Toronto law has long recognized the need to protect artists in their dealings with art dealers (also known as art merchants) in order to foster the arts as a vital resource in the State. However, art dealers and artists are often confused about the dealer’s responsibilities as well as the terms required in consignment agreements.

ART DEALER’S RESPONSIBILITIES

When artists give their work to an art merchant to exhibit and/or sell the work on behalf of the artist, it creates a consignment relationship. This relationshWhen artists give their work to an art merchant to exhibit and/or sell the work on behalf of the artist, it creates a consignment relationship. This relationship is automatic regardless of whether there is a written or oral agreement to consign the work. The consignment does not give the dealer ownership rights. The consigned work and any proceeds from its sale are held as trust property on behalf of the artist or his or her estate. This trust relationship means that the dealer owes both contractual and fiduciary responsibilities to the artist.

Dealers have a heightened duty of care and loyalty to artists. Regardless of the terms of a consignment agreement, the dealer has certain obligations including:

• Not commingling or misusing sale proceeds. Funds must be segregated in a trust account for the artist to protect them from claims by the dealer’s creditors.
• Paying artists their share of the sale proceeds on demand.
• Providing artists with an accounting of sales of their art, including supporting documentation, the sale price, and the name and address of the purchaser.

Notably, Toronto law applies to works of art (and their proceeds) consigned by artists, crafts persons, or their “successors in interest,” including personal representatives, testamentary beneficiaries, trustees of a trust, or heirs.

DAMAGES FOR BREACH OF THE ART DEALER’S DUTIES

A dealer’s failure to meet one of its obligations under the law constitutes both a contractual and fiduciary breach of duty. An artist can obtain monetary damages, injunctive relief and attorneys’ fees in a lawsuit to enforce the law’s requirements. Dealers may also be subject to criminal penalties for commingling or misusing funds.

PROTECTING ARTISTS AND DEALERS

Although the law provides many protections to artists, it is important for an artist to be proactive in minimizing the risk of working with an untrustworthy dealer. At a minimum, artists should:

• Vet art dealers. Consult other artists or art attorneys for referrals to reputable dealers.
• Keep a regular inventory of pieces. Artists should maintain good records on who has their pieces.
• Put consignment agreements in writing. An experienced art attorney can provide guidance regarding the agreement, including adding extra protections such as specifying when notice of a sale will be made, when payments will be made, how often accounting is required, and what information will be provided.
• Do not waive the right to have sale proceeds treated as trust property. Subject to certain exceptions, the law permits the artist to waive the trust fund protections, but the waiver must be clear and conspicuous, and in a writing signed by the consignor. It is recommended that the artist not sign such a waiver without legal advice.

Dealers can protect themselves from lawsuits by maintaining careful records regarding what pieces they have on consignment and up-to-date contact information. In addition, all financial transactions must be properly documented, and proceeds must be deposited with a bank in a segregated trust account.

Artists and dealers have a unique relationship. It is important that both sides understand their rights and responsibilities to ensure a successful relationship.