Art Talk is a series of rotating columns which explore current issues in the art market.
· Limits of Ownership 1
· Limits of Ownership 2
· Statute of Limitations
· The Discovery Rule
· Nazi Confiscated Art
· Abandoned Property
DETERMINING THE VALUE OF
INVESTING IN ART
INSURING FINE ART
LIMITS OF OWNERSHIP - PART II
an excerpt from
by Aaron Milrad
While the theft history of a
particular artwork or art object may be known to the thief and
the receiver of the stolen work, what are the consequences of
the sale of the work for value to an innocent purchaser who does
not know its past history? Who bears the loss if the work is
later identified as stolen? Should it be returned to the original
owners free of the claim of the purchaser? Should it remain with
the new purchaser who is innocent of wrongdoing? What effect,
if any, does theft or disputed title have on value? In either
case, one innocent person bears the loss.
In the past, under British, Canadian, and U.S. common law, the
buyer bore the risk of void or voidable title: caveat emptor,
buyer beware, prevailed. However, to deal with today's business
realities, mercantile laws were enacted to assist innocent purchasers
and to obligate vendors to facilitate proper trade.
In the United States, the Uniform Commercial Code (UCC) offers
protection related to warranties of title by the seller-that
is, that the title being conveyed is a good title and that the
seller has the right to transfer the title free of any security
interest, lien, or encumbrance to an innocent purchaser for value
In Canada, the various provincial sale of goods acts, factors
acts, and personal property security acts6 provide
similar protection to innocent purchasers for value.
In addition to these protections, a responsible purchaser of
1. obtain the provenance of the work and a history as to where
the art has been reproduced, has been lent, or has appeared in
2. check major purchases with the Art Loss Register and the International
Foundation for Art Research (IFAR).
3. purchase from a reputable source and be suspicious of the
vendor if the sale is taking place out of the usual fashion in
4. be aware of a fair price. If the price is well below the norm,
there is a duty on the purchaser to be wary.
5. obtain a written bill of sale with the appropriate details
as to the creator, title, date, medium, and size of the work.
Such information should be available from the vendor of a work,
having been obtained at the time of the original purchase. Also,
an original written bill of sale covering the initial purchase
by the vendor may be important to the new purchaser.
Title from a Thief
Anyone who obtains objects
or goods from a thief can have title and ownership to those objects
and goods no greater than the title held by the thief. The thief
does not have the right to pass on title of stolen goods; therefore,
one who purchases goods from a thief has no greater title to
those goods than did the thief and cannot legitimately pass title
to a future purchaser. Under the Canadian sale of goods acts,
anyone without title to goods does not have a legal right to
dispose of the title to the goods. Therefore, such a sale will
In the Canadian case of Dowe v. J.J. Pawn Shop,
a finder of a lost watch sold it to a pawnshop. The true owners
of the watch sued for its return or its value. The pawnshop had
relied on the finder having title. However, as the pawnshop owner
made no inquiries before he bought the watch, the pawnshop owner
was held to have been "willfully blind" and, therefore,
not a bona fide purchaser. The watch was returned to the original
owner by a decision of the Nova Scotia Supreme Court judge reversing
the decision of the adjudicator of the small claims court.
The adjudicator held that "It is well-established common
law that a finder, who has possession, is the owner of found
goods and has title against all except the true owner. It is
also well-established common law that a seller cannot pass a
better title than he had himself."
The court then held that, however, in as much as possession is
prima facie evidence of ownership, and in as much as the defendant
in this case is a purchaser for value, the principles of equity
prevail. The title of the owner has no priority over the title
acquired by the bona fide purchaser, who has done nothing to
disentitle himself to the application of equity.
The general division judge ruled that the watch would remain
with the defendant.
The original owner of the watch appealed the ruling, arguing
that the Sale of Goods Act of Nova Scotia (Section 24) applied:
For goods that are sold by a person who is not the owner thereof
and who does not sell them under the authority or with the consent
of the owner, the buyer acquires no better title than the seller
had, unless the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
The appellate judge noted that the pawnshop made no inquiries
of the vendor as to how the articles in question were acquired.
He then went on to indicate that while the pawnshop had good
title against nonowners of the watch, the pawnshop could acquire
no better title to the goods than the seller had. The seller's
interest was subject to the rights of the lawful owners.
The appellate judge then dealt with the duties of the original
There is no positive act, on behalf of the appellant, which would
have led the respondent pawnshop to believe that she was in any
way foregoing her right to the watch the respondent [pawnshop]
did not even inquire of the seller as to how he came to acquire
the property in question. I cannot accept that this willful blindness
can now be used to assist the respondent in acquiring a better
title than he might otherwise have. The watch was thus returned to the
It is interesting to note that the appellate judge considered
the duties of the various parties involved: the original owner
had done nothing to disentitle her to the rights to ownership
of the watch; on the other hand, the purchaser did not even inquire
as to how the vendor came into possession of the watch, which
was considered to be "willful blindness."
The facts of every case are carefully considered by the court
to determine the conduct of each of the parties making claim
to the object and what would be reasonable to expect of each
party in the circumstances. This process often appears to result
in contradictory decisions in similar cases, but many cases can
be reconciled on the basis of what was or was not done by the
various parties and what would have been expected of a reasonable
person in the circumstances. Often the courts strain to find
a legal way to give a just decision based on the facts. This
will appear clear in the cases that follow and in the various
approaches taken by courts in Canada and the United States to
reach a fair result.
Ordinarily, the Canadian sale of goods acts and factors acts
enshrine the basic common-law principle that you can't transfer
to another person something that you don't have yourself. There
are, however, various circumstances under which a nonowner can
transfer not just possession but also title. These circumstances
generally do not arise in a situation of theft in the usual sense-that
is, when a thief has stolen a precious property from an owner.
The exceptions generally apply to situations:
1. where goods were given by the owner to another party for purposes
other than sale and there is an unauthorized sale by that party
to a bona fide purchaser;
2. where the seller is in possession of goods or documents of
title to the goods and sells them to a person other than the
original purchaser; or
3. where the sale is under special common-law or statutory power
of sale or an order of the court.
In these situations, nonowners can pass valid title to a purchaser,
as the vendor has a voidable title rather than a void title.
A voidable act is one that was originally valid
but may later be voided; it is valid until the "fatal vice"
in the transaction has been judicially ascertained and declared.
A void act is one that was invalid from the beginning
and, therefore, is ineffectual and has no legal force or binding
effect. In law, a void title is unable to support the purpose
for which it was intended (a transfer of title). The thief at
all times has a void title and cannot pass a good title to a
purchaser. Nothing can cure a void act, whereas a voidable one
has an imperfection or defect that can be cured by an act or
confirmation by the appropriate party. (For example, inaction
on the part of a legal owner may stop that owner from claiming
Several provinces in Canada have laws providing that if property
is stolen (but not obtained by fraud or other wrongful means),
it will revert to the original owner or his or her representatives
on conviction of the thief. For example, this concept is seen
in the British Columbia Sale of Goods Act (Section 58).
The Canadian Criminal Code (Section 739) states
that if any property stolen by a convicted thief was sold to
an innocent purchaser, the courts may, on the application of
the innocent purchaser and after restitution of the property
has been made to the rightful owner, order the convicted thief
to pay to the purchaser an amount not exceeding that paid by
the purchaser for the property.
Vendors may try to protect
themselves by make disclaimers regarding a work. For example,
auction houses include disclaimers in their conditions of sale.
Disclaimers may exclude various implied warranties-for instance,
as to the condition of the goods-as the goods were available
to be examined by prospective purchasers. Merchantability-i.e.,
that the goods are of the general kind described and are reasonably
fit for the purpose for which they have been sold-may be disclaimed;
so too, may title or a reduction of rights by a purchaser in
the event that title in the work is not clear. For instance,
the remedy may be restricted to a return of the purchase price,
not to any increased value of the work or the right to receive
the work. Auction houses usually have a time limit within which
a complaint may be made by a purchaser, especially as to the
authenticity or provenance of a work purchased. The courts apply
strict interpretation on these restrictions, and if they are
uncertain or unclear, the courts are loath to enforce them against
an innocent purchaser who has a right to expect what has been
The True Owner
If an art object has been stolen, is there any duty incumbent on the
true owner after the theft has come to light? The courts are still dealing
with this extremely difficult question. For instance, if a work has been
stolen, ought the true owner to make inquiries about the theft?
Is the owner responsible for informing the outside world of the
theft? If the theft is kept secret by the owner (that is, if
the owner does not wish to go public with the information), thus
preventing the marketplace from knowing that the work is stolen,
is he or she violating this responsibility? If so, when the work
appears in the market in the future, is it tainted? Consider
a situation in which the owner has not given notice of a theft
and the work is ultimately sold through a number of hands to
a bona fide purchaser. Even if the title is void, is there a
statute of limitations prohibition on the original owner from
questioning the possession and ownership of the work by the new
innocent purchaser? Does the time limit for bringing a court
action apply to works that have been stolen with the intent of
preventing them from being returned to the original owner?
If an owner has a duty to make the marketplace aware of a theft,
does this duty arise when the theft occurs or when the owner
becomes aware of the theft? For example, the work may be stolen
from a museum, library, or university that does not become aware
of the theft for some years. Such situations have occurred with
insider thefts from universities and museums: students or curators
sell works in a clandestine fashion to dealers or collectors
who either do not know that the work is stolen or become parties
to the theft and sell the works to innocent buyers.
Courts in both Canada and the United States have held that the
original owner has a duty to report the work as stolen and to
make efforts to obtain its retrieval, at least from the time
the owner becomes aware that the work has been stolen.
The question then arises-what are sufficient efforts? In a prominent
U.S. case, Menzel v. List,  a number of these areas were canvassed
by the court. Erna Menzel and her husband purchased a painting
by Marc Chagall at an auction in Brussels in 1932. The Germans
invaded Belgium in 1940, and the Menzels fled, leaving behind
their possessions, including the Chagall painting. They returned
six years later to find that German authorities had removed the
painting and left a receipt for it.
In 1955, the work reappeared, having been purchased by Klaus
Perls and his wife, who owned an art gallery in New York. They
purchased the work from a Parisian art gallery. The Perls were
innocent purchasers who made no inquiries and knew nothing about
the history of the work. They relied on the reputation of the
Paris gallery as to the painting's authenticity and title.
In October 1955, Perls sold the painting to Albert List. In 1962,
Menzel noticed a reproduction of the Chagall in an art book,
with a note to the effect that the work was part of the Albert
List collection. Menzel contacted List and asked him to return
the painting. When he refused, Menzel instituted action against
him. List, in turn, added the Perls to the action, alleging that
if he was liable for returning the work, then the Perls breached
the implied warranty of title in selling the painting to him.
The jury brought a verdict in favor of Menzel, and List was directed
to return the painting or pay Menzel its current value, which
was found to be $22,500. List returned the painting. In addition,
the jury found for List, the innocent purchaser, against the
Perls in the amount of $22,500, the current value of the painting,
The Perls appealed, and the amount payable to List was reduced
to $4,000, being the original purchase price, together with interest
from the date of purchase. List then appealed the reduced judgment,
as the painting was worth $22,500 at the time of the judgment.
The court held that Menzel's action was not barred by the statute
of limitations of either Belgium or New York, as her cause of
action arose not upon the theft of the painting but from the
date of her discovery of the whereabouts of the work and the
refusal of the then "owner" to return it.
Upon the further appeal by List, the court held that List was
entitled to the fair market value of the work ($22,500), not
just the original purchase price plus interest. The court reasoned
that List lost the painting and, therefore, lost its current
market value, which would have been its worth if proper title
had been given to him in the original purchase.
In the end, Menzel got back her painting, and List was awarded
the fair market value of the work. The Perls were left having
to seek redress from the Parisian art dealer. With the internationalization
of art purchases and sales and the expanding market for stolen art and
antiques, works stolen in one country may well be sold in another to
purchasers unaware of the theft. Also, the laws of the different countries
and jurisdictions differ in respect to stolen works and the consequences
of such thefts. Therefore, purchasers must take great care to ascertain
the provenance of a work, its title, the country of origin of
its original owner, and the cultural property laws that may affect
the legitimate sale and export of such works.
Checking title to a work is not an easy task. At the very least,
inquiries should be made of the International Foundation for
Art Research (IFAR) and other monitoring organizations and police
forces before the transaction is completed. A warranty of title,
even in writing, by the vendor is only as valid as the vendor
is reputable; therefore, it is essential to deal with legitimate
The New York courts have applied the principle established in
the Menzel case that damages will take into account any appreciation
in value of the work. This was held in Koerner v. Davis
. Henry Koerner, an artist, brought an
action to recover the value of one of his paintings, which had
been stolen in 1964. It had re-emerged at auction in 1983 and
was sold to one of the defendants.
In 1964, Koerner apparently brought his painting to New York
for framing. He accidentally left the painting in a taxi; the
taxi driver kept the painting. Koerner had insured the work for
$1,000, and he received that amount from the insurer. In 1983,
the work was consigned to the William Doyle Galleries Inc. by
Robert Hessler and sold at auction to David J. Davis for $1,200.
At the time of the sale, the auction house knew neither the provenance
of the work nor the identity of the artist. After Davis purchased
the work, he attempted to ascertain its provenance by writing
to various specialists in the field. He was able to determine
that Koerner was the artist, and one of his inquiry letters to
an expert was forwarded to Koerner for his information. Sometime
thereafter, Koerner called Davis and explained the history of
the painting and its theft, and demanded its return. Davis refused
and placed it with the Gertrude Stein Gallery for sale. Koerner
demanded that both Davis and the gallery return the painting
to him. The gallery returned the painting to Davis, who did not
return it to Koerner. Koerner then commenced an action against
Davis and the Gertrude Stein Gallery to recover the work or its
fair market value. In the face of the action, Davis delivered
the work to Tom Ledell, a Los Angeles antique dealer, for resale.
Ledell died, and the painting disappeared once again.
At trial, the court determined that Koerner never voluntarily
relinquished title to the painting: it was stolen from him when
it was left in the taxi, especially as he had asked the taxi
driver to wait for him to return to the taxi. The driver instead
sped away with the painting in the car.
It was clear, too, that when Davis purchased the painting, he
had no knowledge of who the artist was, of the provenance of
the work, or that it was stolen. Nonetheless, Davis had no rights
in the painting as against Koerner. The court held that "where
property is taken by direct larceny, rather than by trickery
or false pretenses, no title to such property is conveyed. To
put it another way, a possessor of property originally taken
by direct larceny possesses a title that is void and not merely
voidable."16 Thus, in the Koerner case, as the work was
taken by direct larceny, title never passed from Koerner; therefore,
no one in the chain of possession thereafter ever had legal title
to it. When Koerner demanded the return of the painting from
Davis and he refused, this was a wrongful conversion of the painting,
for which Davis was responsible. The Gertrude Stein Gallery was
also held liable for conversion when it disposed of Koerner's
painting by returning it to Davis. By having full knowledge of
the competing claims to the painting but not returning it to
its true owner, and by rendering control over the property to
another, the gallery converted the painting.
The defendants then argued that Koerner had been paid $1,000
under the insurance policy on the painting; therefore, his rights
to the painting were now held by the insurer who had paid him.
The court held that if the plaintiff had in fact received the
full value of the work from the insurer, the defendants would
be correct. However, the insured value of $1,000 was found to
be about one-third of the true value of the work at that time.
The court also held that when an owner receives insurance proceeds
that do not cover the full value of the lost or stolen property,
that person still has rights and interests in the property, and
they have not passed to the insurance company.
An expert testified that the work would now command a market
price of $30,000 because the reputation of the artist had grown
during the intervening years. The court accepted the $30,000
value at the time that Koerner sent the demand letters to Davis
and the Gertrude Stein Gallery. Judgment was therefore rendered
in favor of Koerner in the amount of $30,000.
As we have seen above, in void title cases there has never been
a meeting of the minds so as to form an actual agreed-upon contract,
nor has there been a mistake of fact or a fraud. In those situations,
the contract between the parties is void. However, in cases of
voidable title, the innocent purchaser's rights would ordinarily
prevail, subject to the law of the jurisdiction of the transaction.
The results may differ between civil-law and common-law jurisdictions,
and different rules may apply. For example, in Canada, Quebec
cases must be interpreted based on the Quebec Civil Code and
ecclesiastical or canon law. In the United States, rules in California
and Louisiana may differ from those in states such as New York,
which has specialized legislation in respect to precious properties.
A responsible owner should photograph the work and put transparencies
or prints in safekeeping so that, if the work is stolen, its
likeness can be reproduced by the authorities and professional
associations. A notice of theft without photographs is significantly
limited in value. Photographs are also essential to an owner
for making an insurance claim, and often for the purchase of
an insurance contract.
Next Installment: Statute of Limitations
About the Author
Aaron M. Milrad is a member of Fraser Milner, Barristers & Soliciters, a Canadian national
law firm headquartered in Toronto. At Fraser Milner he provides specialized legal services
to clients across Canda, the United States, and other countries who are involved in the visual,
performing, and literary arts, music, publishing, media, and mutlimedia. Mr. Milrad also provides
consulting services, including strategic planing and marketing for creators, companies, nonprofit
organizations, and foundations and tax estate planning for creators, collectors and arts professionals.
To purchase a copy of Artful Ownership, please contact:
American Society of Appraisers, International Headquarters, 555 Herndon Parkway, Suite 125, Herndon, VA 20170
Note from the Editor
Copyright © 2000 by the American Society of Appraisers and Aaron M. Milrad.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted in any form by any means, electronic, mechanical photocopying, recording or otherwise,
without the prior written permission of the American Society of Appraisers, P.O. Box 17265,
Washington, D.C. 20041. (800)272-8258
Printed in the United States of America.
back to top