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Jenack v. Rabidazeh Decision Reversed: Auction Sellers and Consignors Can Remain Anonymous

Posted in Auctions, Legislation

The New York Court of Appeals reversed this morning the decision in Jenack v. Rabidazeh last fall by the Appellate Division of the New York Supreme Court that had held that an auctioneer must disclose the name of the actual owner who has consigned the work, to enforce that sale consistent with the state’s Statute of Frauds.  The court concluded that “there exists sufficient documentation of a statutorily adequate writing” such that the Statute of Frauds was satisfied and the agreement is enforceable against Albert Rabizadeh, the winning auction bidder.  The result is a sensible one both for stability in the market—the most important jurisdiction in the United States for that—as well as for anyone concerned about provenance and smuggling, as counterintuitive as that might initially appear.  The decision is William J. Jenack Estate Appraisers and Auctioneers, Inc. v. Albert Rabizadeh (still unpublished).

The case concerns a consignment auction that Jenack held for an object described as “Fine Russian Silver/Enamel Covered Box with Gilt Interior, Signed I.P. Khlebnikov, 19th Century. Height 1½”; Top 2½” x 3 5/8″,” believed to be the work of renowned silversmith Ivan Petrovich Khlebnikov.  Before the auction, Rabidazeh submitted an “Absentee Bid Form,” which stated that “bids will be executed without signature.  Signature denotes that you agree to our terms.”  Rabizadeh’s form specified “Item 193,” the Khlebnikov object.  Rabizadeh submitted a $400,000 bid, which was recorded as the winning bid.  Jenack later sent him an invoice for $497,398, which he failed to pay and Jenack sued.

Jenack won summary judgment in the trial court, but the Appellate Division reversed in 2012, citing New York General Obligations Law § 5-701(a)(6), governing agreements for “goods sold at public auction.”  The statute requires that where the auctioneer makes a record at the time of the sale with ”the name of the purchaser, and the name of the person on whose account the sale was made, such memorandum is equivalent in effect to a note of the contract or sale, subscribed by the party to be charged therewith.”  The Appellate Division ruled that by extension, an auction record that does not contain the name of the seller (the consignor) is not a contract consistent with § 5-701(a)(6). 

The Court of Appeals rejected Jenack’s argument that the numbers alone on the clerking sheets used at the auction could, on their own, satisfy the statute.  As with any contractual analysis, however, the court concluded that multiple documents may be read together “to provide the information necessary to constitute a memorandum in accordance with G.O.L. § 5-701(a)(6).”  The documentation easily identifies Rabizadeh as the buyer, on the one hand.

That left only the question of what the statute’s requirement that the name of the “person on whose account the sale was made” requires the name of the actual owner/seller, or something else.  The court concluded that the seller need not be identified to meet the statute’s requirements.  Here, the court of appeals looked to the principles of agency that the parties had disputed in their briefs, and cited the 1834 case Hicks v. Whitmore, in which only the auctioneer was identified as an agent for the seller, yet the sale was upheld.  Thus, the obvious awareness of Jenack as the auctioneer satisfies the statute and the sale is enforceable.

Although Rabizadeh made a persuasive case, the equities came into play heavily, as we guessed they might.  The decision cites first the fear expressed by the auction industry of the effect by the Appellate Division’s decision which as an interpretative matter should have no bearing on the statue’s actual meaning; statutes may be good or bad, wise or unwise, but those conclusions to not effect the meaning that the legislature intended to give.  The mere mention of those concerns, however, strongly suggests that the court was empathetic to the possible effect had it upheld the Appellate Division. 

More importantly, the decision closes with a harsh rebuke of Rabizadeh himself.  The court quoted its own 1969 decision in Morris Cohon & Co. v. Russell, 23 NY2d 569:

The Statute of Frauds was not enacted to afford persons a means of evading just obligations; nor was it intended to supply a cloak of immunity to hedging litigants lacking integrity; nor was it adopted to enable defendants to interpose the Statute of Limitations as a bar to a contract fairly, and admittedly, made.”

So where does this leave all the upheaval of the past year?  It resolves the question conclusively in the most important art market in the United States, no small thing: an auctioneer is the person on whose account the sale is made as a matter of agency, and they need not disclose the actual consignor or owner.  The uncertainty of the past year in which a winning bidder could have forced the disclosure of the actual consignment owner is finished for good.  Auction houses to whom these practices are important will no doubt breathe a sigh of relief.

Is all this a good thing?  The fact remains that no one makes an auction purchase at gunpoint, and if anonymity drives the availability of art, then it is hard to quarrel with.  Those more focused on smuggled antiquities or looted art may be concerned that it will keep what they view as important provenance information unavailable.  There too, however, the fact is that without anonymity any object with issues wouldn’t even appear on the market.  Indeed, that visibility may (ironically, from the smugglers’ perspective) pull more out of the shadows.