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
STATUTES OF LIMITATIONS
an excerpt from
by Aaron Milrad
Statutes of limitations
exist in various states and provinces. They have a fixed term
of two, three, or (as in most Canadian jurisdictions) six years
within which a claim can be brought forward for actions involving
a civil wrong. The issue to consider is: when does this term
begin for the original owner?
In Canada, the statute of limitations and its operation have
not been as extensively litigated as they have in the United
States. The northeastern United States, especially New York,
has been the center of trade in art properties since at least
the 1950s. A number of situations have required court clarifications.
New York and New Jersey courts have taken various approaches
to deal with and try to balance the rights of an innocent owner
against the rights of an innocent purchaser of a stolen object
that may have passed through a number of hands before reaching
the innocent purchaser.
In Canada, the period limited by statute for bringing an action
usually begins on the date of accrual of the cause of action,
that is, when all the elements of civil wrong existed so that
a prima facie case can be proved. Whether the cause of action
has accrued is independent of whether a complainant knows it
has accrued or whether the complainant can give evidence as to
the cause of action at that time.
However, recent British cases-that of Anns and Others v. London
Borough of Merton,18 in particular-cast uncertainty
on this principle. In this case it was held that a cause did
not accrue until a person capable of suing discovered, or ought
to have discovered, the damage.
A Supreme Court of Canada case, Central Trust Co. v. Rafuse
et al., was decided on this basis. It involved a claim
of negligence against a firm of Nova Scotia solicitors acting
on a mortgage loan to a company. The court determined that, generally,
a cause of action arises when the material facts on which it
is based have been discovered or ought to have been discovered
by the plaintiff, by the exercise of reasonable diligence.
The Supreme Court of Canada reaffirmed that discoverability rule
in 1997 in Peixeiro v. Haberman.  Justice John C.
Major wrote for a unanimous court:
In balancing the defendant's legitimate interest in respecting
limitations periods and the interest of the plaintiffs, the fundamental
unfairness of requiring a plaintiff to bring a cause of action
before he could reasonably have discovered that he had a cause
of action is a compelling consideration.
It would therefore appear that this is now the test in tort matters
in the common-law provinces in Canada (all provinces except Quebec).
The reasoning in this "discovery rule" is similar to
that of many jurisdictions in the United States.
Ordinarily, the six-year limitation period in Canada applies
to art thefts, but the limitation period may be postponed, suspended,
or extended. For instance, the limitation period affecting the
Crown or a public authority may be different from that affecting
ordinary individuals. As well, the commencement of a limitation
period may be postponed in cases of complainants who are underage
or have a disability and in cases where the accused are either
trustees or guilty of fraud.
If a statute of limitations does apply, the owner is barred from
claiming the return of the work. The intent of a statute of limitations
is to have a fixed time frame within which a claim can be made,
after which the owner is precluded from reclaiming the work.
The innocent purchaser, even if he or she has purchased the work
from a thief, is entitled to keep the work free of the claim
of the original, rightful owner.
In Erisoty v. Rizik, in the state of New York, the
court outlined the various tests for the applicability of the
statute of limitations.
Courts have used three basic approaches in determining whether
an original owner should be able to maintain an action for the
return of stolen goods against a bona fide purchaser beyond the
codified limitation period:
1. the demand and refusal rule;
2. the Laches approach, which is based on delay attended
by or inducing a change of condition or relation (i.e., a lack
of diligence on the part of the complainant to the injury, prejudice,
or disadvantage of the accused); and
3. the discovery rule.
The Demand and the Refusal Requirement
The statute of limitations period on the claim to recover
stolen property from a good faith purchaser does not begin to
run until the possessor refuses to return the object upon demand.
In the case of Menzel v. List, discussed above, List,
the innocent purchaser, pleaded that the applicable three-year
statute of limitations prevented the owner from retaking possession
of the work. The painting was stolen in 1941; in 1955, List obtained
possession of the work as an innocent purchaser. The court held
that the cause of action against a person who unlawfully comes
by a chattel arises on the defendant's refusal to convey the
chattel upon demand.
In DeWeerth v. Baldinger, a Monet landscape owned
by Gerda DeWeerth disappeared from storage in Germany after American
soldiers occupied the family home in 1945. In 1981, DeWeerth
learned the painting had been exhibited in 1970 at a gallery
in New York City and had been included in the exhibition catalog.
The lender of the work was not identified in the catalog.
After several rounds of litigation, the gallery was ordered to
disclose the identity of the lender. (The gallery was reluctant
because it had sold the work to the lender originally.) DeWeerth
then sought the return of the painting from the lender, Edith
Baldinger, who denied that DeWeerth had a right to the painting.
Baldinger claimed to have received a good title from the gallery
when she bought the painting in 1957. The gallery, brought into
the action as a third party, pleaded that it had acquired the
painting in 1956 from a Swiss art dealer. Baldinger and the gallery
asserted that the statute of limitations had now run, barring
the action. Also, the equitable doctrine of Laches was asserted
(that is, DeWeerth had allowed the work to become "free
floating" in the marketplace by not seeking the work through
advertising; she had therefore given up rights to it).
The court held that New York state law applied to the action.
Under New York law, actions that accrue within the state are
governed by the state statute of limitations. New York legislation
required that the action be brought within three years of the
time that the action accrued. The date of accrual is the date
upon which the identity of the party from whom recovery is sought
Where the owner proceeds against one who innocently purchases
the property in good faith from a thief, the limitation period
begins only when the owner demands return of the property and
the purchaser refuses, even if it is many years after the
theft occurred. Until demand and refusal, the purchaser in good
faith is not considered a wrongdoer.
In the DeWeerth case, it was undisputed that DeWeerth initiated
the suit within three years of the date that Baldinger refused
DeWeerth's demand for the return of the Monet.
Where demand and refusal are necessary to start a limitation
period, the demand may not be unreasonably delayed. While this
proscription against unreasonable delay has been referred to
as "Laches," the New York courts have explained that
the doctrine refers solely to an excused lapse of time. The DeWeerth
case indicated that the owner is obligated to make a demand for
the return of the work without unreasonable delay and to use
due diligence to locate the stolen work. The court indicated
that an obligation to attempt to locate the stolen property is
consistent with New York's treatment of a good faith purchaser.
The purpose of the rule, whereby demand and refusal are substantive
elements of a conversion action against a good faith purchaser,
is to protect the innocent party by giving the purchaser notice
before he or she is held liable.
This rule may disadvantage the good faith purchaser; however,
if demand is indefinitely postponed, the good faith purchaser
will remain exposed to a suit long after an action against innocent
parties or even against a thief will be time-barred. This rule
is especially appropriate with respect to stolen art. Much art
is kept in private collections, unadvertised and unavailable
to the public. An owner seeking to recover such property will
almost never learn of its whereabouts by chance; yet, the location
of stolen art may frequently be discovered through investigation.
In the DeWeerth case, the court also stated that other jurisdictions
have adopted limitations rules that encourage property owners
to search for the missing goods. In virtually every state except
New York, an action for conversion accrues when a good faith
purchaser acquires stolen property; demand and refusal are unnecessary.
In these states the owners must find the current possessor within
the statutory period before the action is barred. Obviously,
this creates an incentive to find one's stolen property.
In this case, the court held that the efforts by DeWeerth were
minimal. She did not take advantage of the programs available
for listing the work as stolen with the various authorities,
governments, and agencies. The court felt that to require a good
faith purchaser who has owned the painting for thirty years to
defend would be unjust and that New York law avoids this injustice
by requiring a property owner to use reasonable diligence to
locate his or her property. In this case, DeWeerth failed to
meet that burden and, therefore, the judgment of the district
court was reversed by the New York Court of Appeals.
Thus, though the statute of limitations in various jurisdictions
does not transfer title, the successful use of the statute of
limitations prevents title being asserted by the prior owner,
and that ultimately means that the present owner can pass good
title to the work in future transactions.
The Laches Approach
In Solomon R. Guggenheim Foundation v. Lubell
the lower court found that the efforts made by the Guggenheim
Museum to recover a Chagall gouache were not sufficient. The
work was proclaimed to be worth about $200,000 and had been created
by Marc Chagall in 1912 as a study for an oil painting. The museum
alleged that the work had been stolen in the 1960s by person
or persons unknown. The museum learned that the work was in the
possession of the defendant, Rachel Lubell, in August 1985. On
January 9, 1986, the museum demanded that Lubell return the gouache,
but she refused.
Lubell responded that she and her late husband had purchased
the work in May 1967, from a reputable Manhattan gallery, for
$17,000. At no time did she or her husband know of any defects
on the gallery's title. She then raised the three-year statute
of limitations, the defense of Laches, the defense of adverse
possession, and her status as a good faith purchaser for value.
She then moved for summary judgment, as the statute of limitations
had expired since the theft with no effort being taken by the
Guggenheim to obtain the painting's return. The court granted
the motion and dismissed the action. The Guggenheim had never
reported the theft to the police or to industry organizations;
the museum had offered no proof that the work had been stolen;
and no insurance claim had been made, because the theft could
not be proven.
The museum appealed, and the lower court's decision was overturned.
The court held that the use of the statute of limitations was
incorrect. Instead, it would have substituted a Laches standard.
"It then went on to dilute the due diligence standard of
DeWeerth as automatically applicable. It instructed the lower
court to examine the actions taken by the original owner [the
museum] as whether reasonable or not, and whether in accord with
industry practice at the time."[33 ]
The defense of Laches is based on an unwarranted delay that would
give rise to an assumption that the complainant has waived his
or her rights. Typically, a complainant, knowing of his or her
rights, does nothing to pursue them and unreasonably delays exercising
them. This inaction, it is argued, usually works to the detriment
of an innocent party. In this instance, Lubell would need to
show that she was prejudiced by the museum's delay in demanding
the return of the work.
This case also concluded that the federal court of appeals in
the DeWeerth case should not have imposed a duty of reasonable
or due diligence on the original owners for the purposes of the
statute of limitations. There was, however, a recognition that
a true owner who has discovered the location of a stolen or lost
property cannot unreasonably delay making demand for the return
of the property.
Although the due-diligence requirement on original owners has
been all but abolished in New York State, it does continue in
other jurisdictions. The jury is still out with respect to future
requirements of the original owners and new innocent purchasers
in these cases.
For example, the case of Erisoty v. Rizik involved
a work by Giaquinto Corrado purchased by Stephen Erisoty at an
auction on April 16, 1989. The work turned out to have been stolen
in July 1960 from the Washington, D.C., home of Jacqueline and
Phillip Rizik. It was one of three works by Giaquinto and two
works by other artists stolen at that time.
A day after the theft, the Riziks reported the theft to the District
of Columbia Metropolitan Police Department. (Photographs of the
stolen works were not then available.) The FBI was informed of
the theft the same day and commenced an investigation. Soon after
the burglary, the Rizik family provided photographs of the stolen
works and other related documents to the police. The paintings
were covered by the homeowner's insurance policy issued by Maryland
Casualty Company, and shortly after the burglary, the Riziks
filed a proof of loss with the company. Maryland Casualty paid
the Riziks $15,000 to compensate for the loss of the three Giaquintos.
Local law enforcement authorities dissuaded Phillip Rizik from
hiring a private investigator and assured him that the district
police, the FBI, and Interpol would do everything necessary to
try to recover the works. From time to time there was contact
among the Rizik family, the police, and FBI as to possible tips,
updates, and continuing investigation, until approximately 1979.
There was no contact thereafter until August 1993, when the FBI
informed Jacqueline Rizik that the painting at issue had been
located. Until September 1992, the Riziks had not published any
announcements or notices of the theft of the paintings in any
newspapers, magazines, art journals, or other periodicals.
From 1961 to 1991, Jacqueline or Phillip Rizik periodically visited
museums to look for the stolen paintings but did not provide
any museums with photographs or other documents identifying the
stolen paintings. Nor did they provide any auction house with
photographs of the stolen paintings from 1960 to 1993 or contact
any auction house regarding the paintings from 1971 to 1993.
The Riziks were neither art collectors nor participants in the
fine art community, and they had no real knowledge of periodicals
in that field.
In March 1988, a woman hired a cleaning and removal service to
remove unwanted furniture from her home in Philadelphia. The
woman removed what she wanted, leaving the remainder to be disposed
of. The house was to be left in a "broom clean" condition.
While removing the unwanted furniture, the owner of the cleaning
service came across a trash bag behind a dresser, which contained
the stolen painting. At the time of discovery, the painting was
in five pieces. The owner of the cleaning service removed the
pieces from the house and thereafter entered into an agreement
with Ellen Gerber, an antique store owner, to try to identify
the painter and the painting and to estimate its value in exchange
for a ten percent finder's fee.
Gerber contacted the Philadelphia Museum of Art and was referred
to its curator of European paintings prior to 1900. At her meeting
with the curator, Gerber was advised that the painting was in
extremely fragile condition and that if it continued to be moved
it would be destroyed or suffer major damage. She was asked to
leave the artwork at the Philadelphia Museum of Art to be examined
by the museum's conservators and to have its condition stabilized
by mounting it on a piece of Styrofoam. She agreed.
To obtain information about the painting, the curator contacted
various world experts, but none was able to provide any information
regarding provenance. They knew only that it was probably a work
The cleaning-service owner then arranged for the work to be sold
at auction in Philadelphia. No evidence as to the cleaning-service
owner's title to the painting was ever given to the museum or
the auction house.
Prior to the sale, the auction house prepared a brochure describing
the works in the auction. The catalog, which included a reproduction
of the painting, was distributed to auction attendees and anyone
requesting a catalog prior to the auction. The auction house
also placed advertisements in several periodicals and newspapers
announcing that there was a painting by Giaquinto in the auction.
The work was on public display at the auction house for two days
prior to the sale.
Stephen Erisoty learned that the painting would be sold at auction
when he received in the mail a brochure from the auction house.
He previewed the painting at the auction premises prior to the
sale and was told by the auctioneer that the work had been at
the Philadelphia Museum of Art; the museum had attributed the
work to Giaquinto. Erisoty was not told the name of the consignor
of the work. The auction house catalog contained a condition
(number 5) as follows: "The auctioneer assumes no risk,
liability, or responsibility for the authenticity of the authorship
of any property identified in this catalog. All merchandise is
sold as is, where is, with no warranties or guarantees, whether
specified or not. Not responsible for typographical errors."
On April 16, 1989, the work was purchased at auction for $25,000
by the wife of Gregory Erisoty on behalf of a group of investors.
The total price paid, including the commission, was $29,050.
Stephen Erisoty, a member of the purchaser group, was a restorer
and expended substantial time and effort over a four-year period
restoring the work.
At this point, the Riziks were still unaware of what had happened
to their painting. In 1992, Jacqueline Rizik learned of the International
Foundation for Art Research (IFAR) and its art theft services.
That year she reported to IFAR the theft of the three paintings
by Giaquinto, and she authorized IFAR to publish a report that
the Riziks were offering a reward for information leading to
the recovery of the work. There was an announcement of the theft
of the three works, including photographs, dimensions, and titles,
in the September 1992 issue of IFAR Report. Parties at
the Philadelphia Museum of Art saw the announcement in the IFAR
publication and advised IFAR that they believed it had been sold
at auction in 1989. IFAR passed this information on to the FBI
in July 1993. The FBI contacted the auction house, which told
the FBI that the painting had, in fact, been sold to the Erisoty
In September 1993, the FBI went to the Stephen Erisoty home and
demanded the return of the painting. When the FBI told Erisoty
that he had no choice, Erisoty handed over the painting, even
though he claimed that he had lawfully purchased it. The FBI
notified the Rizik family that the painting had been recovered
and would be returned to Jacqueline Rizik after she reached an
agreement with the Maryland Casualty Company regarding a release.
The insurance company agreed to release the painting to the Riziks
in exchange for $5,000, one-third of the amount paid in 1960
by the insurer for the loss of the three works. The FBI returned
the work to the Rizik residence in Washington, D.C.
Erisoty demanded, in an exchange of letters and ultimately an
action, that the work be returned to the Erisoty group. In 1962,
although the work was insured for $5,000, the fair market value,
based on an appraisal, was approximately $9,000 to $10,000. In
1993 the work had an appraised fair market value of $200,000.
The parties focused their efforts largely on whether the Riziks'
efforts to locate the painting were sufficiently reasonable and
diligent to overcome the statute of limitations time frame. The
Erisoty group alleged that the Riziks did not proceed diligently,
even though it conceded that the Riziks had a right to the painting
and would have title to it but for their failure to act diligently.
Counsel for the Erisoty group also made two other arguments.
The first dealt with the contention that the Riziks gave up title
to the work to the Maryland Casualty Company, when they were
paid $5,000 in 1960. The Erisoty lawyer cited a New York State
opinion that when a claim is paid under a theft policy the "insurance
company takes an assignment of ownership of its assured."
In response to this, the court indicated that there was not sufficient
evidence to prove that title had passed to the insurance company,
and that title was returned to the Riziks only on their $5,000
reimbursement of the insurance company in 1993. The court also
held that even if there was evidence of such an assignment, the
way insurance companies conduct business evidences a recognition
of the insured's ongoing interest and desire for the return of
its property. The actions of the insurance company, in cooperating
with the insured and accepting the payment of $5,000 for the
return of title without question, assumes a recognition of the
insured's interest in the work by the insurance company. In any
event, the Riziks retained a very real interest in the painting
and in its value pending its recovery.
The second argument made by the Erisoty group was that a bone
fide purchaser of a painting that has been entrusted to an art
dealer should be able to acquire good title against the true
owner. However, the court held that this statement is merely
an articulation of the principle of entrustment, which provides
that entrusting possession of goods to a merchant who deals in
that kind of goods gives the merchant the power to transfer all
the rights of the entrustor to a buyer in the ordinary course
of business. Here the original theft of the painting resulted
in a void title, and the principle stands that a bona fide purchaser
of a chattel from a thief gets nothing. Title could not vest
in the cleaning-service owner through his taking of the painting,
and the plaintiffs' subsequent purchase of the painting put them
in no better position than the cleaning-service owner.
The court then looked at "the center piece of the litigation"-whether
the Riziks' efforts to locate the painting were sufficient to
preserve their right to claim title. First, the court had to
review the Erisoty group's contention that the Riziks should
be barred from asserting their rights to the painting due to
the statute of limitations. The court then had to determine the
applicable statute and when it began to run. Given the facts
of the case, the statute would permit the Riziks either two years
or three years, depending on the applicable law, following the
Erisoty group's acquisition of the painting in April 1989. The
Riziks did not act within either time frame and would be time
barred unless other principles were invoked.
The court held that the statute of limitations may be tolled
(that is, the bar of the action by statute of limitations removed)
if strict enforcement would work an injustice on victims of crime
(for example, should an original owner be unable to locate stolen
art work for many years despite reasonable search efforts).
The court then set out the three different approaches to determine
whether an original owner should be able to maintain a replevin
action (an action brought to recover possession of goods unlawfully
taken) against a bona fide purchaser beyond the codified limitation
period: the demand and refusal rule; the Laches approach, which
we have already discussed; and the discovery rule, which follows.
Next Installment: The Discovery Rule
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.
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