In the latest development of the continuing fall-out from the Salander-O’Reilly Gallery bankruptcy, a New York court is demonstrating how courts are paying closer attention to a buyer’s pre-purchase due diligence. For an excellent description of the court’s analysis click here.
The Salander-O’Reilly Gallery is the epitome of fraud and mismanagement, and its practices were brought to light when the Gallery declared bankruptcy in 2007. Its collapse led to serious revision of the New York art consignment statute. Eight years later, the lawsuits concerning the ownership of various works are still making their way through the courts. One of the types of fraud that the Gallery committed was selling a painting to more than one buyer. (The owner of the Gallery is currently serving a jail sentence for grand larceny.) Because of the competing claims by various buyers (as well claims by owners whose paintings were sold, even though they were for exhibition purposes only), the courts are looking closely at the type of pre-purchase due diligence that a potential buyer does. The more sophisticated the buyer, the higher the standard.
In this case, the buyer was also a dealer. The court found that he had completely failed to acknowledge obvious red flags in the negotiation to purchase the painting. Red flags that should have caused him to do further research and to realize there was a problem with the ownership. As a result, the court held that he was not the owner of the painting because he never held proper title, and his failure to do due diligence meant that he could not be a good faith purchaser.
The moral of the story? If you plan on buying art, make sure you do your due diligence and ask questions, particularly if there are gaps in ownership history, or other issues that give you pause.