Grossman LLP | New York Appellate Court Rules That Invoices Are Not The Final Word On Determining Ownership Of Artwork
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  • New York Appellate Court Rules That Invoices Are Not The Final Word On Determining Ownership Of Artwork

    A New York appeals court today issued a ruling in a matrimonial case that could have important implications for how courts will evaluate questions of title to artwork. The case serves as a reminder that clear and thorough documentation at the time of an art transaction can help avoid disputes down the road.

    The case involves an unnamed couple in the midst of divorcing after more than two decades of marriage. See Anonymous v. Anonymous, Index No. 305863/14 (1st Dep’t Apr. 4, 2017). Prior to their 1992 wedding, the pair had executed a prenuptial agreement, which does not specifically address how artwork should be handled in the event of a divorce. The contract simply provides generally that any property owned by just one party on the date of the agreement, and any property acquired thereafter by just one party, would remain that party’s separate property; and conversely, any property acquired during the marriage that is “jointly held in the names of both parties” should, upon dissolution of the marriage, be divided equally between the parties. Under the agreement, an item is only marital property if so designated in a written agreement, or if “title . . . is jointly held in the names of both parties.”

    During the marriage, the parties amassed a considerable art collection. In the divorce proceedings, the wife claimed that all art the couple had acquired through certain vendors was jointly held and thus should be divided equally. The husband took the position that there was no blanket agreement that all pieces from those vendors was marital property, and instead argued under the prenuptial agreement that he purchased certain works solely in his name when he wanted them to remain his separate property. He therefore asked the court to declare that the issue of whether a work should be treated as marital property or separate property depends on whether title was held jointly or separately, and argued that the title question “should be determined based solely on the invoice or bill of sale.” A lower court accepted his position, concluding that under the prenuptial agreement, any art purchased solely in one party’s name remained that party’s separate property, and further, that the proof of whether an artwork was held jointly or individually could be found in the invoice.

    But today, a unanimous panel of New York’s First Department reversed that decision, holding “that invoices, standing alone,” are not dispositive of questions of title or ownership of the art. The appeals court reasoned that the purpose of an invoice is not to identify the owner; rather, its function is generally to state the nature, quantity, or cost of the goods. The court also noted that invoices are sometimes unreliable; indeed, in this very case, the parties had apparently conceded that some of the invoices were facially inconsistent (for example, the party listed on the invoice was different from the party on whose auction account the work was purchased). Finally, the court pointed to earlier New York court decisions in which courts had determined questions of title to artworks by looking at multiple factors beyond the name listed on the invoice (for example, the circumstances under which a work had been purchased, which party took the initiative to acquire the work, and the funding source from which the purchase price had been paid). See Lindt v. Henshel, 25 N.Y.2d 357 (N.Y. 1969); Susan W. v Martin W., 89 Misc 2d 681 (Sup. Ct. Kings Co. 1977). Thus, the appeals court concluded that, when it comes to questions of title to artwork (or other personal property, for that matter), “the person to whom an invoice is rendered, while relevant . . . is not, in and of itself, dispositive,” and “other factors are also relevant and should be considered.” In this particular matrimonial dispute, that means that the case will return to the lower court so that the parties can engage in discovery and litigation “to determine ownership of all disputed works of art purchased during the marriage.” (To state the obvious, the former couple now likely faces the prospect of more protracted and expensive court proceedings to determine how their art collection should be divided.)

    For those who buy, sell, or collect artwork, this decision should be wake-up call; too many players in the art world engage in major art transactions with essentially no paperwork other than a bare-bones invoice. This decision serves as a reminder that, if questions later arise about who really owns that artwork—whether as part of a domestic or family dispute, a business dispute, or some other circumstance where title might be an issue—a court will not treat such an invoice as the final word. Indeed, this decision is clear that title issues “cannot be determined by relying solely upon an invoice,” and “all the facts and circumstances of the acquisition and indicia of ownership must also be considered.” (Emphasis added.) Thus, notwithstanding the art world’s unfortunate penchant for minimal “papering” of deals, it is generally a better practice for parties to memorialize art transactions with some type of formal contract or documentation that clearly spells out the essential terms of a transaction, including identification of the party to whom title is passing.

    CATEGORY: Legal Developments