Court Parses Agreements and Arts and Cultural Affairs Law
Clean Art Works, Inc. operated the Marianne Boesky Gallery and served as the gallery representative for Diana Al-Hadid until 2019. During that time, Art Works advanced funds, such as studio rent and fabrication, and framing and crating costs, to Al-Hadid to further her career.
In 2009, Al-Hadid created a bronze sculpture fabricated in a five piece limited edition. An undated contract between Al-Hadid and Graphicstudio stated that Graphicstudio would fabricate the sculptures, three of which were numbered as 1/3, 2/3 and 3/3 and two numbered as “Artist’s Proofs” AP 1/2 and AP 2/2. The project was initiated in September 2009 and completed in February 2011.
In the Spring of 2011, Al-Hadid, as “Artist,” and Graphicstudio executed a separate two-page agreement governing the production and sale of the sculptures. Section 2 provided for a consignment period and read that “[d]uring the period of February 17, 2011, through February 17, 2012, Marianne Boesky Gallery has exclusive rights to sell sculptures 1/3-3/3, AP 1/2 & AP 2/2. Graphicstudio and Artist retain the right to extend the consignment agreement.”
Section 3 discussed publication, production, and marketing costs. Graphicstudio agreed to pay the costs for research and development of the sculptures, for which it would be reimbursed by receiving the proceeds from the sale of sculpture 1/3. The production cost for each sculpture was $25,000. A $12,000 deposit, to be applied toward the cost of production, was required before Graphicstudio would fabricate the other four sculptures. Graphicstudio would be reimbursed for its production costs before any sales proceeds were to be distributed to Al-Hadid or the Gallery.
The Gallery agreed to pay the costs for marketing and selling the sculptures during the consignment period and for insurance, packing, and transportation costs, “including return shipping if sculptures are unsold at the end of the consignment period.” As for pricing, the Gallery and Al-Hadid agreed to consult with Graphicstudio to establish a list price, and the Gallery agreed to consult Al-Hadid and Graphicstudio on discounts and price changes. According to section 5, the Gallery was “authorized to execute, on behalf of the Artist and Graphicstudio, Bills of Sale.” Graphicstudio would receive all sales proceeds for sculpture 1/3.
As to the remaining four sculptures, section 5 stated:
- Receipts from the sale of installation will be distributed as follows: Graphicstudio will be reimbursed $25,000 production costs ($12,000 initial deposit paid by Marianne Boesky Gallery will be applied to these production costs) before distribution of receipts. Graphicstudio, Artist, and Marianne Boesky Gallery will then each receive one-third of net after discounts and production. Graphicstudio will not begin production of sculptures 2/3, 3/3, AP 1/2 & AP 2/2 until a sale has been confirmed and the $12,000 deposit has been received. Marianne Boesky Gallery agrees to pay Artist and Graphicstudio directly from receipts within 30 days of receipt of payment. Graphicstudio and the Artist must approve any payment plans. Graphicstudio will invoice Marianne Boesky Gallery for Graphicstudio’s share of receipts.
A merger clause reads: Complete Agreement: Signatures below acknowledge conditions set forth within this agreement and supersedes and makes null and void any and all prior understandings, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto.
The Gallery alleged that the 2011 agreement created a joint ownership scheme whereby the Gallery, Al-Hadid, and Graphicstudio owned equal shares in the sculptures. The Gallery claimed the right to a share of the sale proceeds, one sculpture remained unsold. The Gallery alleged that it paid Graphicstudio the deposit to fabricate the unsold sculpture. The Gallery further alleged that it purchased Graphicstudio’s ownership interest in the work, and as a result, it now owns a two-thirds share.
In 2019, Art Works terminated its representation of Al-Hadid. At that time, Al-Hadid owed Art Works a “substantial six-figure sum” for the costs advanced on her behalf. The parties executed a settlement agreement dated April 9, 2020 to resolve their dispute over this unpaid sum. According to the terms, “[t]he Parties further agree[d] to mediate all disputes concerning [redacted] without waiving any rights or remedies available to either Party in law or in equity in the event that mediation does not result in a mutual resolution of such dispute.” The settlement agreement also provided that “[t]he prevailing Party in any action or proceeding arising out of a dispute concerning the Agreement shall be entitled to recover such Party’s costs and reasonable attorneys’ fees (including fees incurred recovering its expenses) from the non-prevailing Party.”
Art Works alleged the parties agreed to attend informal mediation on March 8, 2021, and to exchange documents concerning ownership of the work in advance of the session. Art Works alleged that it produced relevant documents except for those that had been deleted or were otherwise unavailable without undertaking a costly forensic search. Al-Hadid allegedly refused to exchange any documents or move forward with the scheduled mediation session.
Art Works sued Al-Hadid and asserted three causes of action for: (1) a judgment declaring that Art Works had an ownership interest in the unsold work and was entitled to share in the proceeds from any sale; (2) anticipatory breach of the 2011 agreement; and (3) anticipatory breach of the settlement agreement. Al-Hadid moved to dismiss the complaint.
Dismissal is appropriate where the documentary evidence utterly refutes the claims and conclusively establishes a defense as a matter of law. To qualify as documentary evidence, the evidence must be unambiguous and of undisputed authenticity and contain facts that are essentially undeniable. A contract or an undisputed email that unambiguously contradicts the allegations in the complaint constitutes documentary evidence.
The CPLR provides, in part, that the “court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed.” A declaratory judgment action requires an actual controversy. On a pre-answer motion to dismiss a declaratory judgment action, the court’s only consideration is whether a cause of action for declaratory relief is set forth, not the question of whether the plaintiff is entitled to a favorable declaration.
A written agreement that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms. A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion. A contract is ambiguous if the contract, read as a whole, fails to disclose its purpose and the parties’ intent, or when specific language is susceptible of two reasonable interpretations. The court must look at the language used within the four corners of the document to determine whether a contract term is ambiguous.
A review of the 2011 agreement revealed that it was silent on the issue of ownership. Generally, a contract’s silence on an issue does not create an ambiguity which opens the door to the admissibility of extrinsic evidence to determine the intent of the parties. An omission in a contract does not constitute an ambiguity. Rather, the court must look at what the parties intended, but only to the extent that they evidenced what they intended by what they wrote.
Applying those precepts, the Court found that the 2011 agreement did not employ any language conveying or transferring a partial ownership interest in the sculptures to Art Works, nor did the terms clearly evince an intent to do so. The agreement contemplated a consignment whereby Art Works would sell the sculptures for Al-Hadid in exchange for one-third of the sales proceeds. Thus, the agreement was unambiguous as it did not confer or transfer an ownership interest in the sculptures to Art Works.
Al-Hadid showed that Art Works’ ownership claim ran afoul of the Arts and Cultural Affairs Law. Pursuant to that law, an “artist” is “the creator of a work of fine art or, in the case of multiples, the person who conceived or created the image which is contained in or which constitutes the master from which the individual print was made.”
An “art merchant” is partially defined as: a person who is in the business of dealing, exclusively or non-exclusively, in works of fine art or multiples, or a person who by his occupation holds himself out as having knowledge or skill peculiar to such works, or to whom such knowledge or skill may be attributed by his employment of an agent or other intermediary who by his occupation holds himself out as having such knowledge or skill.
“On consignment” under the law means that “no title to, estate in, or right to possession of, the work of fine art or multiple that is superior to that of the consignor vests in the consignee, notwithstanding the consignee’s power or authority to transfer or convey all the right, title and interest of the consignor, in and to such work, to a third person.”
“Fine art” is a painting, sculpture, drawing, or work of graphic art, and print. A “limited edition” means “works of art produced from a master, all of which are the same image and bear numbers or other markings to denote the limited production thereof…”
The A&CA Law governs artist-merchant relationships and was designed to protect the property rights of an artist by specifying that the art merchant holds the art work and the proceeds of any sales in trust for the benefit of the artist. The statute provides, in relevant part:
- Notwithstanding any custom, practice or usage of the trade, any provision of the uniform commercial code or any other law, statute, requirement or rule, or any agreement, note, memorandum or writing to the contrary:(a) Whenever an artist or craftsperson, or a successor in interest of such artist or craftsperson, delivers or causes to be delivered a work of fine art, craft or a print of such artist’s or craftsperson’s own creation to an art merchant for the purpose of exhibition and/or sale on a commission, fee or other basis of compensation, the delivery to and acceptance thereof by the art merchant establishes a consignor/consignee relationship as between such artist or craftsperson, or the successor in interest of such artist or craftsperson, and such art merchant with respect to the said work, and:(i) such consignee shall thereafter be deemed to be the agent of such consignor with respect to the said work;(ii) such work is trust property in the hands of the consignee for the benefit of the consignor;(iii) any proceeds from the sale of such work are trust funds in the hands of the consignee for the benefit of the consignor;(iv) such work shall remain trust property notwithstanding its purchase by the consignee for his own account until the price is paid in full to the consignor; provided that, if such work is resold to a bona fide third party before the consignor has been paid in full, the resale proceeds are trust funds in the hands of the consignee for the benefit of the consignor to the extent necessary to pay any balance still due to the consignor and such trusteeship shall continue until the fiduciary obligation of the consignee with respect to such transaction is discharged in full; and(v) such trust property and trust funds shall be considered property held in statutory trust, and no such trust property or trust funds shall become the property of the consignee or be subject or subordinate to any claims, liens or security interest of any kind or nature whatsoever of the consignee’s creditors.
It was undisputed that Al-Hadid was an “artist;” Art Works was an “art merchant;” and the sculptures were “fine art.”
So when Al-Hadid delivered the sculptures to Art Works for sale that created a consignment relationship whereby Art Works held the sculptures including the unsold work, and any proceeds from their sale, in trust for Al-Hadid’s benefit, with ownership remaining solely with Al-Hadid. The law prohibited Art Works claim that it held a security interest in the unsold art as collateral for the unpaid debt. In accordance with the law, Art Works had the authority to execute bills of sale for Al-Hadid and Graphicstudio. Email correspondence from April 2011 also showed that Art Works viewed the 2011 agreement as a consignment agreement. Thus, that agreement could not have created joint ownership in the sculptures or the unsold work, as Art Works alleged.
Under the 2011 agreement, Art Works was entitled to receive part of the sales proceeds for the remaining work, but that right was conditioned upon a sale of the piece during the consignment period. The agreement provided that the period could be extended beyond February 17, 2012, but only in writing. Significantly, the complaint did not allege that the agreement has been modified in writing to extend the period or to allow Art Works to recover any future sales proceeds after the agreement expired on February 17, 2012. Art Works conceded the last work had not been sold—so it was not entitled to share in the proceeds from a sale. Accordingly, Al-Hadid demonstrated that the complaint failed to state a cause of action for a declaratory judgment.
Art Works’ arguments in opposition were unpersuasive. An ambiguity must arise from the language in the contract, and the fact that the agreement did not discuss ownership did not render it ambiguous on that issue. Here, Art Works failed to point to a specific provision or term in the agreement that lacked a definite or precise meaning. To the contrary, the plain words used in the agreement did not evince an intent to create joint ownership in the last work.
Art Works urged the Court to consider the post-execution conduct of Al-Hadid and Graphicstudio as additional evidence of intent. For instance, Art Works purchased Graphicstudio’s interest in the work in 2013, and Graphicstudio confirmed Art Works had “ownership of the final sculpture (mainly for insurance purposes).”
Art Works also contended that Al-Hadid never challenged its assertion that it “co-own[ed]” the work or its description of itself as a “purchaser” in the quarterly accounting statements provided to Art Works from 2016 to 2018.
The parties’ course of performance under the contract is considered to be the most persuasive evidence of the agreed intention of the parties. But extrinsic evidence may be used only to resolve an ambiguity in a contract. Because the agreement did not reference or confer ownership, Art Works could not rely on extrinsic evidence to create an ambiguity where none existed. In any event, it was the intent of the parties at the time they executed a contract that was key. The documents upon which Art Works relied were post-date execution of the agreement-and thus did not reflect the parties’ intent at the time of contracting.
Art Work’s purchase of Graphicstudio’s share in the work also did not render it an owner. The fabrication agreement between Al-Hadid and Graphicstudio did not reference ownership in any way. That contract primarily discussed the materials used and the process employed to fabricate the sculptures.
Art Work’s assertion that the 2011 agreement was not a true consignment agreement was equally unpersuasive. The Court looked to certain indicia traditionally associated with the consignment relationship including whether the consignor retained ownership and set the sale price; and the consignee receives a commission and not the profits of the sale.
Under the agreement, Al-Hadid, in conjunction with Art Works and Graphicstudio, set the sale price and Art Works received a portion of the sales proceeds. A&CA Law § 12.01, which expressly states that “[n]otwithstanding… any agreement… to the contrary,” artwork delivered from an artist to an art merchant establishes a consignor/consignee relationship. The statute does not apply where a contract does not involve the delivery of tangible works for sale, and that Art Works received sales proceeds as opposed to commissions did not render 12.01 inapplicable.
Furthermore, Art Work’s right to receive a share of the sales proceeds was a conditional interest, i.e, Art Works was entitled to receive a portion of the proceeds if the sculptures were sold during the consignment period. However, Art Works admitted that the work had not been sold.
In addition, where an art merchant claims ownership of consigned work, the merchant bears the burden of establishing that full payment was made for that work to the artist or the artist’s estate. Therefore, unless the art merchant has made full payment for the art, the consignment relationship between an artist and an art merchant stands even when the art merchant makes a financial investment in the art—because an investment does not negate the consignment or trust relationship because it is not full payment for the work. The complaint did not allege that Art Works paid for the work in full. Accordingly, the branch of the motion seeking to dismiss the first cause of action was granted.
An anticipatory breach of contract by a promisor is a repudiation of a contractual duty before the time fixed in the contract for performance has arrived. The repudiating party must declare his intention not to fulfill a contractual duty. The repudiating party’s intent not to perform must be positive and unequivocal and may take the form of statement by the obligor to the obligee indicating that the obligor will commit a breach or a voluntary affirmative act which renders the obligor unable or apparently unable to perform.
Al-Hadid demonstrated the complaint failed to state cause of action for anticipatory breach of the agreement. Once a contract comes to an end, either by operation of its terms or by declaration of an anticipatory breach as a result of its repudiation, the statute of limitations begins to run. Here, the agreement terminated on February 17, 2012, but Art Works waited 9 years to sue. The second cause of action was dismissed.
The documentary evidence also utterly refuted the third cause of action for anticipatory breach of the settlement agreement. As an initial matter, that agreement did not address what the mediation process or procedure would entail, and was unclear whether the parties had agreed to involve a neutral third-party or whether an informal session without a third-party would suffice. The settlement agreement stated only that the parties would mediate all disputes concerning the work.
The email correspondence between counsel did not clearly and unequivocally communicate Al-Hadid’s intent not to mediate. To begin, the emails confirmed Al-Hadid’s agreement to mediate. The parties agreed to engage in informal mediation without the assistance of a third-party first before they retained an outside mediator.
Al-Hadid’ss counsel conditioned her participation in that informal session upon the exchange of “correspondence and documents… that would allow both sides to better evaluate the dispute.” Art Works exchanged its documents on February 19, 2021. But Al-Hadid’s counsel objected to this minimal production, since his client had produced an email from October 11, 2019, in which Art Works wrote, “[I] have many internal emails about this. [A]nd im [sic] shocked that you are trying to suggest that we are anything other than 50/50 partners in this piece.” Al-Hadid’s counsel indicated his client would not agree to an informal session and would commence mediation through JAMS, to which Art Works responded it would attend only JAMS was paid by Al-Hadid.
Those communications did not clearly and unequivocally express Al-Hadid’s intent to forego performance, which was required for an anticipatory repudiation. The settlement agreement failed to set forth a specific date by which mediation must take a place. Absent a clear time for performance, Al-Haid could not have repudiated the agreement. Art Works pointed to no other communication between the parties that evinces Al-Hadid’s clear intent not to perform. The third cause of action was dismissed.
Ordinarily, parties are responsible for their own attorneys’ fees unless recovery is authorized by an agreement between them, by statute or by a court rule. Paragraph 9 in the settlement agreement allowed the prevailing party in any action arising out of a dispute over that agreement to recover its costs and attorneys’ fees from the non-prevailing party. Al-Hadid established that the third cause of action failed to state a claim for anticipatory breach of the settlement agreement—and was entitled to recover her costs and attorneys’ fees from Art Works.