Bad Debts & Recoveries

Sculpture Debts and Recoveries

Don’t pay the utility company, and your electricity will be cut off. Miss some auto loan payments, and your car will be repossessed. Forget about the credit card charges, and a collection agency will be in touch and your credit rating affected. Don’t pay the artist for his or her painting, and you can keep the artwork and your money. What’s wrong with this picture?

When artists go unpaid, they usually have two options: Hire a lawyer whose legal work is likely to cost far more than the value of the artwork itself (lawyers’ fees and court costs are rarely included in a settlement), or vent and fume.

In general, artists go unpaid in two different ways: Their dealers sell works but continually find excuses for not turning over the cash (minus sales commission) to the artists; collectors who buy directly from artists, taking possession of the works with an agreement to pay for them over time, simply stop sending the artists money. In order to determine what to do after artists find themselves owed money, it is useful to examine what they might do before a sale is made.

“You need a clear understanding with the dealer or collector of the terms and conditions of payment,” said John Henry Merryman, a professor at Stanford University Law School and co-author of Law, Ethics and the Visual Arts. “How much are you going to be paid? When are you supposed to be paid? What is the price of the artwork? Are there any discounts? What is the dealer’s commission? If the dealer or buyer has a clear understanding with the artist about payment, that person is more likely to pay the full amount and on time.”

There are a variety of ways in which an artist may receive satisfaction that do not necessarily involve the high-priced legal system. Mediation may work in cases where the parties are willing to discuss compromises in the presence of a third party who directs the discussion. A growing number of volunteer lawyers for the arts organizations are offering mediation as a low-cost service, and others may direct artists to mediators elsewhere.

Many dealers and galleries belong to associations, which will set up arbitration (at no cost to the artist or gallery) when complaints are lodged against a member. Another possible approach to getting payment in full or in part is contacting a collection agency. “Debtors know that eventually the creditors are going to get tired of calling and asking for their money, that they will get on with other things in their life, and that’s just what they want,” said Mike Shoop, president of the Denver-based Professional Finance Company, Inc. “But for us, collecting bad debt is all we do, and we will write to the debtor and telephone the debtor and visit the debtor, in order to convince that person of the benefits of paying the debt and the consequences of not paying the debt, until the debt is paid.”

One of the consequences of being pursued by a collection agency is that a negative report is usually placed on one’s credit report, which may prove troublesome for the dealer or private collector when that person looks to obtain a loan. Most galleries, as most businesses in general, survive on borrowed money.

There are thousands of collection agencies in the United States, but not all of them take on individual clients. More frequently, agencies serve the big company — such as a department store, with hundreds of potentially lucrative accounts — in their struggle to obtain payment from individuals. Most agencies work on a contingency fee basis, receiving as much as 50 percent of the money received from the debtor. (A source of information and prospective agencies is the American Collectors Association, P.O. Box 390106, Minneapolis, MN 55439, 952-926-6547, www.acainternational.org.)

As with everyone else, when artists are wronged, they want justice but may only receive small consolation. The legal system is not predictable in its results, for those willing to invest money and often years in resolving a dispute. Even those who win a lawsuit may still not be able to collect, for people who owe artists money are likely owe money to landlords, utility companies, credit firms and others — there may be no money there to collect. In that case, artists would have to write off the loss as a bad debt on their taxes and hope to approach their next dealers or buyers with more knowledge about what could go wrong.

By Daniel Grant

2 responses

  1. Absolutely, there should be a paper trail, in the form of a consignment agreement that accompanies every delivery of artwork made by the artist to the gallery. The document identifies each item sent to the dealer — the title, medium, size and price — and it should be signed by the artist. The gallery owner also should sign or initial the document and send it back to the artist. That eliminates the potential for any dispute over what was sent to the gallery and puts the burden of proof on the dealer in the event that a piece is lost.

    Thirty-one states around the country have artist-consignment laws, requiring the proceeds of all sales of consigned work to be placed in trust by the gallery owner — that is, kept apart from other gallery accounts — and paid to the artist. The laws don’t fix the time period by which the artist is to be paid; they generally refer to a “reasonable” period of time, which courts have not defined. One can guess that over 90 days may start to seem unreasonable. Complicating the issue of payment are expenses relating to exhibitions (discounts, crating, shipping, framing, catalogues) and promotion (advertisements, mailings of brochures) of an artist’s work that may be deducted by the dealer from the sale price less agreed-upon commission. If there is a dispute over what the artist is owed, the gallery owner is unlikely to pay the artist until these issues are resolved, keeping the artist’s work, as well as all money owed. That is why it is important to hammer out these issues at the outset of a gallery’s representation of an artist and put the agreement of how this relationship will work in writing, signed by both artist and dealer.

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