On April 22, 2024, U.S. District Judge J. Paul Oetken of the Southern District of New York denied an art seller’s motion to dismiss a buyer’s claim for breach of contract arising out of the seller’s alleged failure to comply with resale restrictions contained in a contract governing the seller’s acquisition of the artwork at issue.[1] The Court found that, although the buyer was not a party to the contract containing the resale restrictions, the seller’s failure to comply with those requirements could undermine the title that the seller passed to the buyer, giving rise to the seller’s potential liability to the buyer for breach of warranty of good title.

The Sale Trail

Live Art, a global art trading platform, served as art advisor to DW Properties and its principal, Sacha Daskal, a modern art collector.  In November 2021, Live Art informed Daskal of the opportunity to purchase a Cornelis Annor painting entitled ya tana ase.  Before purchasing the painting, Daskal told Live Art that he intended to own the painting for a limited period of time before reselling it on the market.  For that reason, he asked Live Art a series of questions about the painting’s marketing potential and estimated resale price.[2] Live Art responded that Daskal could likely resell the painting for $120,000.  During those conversations, Live Art did not mention that a resale restriction encumbered the painting.  Instead, Live Art represented to Daskal that, on receipt of the purchase price, Live Art would deliver to Daskal good title to the painting.  Daskal, as DW Properties’ principal, purchased the painting for $80,000, including a $5,000 commission for Live Art.  The sale invoice’s terms and conditions stated that Live Art “warrants that good title to the Work shall pass upon payment of the Purchase Price and that the Work was created by the artist.”[3]

In the months following DW Properties’ purchase of the painting from Live Art, Daskal kept in touch with Live Art, asking multiple times whether it would be a good time to resell the painting. In February 2023, Live Art recommended that Daskal sell the painting at Phillips auction house, assuring Daskal that he would at least break even, if not profit, from the sale.[4] Daskal consigned the painting to Phillips for sale at auction. However, in April 2023, Phillips informed Daskal that it would withdraw the painting from auction. A third-party art studio had informed Phillips that the studio sold the painting to Live Art subject to a resale restriction, which it claimed that Live Art violated in selling the painting to DW Properties. Daskal, who had no prior knowledge of the resale restriction—and, had he known about it, would not have purchased the painting—was stuck with a painting that he could not resell.[5]

The Lawsuit

On June 28, 2023, DW Properties sued Live Art in New York state court for breach of contract and other claims. Live Art removed the action to the U.S. District Court for the Southern District of New York, then moved to dismiss the complaint for failure to state a claim. Judge Oetken declined to dismiss DW Properties’ breach of contract claim, finding that DW Properties “sufficiently alleged that Live Art sold the [p]ainting in contravention of its contract with [the art studio], which may have affected its ability to pass good title to DW Properties.”[6]

The Court noted that it is “far from clear” whether the resale restrictions contained in Live Art’s purchase contract with the art studio apply directly to Live Art, where that contract states only that Live Art “agrees to include the following resale restrictions when reselling these artworks,” and “then goes on to describe the two restrictions that Live Art is obligated to include in any future resale contract”: the buyer will not, for a three-year period, offer the painting (1) for sale at an art fair or public auction; or (2) for private sale other than by offering the art studio a first right of refusal to carry out the sale.[7] The Court observed that the “most natural reading of that contract language is that it requires Live Art to include those two restrictions in any contracts with a future buyer, and not necessarily that Live Art itself must comply with those restrictions.”[8] Even so, the Court determined that, regardless of whether the contract required Live Art to give the art studio a right of first refusal on selling the work or, under the “more natural reading,” it merely required Live Art to include the restrictions in any resale contract with, and thus bind, a future buyer, DW Properties sufficiently pled a breach of contract claim. The Court reasoned that, in either scenario, Live Art’s sale of the painting to DW Properties failed to comply with the terms of its purchase contract with the art studio, potentially encumbering the painting’s title.[9]

The Court made clear that the resale restrictions at issue imposed a contractual duty on Live Art to the art studio, not to DW Properties. Accordingly, DW Properties could not sue Live Art directly on those restrictions. Rather, Live Art could be liable to DW Properties due to Live Art’s failure to include the restrictions in reselling the painting to DW Properties, or to inform DW Properties of them. Any such liability to DW Properties would be through the “good title” warranty that Live Art gave to DW Properties.[10]

The decision serves as a reminder to art market participants that previously agreed-to resale restrictions may impair an owner’s ability to transfer good title in subsequent sales. 

[1] DW Properties v. Live Art Mkt., Inc., No. 23-CV-7004 (JPO), 2024 WL 1718688 (S.D.N.Y. Apr. 22, 2024).

[2] Id. at *1.

[3] Id.

[4] Id.

[5] Id. at *2.

[6] Id.

[7] Id. at *3.

[8] Id.

[9] Id.

[10] Id.