Legal and Ethical Issues for the Fine Art Appraiser

In appraising an object of fine art, a rare document, a unique documentary film or even an intricate promissory note, the appraiser, with no legal training faces the task of becoming schooled in the applicable legal boundaries and ethical constraints. For the appraiser it is clear that the proper use of any research data depends upon the criteria used when establishing the conditions for ownership, fraud and misrepresentation. This paper addresses many of the important aspects of the law and ethics dealing with valuation, specifically those issues of warranty, title (theft or forgery) and the fiduciary obligations of auction galleries.


As the law evolved, the doctrine of expressed warranty grew. This area of law establishes rules of trust under which a buyer and seller, depending upon their individual expertise, can rely on that set of assurances to establish a value for an object. One of these assurances is expressed when the Uniform Commercial Code (UCC) states that a warranty arises on “any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes a part of the basis of the bargain”(1). Therefore, warranty of title is assumed to exist, from the seller, in every sales contract and catalogue. The fact that the title is then not at question allows the appraiser to confirm a value specifically for his client in line with the client’s needs, and therefore, the appraisal’s focus. The issue of “warranty by experts” is discussed later citing Tunick v. Kornfeld as related to forgery.

This important issue of warranty can be clouded by the use of disclaimers as in some auction house catalogues. In Weiscz v. Parke-Bernet, Inc., less than expert buyers who purchased Dufy forgeries were unsuccessful in their suit for rescission against the auction house as they were judged to have overlooked the prominently placed disclaimer in the Parke-Bernet catalogue. In the case of the appraiser who may not be aware of the disclaimer and who is asked to appraise those Dufys for future sale, it becomes important that he/she keep abreast of market history by carefully researching the sales records that he/she uses as well as any pertinent legal citations.

It is basic law that a contract for the sale of goods includes the assertion that good title is being conveyed; that the seller has the right to transfer the title and that the work is free from any security interest or other lien or encumbrance. This assumed warranty of title may lead to damages being assessed against the warrantor (seller). As in Menzel v. List, the amount of damages were levied on the basis of the current appraised value and exceeded what the sellers originally sold the painting for even though they no longer owned the painting and were not owners during its accumulation phase. In Menzel v. List, the painting was returned to the original owner, Menzel, whose painting was stolen by the Germans in 1940 during WW II, through a replevin action with the last purchaser in 1962, and List, this last owner, received the then current fair market value from the seller/gallery (Perls) who had warranted the title to the painting. The court held, “Had the warranty been fulfilled, i.e., had the title been warranted by the Perls gallery, List would still have possession of a painting worth $22,500.” Thus, Menzel was ceded ownership of her stolen painting, List was “made whole” by Perls based on fair market value and the Perls were left to collect from the foreign art dealer from whom they purchased the painting in 1955 when it was judged that they should have questioned the provenance initially.

If an appraiser had, during the course of creating an appraisal relied on the seller’s warranty, and done no further research of his own, he might then have been brought into the chain of liability. Warranty of title may only be excluded by specific language and it is essential that the appraiser be very careful to avoid creating a warranty by using of very specific exculpatory language concerning authentication, chain of ownership and work conditions in his appraisal, as follows:

“Unless otherwise stated herein, this appraisal is based only on the readily apparent identity of the item appraised, and no further opinions or guarantee of authenticity, genuineness, attribution, or authorship is made. However, in appraising the subject item, the appraiser found no reason to question its authenticity.”(2)
Such exculpatory language, as an integral part of the appraisal, is usually listed and defined in “Assignment Conditions” as examined in the following descriptions.

General Assignment Conditions: Conditions which describe the general examination of the subject item including research and report writing conditions i.e., was there adequate time allotted for examination of photographs, research into medium ?, etc.

Specific Assignment Conditions: This addresses Specific Assumptions that are taken and listed by the appraiser as facts, that if found to be untrue, would not materially affect the appraiser’s opinions or conclusions, i.e., ownership.

There are also, as subheadings; Extraordinary Assumptions that are taken as facts and if found to be untrue or questionable would affect the value conclusions. These assumptions would include: verbal information provided by the client or his agent, authorship not being authentic, a sullied title, see later, George O. Doherty and Emelia A. Doherty v. Commissioner, 16 F.3d 338 (aff’d, 9th Cir. 1994), etc.

The next type is Limiting Conditions. Here are listed those conditions that limited the examination, research and/or writing of the appraisal. This category includes: not removing the painting from the frame, relying on digital photographs due to geography, the wine cellar was too over crowded for full viewing of all of the bottles, etc.

Then we look at and list Hypothetical Conditions. These are conditions that are directly related to the assignment and are contrary to what is known by the appraiser to exist on the effective date of the assignment and are used only for the purpose of analysis. If these conditions are found to be untrue, the appraiser’s opinions, including, but not limited to value, may be affected. This occurs when the appraisal is concerned with valuing items for insurance reclamation and requires “recreating” the items as they had existed before being destroyed by fire, water, etc.

In addition to the above, the appraisal notes that the values expressed are based on the appraiser’s best judgment and opinion and are not a representation nor warranty that the items will realize that value if offered for sale at an auction or otherwise. The values expressed are based on then current information addressing the valuation date stated on the cover page of the report. No opinion is expressed as to any future value, nor unless otherwise stated, as to any past value.

The appraiser has considered the highest and best use of the appraised articles with respect to the most appropriate, common, and legal (or illegal) marketplace given the purpose of the appraisal.

Title (Theft, Authenticity or Fraud)

Another area of concern for appraisers exists when, in searching the provenance of a painting, there are breaks in the chain of ownership. This issue should motivate the appraiser to consider the possibility of misrepresentation or fraud. Although appraisals are not intended to be certificates of authenticity, where fakery or impeachable title is even considered after proper and thorough research, i.e., checking the files of the Art Loss Register or the International Foundation for Art Research, this question must be noted in the appraisal and must be reflected in the valuation conclusion. Appraisers are not authenticators but are responsible for reasonable confirmation of the authenticity of the objects of the appraisal. Care in this area is obvious in that mere questions concerning attribution or authenticity will have, as next discussed, a chilling effect on the immediate value.

As an example of the challenges to valuation within the prevue of authenticity……In George O. Doherty and Emelia A. Doherty v. Commissioner, 16 F.3d 338 (aff’d, 9th Cir. 1994), two of the foremost authorities on the paintings of Charles M. Russell could not resolve the question of authenticity of a donated painting. In 1969, the Dohertys bought “Attacking Stagecoach,” which may or may not have been painted by Russell, for $10,000. They donated an undivided 40% interest in the painting to the Charles M. Russell Museum in Great Falls, Mont., in tax year 1982 and the remaining 60% in tax year 1983. In those years, they claimed charitable contribution tax deductions in the amounts of $140,000 and $210,000. The IRS, backed by its expert, maintained that the painting was a forgery and worth only $100. The court noted that credentials of the two sides’ experts were beyond question, yet they had reached different conclusions. The court said that it could not rule on authentication and concluded that the painting had a value of $30,000, recognizing the fact that the dispute had affected the painting’s fair market value.

In opining as to their presumption of authenticity, appraisers rely upon their expertise and experience while seeking the judgments of third parties, including scholars, museum curators, dealers, auction houses, families of artists and catalogues raisonné (a comprehensive list of works by an artist) or, as in the case of life insurance policies the writing insurance company’s records. The appraiser is required to make every reasonable effort to gather all available information relative to the appraised object.
However, legislation has been introduced in New York to offer protections to art historians, art curators, independent art scholars, conservators, and other qualified experts who submit good faith opinions on the authenticity, attribution, or authorship of works of art from unsubstantiated law suits.

The proposed legislation from the NY Senate and Assembly on authentication protection in the NY Courts follows:

BILL NUMBER: S6794, titled: An act to amend the arts and cultural affairs law, in relation to opinions concerning authenticity, attribution and authorship of works of fine art.

JUSTIFICATION: In general, artwork is authenticated by a trained person through documentation, stylistic inquiry, and/or scientific verification. No one method is perfect as oftentimes authenticity is difficult to determine. While each authentication method has its own drawbacks, the role of authenticators as drivers of the art market cannot be overstated. Art authenticators reduce the risk of counterfeits and imitation flooding the art market that could potentially devalue the work of millions of artists.

In recent years, the work of authenticators has come under pressure from meritless lawsuits against those who render opinions in good faith. Such defense of expensive and frivolous lawsuits have left many in the industry reluctant to lend their expertise in authenticating art works.

This bill would clarify the role of art authenticators to ensure that those who practice their profession, in good faith, would be afforded protections under the law to ensure that only valid, verifiable claims against authenticators are allowed to proceed in civil court.

Because of the seriousness that a negative imprimatur has on value, the law has established statutes of limitations concerning both the action to recover stolen works (replevin) and actions to collect damages for unlawful control (conversion). In many states their statute of limitations relating to art objects begins running when the possessor, lawfully or unlawfully, gains possession. In cases concerning the original owner or artist this can create a heavy and undue burden. The original owner operates under many social as well as time constraints relating to finding their art object that was either stolen or lost.

In the statute of limitations area, only California has a three year statute which begins with the “discovery of the whereabouts” of the item. Currently, the remaining states, New York included, use one of three approaches: the demand and refusal rule, the laches approach, and the discovery rule.

In applying the demand and refusal rule, in Menzel v. List, it is stated that at the point in time of the demand by the original owner and the refusal by the current possessor, the clock for the statute of limitations begins to run. This rule, however, was modified because originally, in the case of theft, no demand was necessary and the time began to run immediately in favor of the thief. The rule was then again modified requiring that the demand not be made with unreasonable delay, say 40 years, and that the original owner be required to use due diligence to locate the stolen property.

Looking at the the laches approach, this is New York’s current law, as exhibited in Guggenheim v. Lubell, and then Hoelzer v. Stamford. In neither of these cases of lost or stolen art works is there a due diligence requirement affecting the running of statute of limitations in actions for repossession. The downside to this approach is the requirement that the new or current owners defense in order to retain their ownership, using the doctrine of laches, requires that they must prove 1) the original owners unreasonable delay in bringing suit and 2) harm to the purchaser resulting from the delay. This defense is both time consuming and extremely expensive.

The discovery rule is used in California, New Jersey, Indiana, Ohio, Pennsylvania and Oklahoma where the court determines when a diligent owner would or should have discovered the stolen property for purposes of beginning the running of the statute of limitations. In O’Keefe v. Snyder, O’Keefe’s cause of action began accruing after a 30 year time period when she first found out, or reasonably should have been able to find out, through the exercise of due diligence, the identity of the possessor of her stolen paintings. Georgia O’Keefe sued a bona fide purchaser in 1976 for reclamation of three paintings stolen in 1946. Over the years O’Keefe made casual and sporadic attempts to find the paintings which ultimately turned up in a gallery in 1975. The New Jersey Supreme court noted that: O’Keefe’s cause of action accrued when she first knew, or reasonably should have known, through the exercise of due diligence, of the cause of action, including the identity of the possessor of the paintings.”

In Helen Charash v. Oberlin College, applying Ohio law, the court found a cause of action for replevin or conversion must be brought within four years of the start of accrual, which action does not accrue until the “wrongdoer is discovered.” The obvious downside to the discovery rule is the list of relevant factors that come into play and the inability of the owner/purchaser to own definitive title to the painting as there is no definitive date from which the limitations period begins to run. As with laches, the time and cost involved in the litigation process is yet another “downside”.

In the realm of theft and forgery, and, parenthetically, touching on the issue of warranty, in Tunick v. Kornfeld, when a Picasso signature on a print was questioned and the dealer, Kornfeld, offered to replace the print in question with another Picasso with “good signature and of equal value”, the federal district court of New York determined that “two prints by the same artist and even from the same plates, were not interchangeable.” To quote Heraclitus, “No man steps in the same river twice, for it is not the same river and he is not the same man.” This would serve to suggest that comparables, that are almost clones, are not necessarily equal in value. This case establishes that experts may often rely on one-another’s warranties. As a result, this suggests that the appraiser, who is normally less expert than those cited, must be wary of reliance on just one, or too few, comparables and the warranties that follow the sales.

Fiduciary Obligations of Auction Galleries

Great importance must be placed upon the reputation and honesty of the seller/auctioneer upon whom the appraiser relies for comparable data. Even though the auction house has a fiduciary relationship with its client the seller, the Koven case establishes the fact that the auctioneer has the ability to modify that relationship when, as Christies does, it subjects itself to liability claims because it guarantees the authenticity of the art works it sells. In Koven, the seller/consignor Jane Koven sold a pastel purportedly by Braque through Christies. The drawing was questioned by the buyer and, after being reviewed by an expert hired by Christies, was eventually found to be fake. The monies were returned to the buyer and Christies sought the return of the payment made to Koven but were rejected by Koven who claimed that Christies breached their fiduciary duty to her by their opening the investigation at the request of the buyer, not their client. Koven also alleged that the rescission of the sale went counter to Christie’s obligation of duty and care to their client. The district court granted summary judgment requiring Koven to return the sale proceeds. The important issue was that the court stated that fiduciary responsibility is not a loyalty by covenant but rather a matter of contractual interpretation and that the consignment agreement giving Christie’s the discretion to seek the views of any expert was not limited to only presale matters.

Legally, anyone can write an appraisal. Personal property appraising is a non-regulated, or rather, self-regulated profession. Generally, personal property appraisers are not subject to any form of governmental licensing regulations, with the exception of real estate. As there is no legally established certifying authority, the professional associations or guilds are recognized as the accrediting bodies with clearly established ethical dogma. The credentials carried by appraisers (other than real estate) who are acceptable to insurance companies and the IRS have been earned through prescribed academic study, experience and apprenticeship under the tutelage of these associations. A successful completion of this process is rewarded with certification and membership in a professional association such as the Appraiser’s Association of America or American Society of Appraisers. For all non-cash donation appraisals, including life insurance policies, the IRS and all professional appraisal associations require the application of the Uniform Standards of Professional Appraisal Practice. The USPAP certification requires a 15-hour course of study and required study and examinations for recertification every two years.

In conclusion:

The issue of warranty, which can be influenced by ownership, may have a very notable effect on the eventual value of any art object being appraised. One example would be that the provenance, which might include ownership by real or imagined “immortals”, i.e., the Kennedy family or the Queen of Albania, would have an immediate effect on the collector’s sense of value which the appraiser would have to consider.

Title questions concerning the possibility of the object being appraised having been stolen or a forgery, leaves the appraiser with moral, as well as value decisions that go to the very core of professionalism.

The fiduciary obligations of the auction galleries is one of the basic tenets for using their sales as current underpinnings of value.

There are, of course many problem areas in art valuation that have specific legal ramifications but, in this article I have chosen to focus on those that, over the years, have created the most concerns for me.

§ 2-313. Express warranties by affirmation, promise, description.

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