works and the scope of negotiation power the gallery has with potential buyers;
• The gallery's consignment fees, pricing, and terms of pricing;
• The method and process of how the artist gets paid;
• Which party pays for shipping;
• The accounting method;
• The gallery's duty to post a notice regarding consignment, which will protect the artists in the event of bankruptcy;
• Any promotional responsibilities, copyrights, and duplicates;
• That ownership belongs to the artist until sale;
• How any agreement amendments will be handled;
• Who pays attorney's fees in the event of a legal dispute.

It is wise to ask similarly situated artists about galleries you are interested in. It is also a good idea to avoid large orders with new or unknown shops, until you have developed a trusting relationship with them.

Hire a Business and Commercial Law Attorney

Protecting your investment is important. Whether you are an art gallery owner seeking advice on consignments or are thinking of consigning your work, speak to a business and commercial law attorney to get the facts. There are several areas of law (UCC, state laws, and consignment agreements rules) you should be aware of before you agree to accept a consignment or decide to consign your art.