The price of any given work of art will depend on a number of variables, only some of which are knowable or quantifiable.

  • What prices have been paid for similar works by the same artist?
  • Is there anything about the quality, provenance or condition of the work that wouldmake it worth more or less than the artist's other works?
  • Where is the art market generally, and what is the market for this particular artist?
  • How many other buyers may be competing for the same work?
  • How important is it to the owner to sell the work?
  • How badly does the buyer want to buy it, and why?

As a result, it is not unusual for similar works of art (or, in the case of multiples, works from the same edition) to be sold at different prices by different galleries. That does not necessarily mean that the more expensive galleries are over-charging – or that there is any wrongdoing involved in their pricing.

If you draw an analogy between sales of art and sales of more standard retail goods, few people would think that they could sue a high-end boutique on Madison Avenue for selling them a set of sheets for a higher price than they might pay at a suburban mall. A retail buyer understands that his relationship with the seller is arm's length, and the law generally permits a seller to charge what he wants.

In the art market, a buyer's relationship with a seller – a gallerist, an owner, or an intermediary – may lead the buyer to believe that the transaction is not at arm's length and that the seller has responsibilities to him that the seller simply does not have.

Especially where the issue is price (as opposed to issues like authenticity or title), courts will generally hold buyers to be on their own. In order for a buyer to be compensated by someone who has caused him to overpay for a work of art, the buyer needs to be able to show that the seller owed him a specific legal duty and that the duty was violated.

An appellate court in New York recently applied that principle to deny recovery to a corporate buyer of a work of art who relied to its apparent detriment on an appraisal given by a market expert, even though the expert did not disclose to the buyer that the expert had an ownership interest in the work at hand.

Mandarin Trading Ltd. v.Wildenstein

In Mandarin Trading Ltd. v.Wildenstein, an individual named Amir Cohen approached Mandarin Trading, and said that a painting by Paul Gauguin, Paysage aux Trois Arbres, was for sale. Cohen offered to broker the deal. The idea was that after Mandarin Trading purchased the painting, it would consign the painting for auction. Cohen would receive a commission based on the proceeds of the auction sale. Before agreeing to the deal, Mandarin Trading asked Cohen to get the painting appraised. Cohen caused an appraisal to be delivered by Guy Wildenstein of Wildenstein & Co. that valued the picture at $15-17 million. The appraisal stated that Wildenstein had once sold the picture, but did not disclose that Wildenstein had a prior ownership interest in it. In fact, Wildenstein appeared to have had a current ownership interest in the painting; it was alleged that companies affiliated with or owned by Wildenstein received the bulk of the $11.3 million purchase price paid by Mandarin Trading.

After purchasing the picture, Mandarin Trading consigned it to Christie's, where it was offered for sale with an estimate of $12–16 million. At auction, the bidding stopped at $9 million and the painting failed to sell. Mandarin Trading subsequently sued Guy Wildenstein and the Wildenstein gallery, raising various claims based on misrepresentation and breach of contract.

In 2007, a New York state court dismissed Mandarin Trading's claims, and in August 2009 the dismissal was affirmed on appeal. Each opinion rested primarily on the fact that Mandarin Trading had no relationship with Wildenstein. It was the broker, Cohen, who had requested the appraisal, and the appraisal was delivered not to Mandarin Trading directly but to an intermediary who presumably delivered it to Mandarin Trading.

As a result, Mandarin Trading could not claim that Wildenstein had breached a contractual obligation; there was no contract between them. Nor could Mandarin Trading allege any factual basis to support claims of fraudulent misrepresentation or fraudulent concealment. Mandarin Trading could not allege Wildenstein knew the purpose for which the appraisal was being requested, knew that it was being requested for Mandarin Trading, or knew that Mandarin Trading would rely on the appraisal in purchasing the painting. Moreover, according to the appellate court, the appraisal was merely an opinion, which is not independently actionable, and on its face "contain[ed] no facts that [were] alleged to have been misrepresented."

Similarly, the appellate court rejected the plaintiff's allegation that even if not deliberately fraudulent, the appraisal constituted at least a negligent misrepresentation. Again, without either a contractual relationship between the parties or a relationship that was "so close" as to form the same kind of responsibilities, Mandarin Trading could not recover against Wildenstein.

Finally, the court rejected the plaintiff's equitable claim that Wildenstein was unjustly enriched as a result of the transaction, despite "allegations that [Wildenstein] failed to disclose [an] ownership [interest] in the painting and intentionally inflated [the] appraisal of its value, causing Mandarin to be misled as to the painting's value and to pay an inflated price for it, and that [Wildenstein] or entities related to [Wildenstein] received a large portion of the higher-than-market purchase price…." The court stated that the plaintiff had failed to demonstrate that it would be "against equity and good conscience" to permit Wildenstein to retain the proceeds of the sale. Mandarin Trading was not legally entitled to rely on the appraisal, and "even if" Wildenstein received a benefit, it was not "unjust, especially because Mandarin could have, but did not, obtain its own appraisal from Wildenstein."

Not all of the judges on the court agreed that Mandarin Trading should be left without a remedy. A dissenting opinion took the view that even though legal doctrines would bar relief, Mandarin Trading should have been able to proceed under principles of equity.

The dissenting judge noted that although there was no connection between Mandarin Trading and Wildenstein with respect to the appraisal, there was a connection between them with respect to the sale itself. Mandarin was the buyer and Wildenstein was the seller. Then, acknowledging that buyers usually cannot seek equitable recovery where they have not exercised due care, the judge stated that the rule is different where the seller creates a situation that "substantially impairs" the value of the transaction for the buyer. Taking the complaint's allegations as true (the standard for a motion to dismiss), the judge stated that Wildenstein issued an appraisal that overstated the value of the painting and caused Mandarin Trading to overpay. Mandarin Trading relied on the appraisal because Guy Wildenstein was an acknowledged expert on Gauguin – and because Mandarin Trading had no reason to doubtWildenstein's objectivity or intent because Wildenstein did not disclose that he owned the picture.

In the view of the dissenting judge, the facts as alleged stated a cause of action that should have been permitted to go to trial. Any other outcome, he said, "'places upon the buyer not merely the obligation to exercise care in his purchase, but rather to be omniscient with respect to any fact which may affect the bargain. No practical purpose is served by imposing such a burden upon a purchaser. To the contrary, it encourages predatory business practice and offends the principle that equity will suffer no wrong to be without a remedy.'"

The case provides a roadmap for buyers of art.

  • Before you buy a work of art, you should make yourself comfortable that the price is reasonable. Information is available, and the courts are unlikely to bail you out if you overpay. Sometimes, due diligence on the price of a work of art will involve merely informal research. Recent auction prices for the artist can be checked inexpensively on websites such as artnet.com. Remember, though, that auction prices may not be available for some artists whose work has not yet been sold at auction – and auction prices may not accurately reflect current prices in the private market. If more than one gallery works with the artist, find out each gallery's price for similar works.
  • Where the price of the work is substantial, a more formal appraisal may be called for – perhaps one that the buyer actually pays for. Mandarin Trading was right to seek an appraisal of the painting before it agreed to the purchase. However, it should have sought one on its own, rather than asking the broker who had proposed the deal to obtain one. If Mandarin Trading received an appraisal from another entity, perhaps the appraised value would have been low enough to dissuade it from purchasing the piece for $11.3 million. (Christie's low estimate, for example, was $12 million.) Even if Mandarin Trading had sought and received an appraisal directly from Wildenstein, and even if Wildenstein had not disclosed his interest in the picture and given the same appraisal, Mandarin Trading would have been better off in court. It would have established the direct relationship that the court held was necessary to its legal and equitable claims, and it would have been seen to have done the due diligence that the court criticized it for failing to do.
  • Where an appraisal is done, it should be performed subject to a written agreement that should include:
    • A representation that the appraiser has no direct or indirect interest in the art that is being appraised, and that he is receiving no compensation from anyone but the buyer in connection with the appraisal or the sale of the work.
    • An acknowledgement of the purpose for which the appraisal is being performed.
    • A requirement that the appraiser disclose the basis for his or her opinion of value.
    • A clear statement of the fee that the appraiser will charge. The fee should be a flat fee, or a fee based on an hourly rate. It should have no relation to the value of the work.