Friday, March 14, 2008

It's Important to Know [to] Whom to [En]Trust

Trusting, or more precisely entrusting to, the wrong person can be a multi-million dollar mistake. A Swedish art collector learned this hard lesson from Article 2, in particular, UCC section 2-403(2). Kerstin Lindholm owned the Red Elvis (the Warhol work of art not Dean Reed, the American Soviet superstar dubbed by the press as “the Red Elvis”). Lindholm had used a reputable Swedish art dealer in various transactions, including organizing the loan of the Red Elvis to the Guggenheim Museum in New York. The dealer represented to an experienced American art collector, and member of the Guggenheim board, that he owned the Red Elvis, having purchased it from Lindholm and arranged to sell it to the collector with delivery from a bonded Danish warehouse. The dealer represented to Lindholm that the Red Elvis was going from the Guggenheim to a Danish museum exhibit. Lindholm authorized the Guggenheim to release the Red Elvis to the dealer’s custody, and that’s where her problem arose. When the painting was released to the dealer, he diverted it to the Danish warehouse and consummated the sale to the collector. Lindholm first learned of the sale when she herself sought to sell the Red Elvis for $4.6 million. She then sued to recover the work from the collector.

By giving the dealer control over the Red Elvis, Lindholm had entrusted the work to the dealer sufficient to implicate UCC section 2-403. Through the entrustment, the dealer acquired the power to transfer Lindholm’s ownership to a buyer in the ordinary course of business. The question the court confronted in Lindholm v. Brant, 925 A.2d 1048 (Conn. 2007) was whether the experienced art collector was a buyer in the ordinary course of business. Prior to the sale, the collector’s attorney did a search of the international database on lost and stolen works of art and found no claims against the Red Elvis, but opined to the collector that this provided only “minimal assurances” of good title. The collector, concerned about potential claims against the work from Lindholm’s former husband, requested documentary evidence of the dealer’s ownership. The dealer refused on the basis that providing such evidence was not customary in the art trade. Despite the dealer’s refusal, the collector proceeded with the sale. Finding that the collector had acted consistent with the practices in the art trade, even if those practices seemed unreasonable to the court, the court found the collector was a buyer in the ordinary course of business and therefore, the owner of the Red Elvis.

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