When Is an Art Sale Simply Unfair and When Is It Fraud?

Flipping artwork may be frowned upon, but courts around the globe have determined it's only fraud when certain conditions are met.

Salvator Mundi is the most expensive painting ever traded.
Salvator Mundi, the most expensive painting ever to come to auction, was initially purchased for $1,175 and subsequently sold for $75 million, $127.5 million and $450 million. Getty Images

“Buy low and sell high” has long been the businessperson’s creed. And “caveat emptor”—let the buyer beware—absolves those looking to make a profit from taking responsibility for unscrupulous deals. Fairness doesn’t come into play, being less of an economic concept than a moral one, and those who shout “But that’s unfair!” in matters of business can, wrongly or rightly, come off as whiners. Money talks in the art market, and flipping art is at this point only mildly controversial.

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“But that’s fraud!” might be the more apt lament, if only sometimes. A number of lawsuits have been filed in recent years by upset people who sold artwork for relatively modest amounts of money only to see the buyers quickly sell it again for much larger amounts. Occasionally, these litigants have been successful. Most often, they haven’t been.

One can pity the elderly couple in France, identified in court papers only as Mr. and Mrs. Fournier, who sold an old wooden mask they had kept in their attic to an antiques dealer for $165, who then turned around and sold the mask—now identified as a rare Gabonese Ngil mask—for $4.6 million at auction. The couple brought a lawsuit against the dealer for not informing them of what they had, but lost last month. Adding insult to injury, the judge criticized the Fourniers for “their carelessness and casualness,” since they hadn’t made any efforts, such as hiring an expert, to learn “the true historic and artistic value” of the mask.

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On the other hand, in 2008, a New York district court found that Canadian widow Lorette Jolles Shefner was tricked into selling a painting by renowned French painter Chaim Soutine to two experts on the artist—Maurice Tuchman and Esti Dunow—for $1 million in the spring of 2004. They resold the 1923 work titled Piece of Beef to the National Gallery of Art in Washington, D.C. within a few months for $2 million. The court ordered the museum to return the painting to the now deceased woman’s estate and the two experts were fined.

But you win some, you lose some. Yet another lawsuit, this one filed in 2008 by a group of  nuns (specifically the Daughters of Mary, Mother of Our Savior in rural Round Top, New York) alleged wrongdoing after a Sister in the church found an 1889 painting by William Adolphe Bouguereau titled Notre Dame D’Anges. A local art appraiser, Mark LaSalle, was brought in to estimate the painting’s value; he placed a $150,000 price on the work, perhaps two or three times higher if it underwent needed conservation, and stated he knew a potential buyer: Santa Fe, New Mexico dealer named Mark Zaplin. Zaplin purchased the painting after the nuns had spent $14,000 in restoration for $450,000 and then promptly resold the 1889 artwork to another dealer for $2 million, splitting the profit with LaSalle. In 2012, a jury ruled in favor of Zaplin and LaSalle, rejecting claims of fraud and breach of fiduciary duty.

In some cases, there is no legal ruling because no lawsuit is even filed. In 2005, a Louisiana family sold an old painting for $10,000 that was later identified as a work by Leonardo da Vinci, with the work—given the title Salvator Mundi—achieving an auction price of $450 million in 2017 at Christie’s. They were disgruntled but had no legal basis to challenge the chain of events or sales that had taken place between 2005 and 2017, Judd Grossman, a lawyer who works with art collectors and dealers, told Observer. “A lot of research and conservation had to be done on the work between the time it was bought from the people in Louisiana and when it was sold” 12 years later. “It may seem unfair, but there was nothing illegal about it.”

In each instance above, art trade professionals were able to get a bargain and make a substantial profit after buying from people with limited understanding of what they owned. Art dealers may have an unfair advantage when they negotiate with people outside of their field, but the key element to a claim of fraud, Grossman stated, is “one party misinforming the other party deliberately and knowingly.” The two Soutine experts, who had written a catalogue raisonne on the artist, were certainly aware that Shefner’s painting was worth considerably more than the $1 million they paid. According to documents submitted to the court, Tuchman and Dunow misled Shefner by providing her with examples of Soutines that sold at auction for well under $500,000, noting that many paintings by the artist up for sale had not found buyers at all. “The defendants did not provide accurate information” to Shefner, Karl Geercken, the lawyer for the Shefner family said. “They used their expertise to take advantage of her, to put it simply.”

Art dealers might lie to each other, but most false in-industry statements don’t lead to lawsuits because people in the art market are expected to know better.

But when dealers interact with owners of objects who are unaware of their value, their statements are open to more scrutiny. “A lie about value or authenticity may be the basis for a misrepresentation or fraud claim, especially where there is knowledge or sophistication disparity between the seller and buyer,” explained Gary D. Sesser, a partner in the Manhattan law firm Carter Ledyard & Milburn LLP. “If the buyer turns around and quickly sells the artwork for a much higher price, that may be pretty good evidence that the buyer knew that what he was saying to the seller was untrue.”

The dealer may not always be in the wrong, however. Korean buyer Najung Seung paid Manhattan art dealer Mary Dinaburg $290,000 for a Julian Schnabel painting after the dealer told her it was worth as much as $500,000, only to find out that it was worth closer to $110,000. She was not entitled to get her money back, however, because Dinaburg was not an expert in the artist, according to a New York State Supreme Court ruling.

The court ruled that claims as to an object’s value are not to be relied upon “if the facts were not peculiarly within [the] other party’s knowledge.” Dinaburg did not possess any “unique or specialized” expertise in the valuation of contemporary art, and Seung’s “blind reliance on Dinaburg’s alleged statements of the painting’s value is not reasonable as a matter of law.” In addition, Seung “could have, but did not, obtain her own appraisal” of the artwork, which would have made clear the painting’s value.

In the case of the Fourniers and their African mask, Daniel H. Weiner, a partner in the New York law firm Hughes Hubbard & Reed LLP, said that “the couple’s conduct would very likely have led to the same result had a New York court addressed their claims.”  The dealer who purchased it was not required to “ascertain the mask’s true value. Nor did the dealer make any misrepresentations to them about the mask’s value—according to the French appellate court, the dealer did not know its true value when he purchased it. Add to those facts the sellers’ lack of effort to ascertain the true value of the mask.”

In other words, courts will not rescue people who don’t make an effort to find out important information before selling artworks or antiquities.

So, how not to become a sucker? Gaining expertise in a hurry may not be possible, but there are ways to obtain enough information to proceed intelligently. “Have an independent appraiser or an expert in the field (dealer or curator or art historian) look at what you have and give you a sense of its value, but don’t just sell to that person if they say they want to buy it,” Ralph Lerner, a lawyer and art advisor, told Observer. He recommended asking the person appraising the object for advice on both where to sell it—a dealer or auction house, for example—and who might be interested in buying it. “If the person doing the appraisal is seriously interested in buying it to sell, you might say that you want to participate in the sale” and also weigh in on how you’d like to see the proceeds split.

It’s all about due diligence, and sellers are expected to do as much as buyers. Luckily, there are many online sources of information those looking to do art deals might consult, and besides dealers, curators and academics, one can hire the services of a professional art appraiser. Many of them are members of the Appraisers Association of America, the International Society of Appraisers or the American Society of Appraisers, but there are also regional associations of appraisers, as well as professionals who are quite reputable but not members of any group. By the ethical standards of their profession, they only charge for their time—not on the basis of the value of the objects they are appraising, sparing novice art sellers from buyers who’d misrepresent the value of their artwork.

Caveat emptor. But caveat venditor, too.

When Is an Art Sale Simply Unfair and When Is It Fraud?