Laws Governing Art Consignment
Art consignment comes with a lot of risks. Three types of laws protect consignors: the Uniform Commercial Code, state consignment laws, and written art consignment agreements.
Uniform Commercial Code
The Uniform Commercial Code (UCC) is a set of acts that tries to harmonize state laws. Many states have used the UCC to form laws that govern art consignments. The UCC states that if your artwork is damaged due to the gallery's negligence, the gallery must compensate you for your loss.
One of the more common issues in the art world concerns who is financial responsible in the event the gallery goes bankrupt. The UCC provides that the gallery's creditors can seize your consigned goods to pay for the gallery's debts. All of the gallery's creditors stand in line to collect before you. If there are funds left after the creditors are paid, the judge in bankruptcy court can award you compensation for your art. If the gallery has a lot of debts or there are too many artists to compensate, you may see little or no compensation for your art. The UCC protects artists in art consignment if the artists fulfill certain requirements:
- File a UCC-1 form in the county where the gallery is located at the time of the art consignment. This creates a lien—a legal claim to the property—which will put you ahead in line to receive compensation in bankruptcy court. If and when your work is sold, you must remove the lien.
- In some states, you can have the gallery post a sign notifying the public that the works are consigned and that the crafts in the gallery are sold under the terms of consignment agreements. This may seem awkward, but galleries usually cooperate.
- Show that the creditors knew or had reason to know that the gallery sold consignment arts and crafts. Proving this can be difficult; so, many artists send the gallery's creditors a copy of the consignment agreement. Even this can be hard, since most artists do not know who the creditors are or even have a written consignment agreement.
State Consignment Laws
Many states have enacted their own art consignment laws to protect artists from creditors seizing consigned goods in the case of the gallery's bankruptcy: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin. Many of these states require that a written consignment agreement exists between the artist and the gallery for these protections to exist. Artists will probably need an attorney to help enforce these protections and filing claims in bankruptcy courts.
Not all pieces qualify as "art" under state consignment laws. Some states define "art" as only fine art, such as a painting, sculpture, graphic art drawing, or a print, but not multiples or duplicates. Other states also include crafts in their consignment laws. Crafts are works that are made from clay, metal, glass, wood, plastic, or fiber.
Written Art Consignment Agreements
Until recently, artists have traditionally used oral consignment agreements. However, as more state laws require written consignment agreements in order to protect the artists, it is important to establish consignment agreements in writing. Furthermore, oral agreements can be hard to enforce, as parties can disagree as to what was contracted and agreements can change over time. Written art consignment agreements should include:
- The scope of the agency between the two parties
- The duration of the contract agreement
- The gallery's liability for damages to the art
- The inventory of specific consigned works
- The retail prices for the consigned works and the scope of negotiation power the gallery has with potential buyers
- The gallery's consignment fees, pricing, and terms of pricing
- The method and process of how the artist gets paid
- Which party pays for shipping
- The accounting method
- The gallery's duty to post a notice regarding consignment, which will protect the artists in the event of bankruptcy
- Any promotional responsibilities, copyrights, and duplicates
- That ownership belongs to the artist until sale
- How any agreement amendments will be handled
- Who pays attorney's fees in the event of a legal dispute
It is wise to ask similarly situated artists about galleries you are interested in. It is also a good idea to avoid large orders with new or unknown shops, until you have developed a trusting relationship with them.