This week, the Grossman team obtained a complete victory for a collateral loan broker in a dispute involving a loan secured by an important artwork.  The case highlights a pitfall that plagues many art transactions: a lack of clarity regarding the timing of passage of title in an art sale.

Background

The plaintiff in this case is an art collector who sought to purchase a painting from the Carmichael Gallery, owned by art dealer Seth Carmichael.  The Gallery sent the plaintiff an invoice providing that “[t]itle will not pass until payment is received in full.”  The plaintiff and the Gallery also signed a sale agreement stating that “the transfer of title” from the Gallery “shall take place forthwith after the Buyer has paid the Purchase Price in full as provided in this Agreement.” 

The plaintiff paid, but the Gallery never delivered the work.  Rather, a few weeks later, Carmichael pledged and delivered the same artwork as collateral on a loan from our client (who was unaware at the time of Carmichael’s dealings with the plaintiff).  Carmichael eventually defaulted on the loan.  When the work’s would-be buyer learned that the work was with our client, he demanded the work, and litigation ensued.

Dismissal Of All Claims Against Our Client

In mid-2025, we filed a motion to dismiss all the claims against our client, arguing that the plaintiff never actually obtained title to the painting.  This week, a federal district court handed our client a total win, and in the process, fully adopted  our analysis.

The key to this dismissal lies in Article 2 of the Uniform Commercial Code, which governs sales of goods, including fine art.  In particular, one of its statutory provisions states that “[u]nless otherwise explicitly agreed” by the parties to a sale contract, title to the goods being sold passes to the buyer at the time of physical delivery of the goods.  In other words, the UCC provides a “default rule” for when title passes in a sale of goods; parties are free to agree to some other timing for passage of title, but they must precisely specify, in their contract, what that other timing will be.  And previous cases in New York have held that, where a contract states only that title “will not pass until payment is received in full,” that leaves open the question of when title actually does pass.  Thus, the invoice in this case was not specific enough.  As for the parties’ other sale documentation, the Court held that that too simply begged the question of when title would pass.  It did not clearly state that title would pass on the day the plaintiff paid the purchase price; it only said that transfer of title would “take place forthwith after the Buyer has paid the Purchase Price.”  The Court agreed with our arguments that “forthwith” did not mean “instantaneously,” and indeed, the use of the phrase “forthwith after” contemplated that payment and title transfer were distinct events. 

The Court concluded that the contract language here did not explicitly identify the moment when title was to transfer—and in the absence of such clear contract language, the UCC’s “default rule” governed the transaction.  And where physical delivery to the plaintiff never happened, title never transferred.  To be clear, the plaintiff would remain free to pursue monetary claims against Carmichael for the return of the purchase price the plaintiff paid; but because the plaintiff never acquired an ownership interest in the artwork itself, it could not recover it from our client.

A Crucial—And Often Missed—Detail In Art Purchase Contracts

It is not uncommon in today’s art market that a buyer might arrange to purchase an artwork, and even make full payment, but might not actually take physical delivery of the work immediately.  This can happen for a variety of reasons—for example, a work might remain with the gallery for some extended period until shipping or installation can be arranged.  Indeed, especially in a market where some buyers are purchasing art solely as an investment to be resold, they might arrange to buy a work from a gallery and then immediately re-consign it back to the gallery, or leave it with the gallery indefinitely. 

But art market participants might not realize that, under the UCC “default rule,” if a work is not physically delivered, there might be no valid transfer of title at all.  It’s not enough to simply say that title “will not pass until payment is received in full”—a phrase that appears all too often in art deal paperwork.    If parties want to avoid this odd wrinkle, they must ensure that their contract is crystal-clear about when they want title to transfer.


Photo from Canva