394 Professional Notes

Legal I: Dealing with Stolen Property and Unfulfilled Pledges

Unfortunately, there are times when donors give a museum a work of art, artifact or gift of money which they possess but do not own, and the museum finds itself holding the fruits of fraud or some illegal enterprise. When the victims or the authorities come to call, seeking return of the asset, the museum can choose either to give the gift back, absorbing any loss, or to assert its rights to the donation and be prepared to take legal action. Museums and administrators should understand the legal status of stolen or fraudulently obtained works and how to deal with such gifts to protect the museum.

A museum may acquire possession of a work directly from the thief, but, more commonly, a work is given to a museum by an intermediate purchaser who had no idea that the work was stolen or acquired fraudulently. When the true owner of the object appears and demands its return, a museum may have several defences, depending on how the true owner was separated from the work, how long it has been since that separation, and the interim actions of the owner, intermediate possessors and the museum.

Theft

In the unlikely event that a stolen item is donated by a thief to a museum, neither the thief nor the museum has the right to possess the work; only the original owner has title, and the owner may force the museum to return the work. The same is true when the thief sells the stolen item to an unknowing museum; the true owner will be given possession of the work. However, the museum has the right to sue the thief for the amount it paid’.’ If a thief sells to a person who then sells to a museum, the same rules apply; neither the intermediate seller nor the museum would legally own the item. The museum would have to give it back to the true owner and seek to recover the purchase price from the intermediate seller. In the case of a donation, the intermediate owner could attempt to sue the thief, recover some money, and possibly donate those funds to the museum.

Perhaps the most famous case of a true owner asserting and reclaiming title to a work involves a work by painter Marc Chagall, which was taken from its owners by the Nazis during the 1941 invasion of BelgiumS2 Over twenty years later, the owners discovered that the painting had been sold through a gallery to Albert List. List owned the painting from 1955 to 1962 without any knowledge of the theft. In 1962, the owners brought an action against List for the return of the painting, and won. List was not left empty-handed. He sued the gallery and obtained a money award. Unfortunately, if the museum receives a work through a gift, instead of by purchase, it would not fare as well as List. Without a contract for purchase sale of the items or evidence of some payment, the museum would not be allowed to recover their value.

Fraud

In a situation in which a museum acquires an item that was originally procured by fraud or misrepresentation, ownership rights are less clear. If the original owner of the item ‘intends’ to give the work up, the wrongdoer has the power to transfer ownership to a good-faith, unknowing purchaser. ‘Intent’ to give up the item means that the owner wanted to sell or transfer it and believed that the negotiations and payments were legal even though the item was acquired through, deceit, bad cheque, fraud or even larceny in some rare instances.’ Where ‘intent’ exists, the museum will be given ownership by the

Professional Notes 395

courts. When the original owner seeks the return of the item, the wrongdoer will not ordinarily have to return it but will have to return its value and any profits the wrongdoer acquired from the transaction.

When the wrongdoer gives, rather than sells, the work to the museum some courts may force the museum to relinquish the item since it was a gift and not a purchase. In other cases the museum may be given ownership by the courts, when the question of compensation can be resolved. The wrongdoer would not be entitled to the court’s assistance in recovering the work from an innocent museum to make good on the true owner’s claim for damages. Instead, the wrongdoer would repay the original owner and the museum could keep the work. The owner should not be unhappy, having intended to convey the work in the first place.

Stolen Money and Objects Purchased with Stolen Funds

In the event that a person procures money illegally and then donates the money or some object purchased with those funds to a museum, the wrongdoer would be subject to criminal legal action and/or securities violations. Under securities law the authorities generally seize all assets and redistribute them to the victims. In criminal cases, the donated funds or assets are considered to be held in trust and are returned to the victim.4 Even if a museum has no notice of the wrongful acquisition of the money, the museum cannot retain the donation if it was a mere donee.5 A recent example of such a case in the United States was the donation to the Duke University Gallery of two paintings, Lady on a Pink Diwn by Julius L. Stewart appraised at $50 000, an anonymous still life of a pipe and a tobacco pouch appraised at $8500, and a $10 000 down-payment on a one million dollar pledge. The donor, a recent graduate of the university, allegedly acquired the paintings with funds obtained through investment fraud and was prosecuted by federal securities authorities. Duke chose to return the paintings and the money.

Unsatisfied Pledges

The Duke University matter also raises the related issue of unfulfilled pledges. This situation occurs when a donor pledges money or an item to a museum, is later unable to make good on the promise, and the museum finds itself without the funds or the item upon which it was relying for a building project, program or exhibition. The biggest problem with the enforcement of this kind of pledge by the museum is that frequently nothing is given by the museum in exchange for the donor’s pledge. In contract law, to have a binding agreement each party must promise either to give something to the other party or to give something up which will benefit the other party. In the context of a charitable contribution the museum usually does nothing that directly benefits the donor.

Nevertheless, courts tend to enforce charitable pledges as a matter of public policy. They base their decisions on (1) the extent to which the museum relied on the contribution by substantially changing its position in anticipation of the receipt of the contribution, and (2) whether the donor was aware or reasonably should have been aware of this reliance.6 When the promise to make the contribution is considered binding, the museum is entitled to the full amount of the pledge.

When a museum has received an item or a contribution from a donor who is later in bankruptcy, it may find itself entangled in a donor’s personal financial difficulties even when there is no illegality involved. The LaJolla Museum in California decided to defend its right to contribution from a donor who subsequently went bankrupt. The donor, a

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well-known philanthropist in the San Diego area, donated approximately $100 000 to the museum which went toward the acquisition of an Agnes Martin painting and the publication of a museum catalogue. When the bankruptcy proceedings began, the museum refused to return the money, claiming that the publication of the donor’s name as a contributor on both the catalogue and the frame of the painting made his gift binding, much like a contract. As in most bankruptcy cases, the case was settled for a fraction of the amount of the gift.

Conclusion

Legal action can be costly, time-consuming and difficult to prove. It also can be publicly embarrassing for a museum. It may be more detrimental to the museum’s reputation to seek enforcement of the gift than simply to give it back to its original owners. Consequently, before accepting a gift or relying on a pledge, it is in the museum’s interest to verify the donor’s legal ownership and intent in making a contribution. Any promise upon which the museum will rely should be in writing, either on a pledge form or a deed of gift.’

Terms for a deed of gift include the following: any restrictions on the use of the gift, or, if none, a statement of non-existence of any restrictions; certification of the donor’s legal ownership of the object and right to transfer title; date of signing; description and creator of the work; provenance of the object; copyright or trademark rights; and delivery specifications. Terms for a pledge form include: a statement of the pledge commitment; recognition of museum’s reliance on and plans for the use of the pledge; recognition that others are contributing to the same project; extension of the gift beyond the life of the donor in the event of death; date of the pledge; amount of the pledge and payment plan; witness for the pledgor.

Pledge forms and deeds of gift cannot protect a museum from a claim by a victim of the donor’s misdeeds or poor business judgment, but they can deter donors from pledging money or works which they do not own. Museums may be reluctant to require so much from someone who is willing to make a charitable contribution, but potential donors should understand that their gifts will help the museum only if they are valid and certain.

The Editors acknowledge the contribution of Deborah K. Ross in the preparation of the

Legal Notes.

Notes

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4. 5. 6.

7.

Uniform Commercial Code, SS 2-314. Menzelv. List,267N.Y.S.2d804,49Misc.2d300(1966),affd,28A.D.2d516,279N.Y.S.2d608, thirdparty claim reversed on other grounds, 24 N.Y.S.Zd 91,298 Misc.2d 979,246 N.E.2d 742 (1969). In this situation it is the buyer’s wrongdoing that makes the sale voidable. The seller generally does not sue for recovery of the goods but rather for proper payment. Uniform Commercial Code, SS 2-403(l). An equitable constructive trust. 38 A.L.R.3d 1372 (1987). These subscriptions are enforced under the theory of promissory estoppel ‘as the equivalent of consideration in connection with our law of charitable subscriptions’. Allegheny College v. National Chautauqua County Bank of Jamestown, 246 N.Y. 369, 159 N.E. 173 (1927) (see also Restatement 90 of the law of contracts). Marie C. Malaro, A Legal Primer on Managing Museum Collections (Washington, DC, Smithsonian Institution Press, 1985), pp. 235-241.

DOUGLAS A. JOHNSTON