Summary
On the 5th of October 2018, a framed copy of a Banksy artwork depicting a young girl reaching for a wayward red balloon, aptly named Girl with Balloon, went on sale in a Sotheby’s Auction House. The ultimately successful bid of £1,042,0000 was a Personal Best for Banksy. However, shortly after ‘the fall of the hammer’, onlookers at the auction, and the auctioneers themselves, watched in astonishment as the artwork began to self-destruct. You see, it seems the mischievous Banksy had installed a shredder in the bottom of the frame which activated following the sale, half-shredding the artwork. A shockingly brilliant piece of modern performance art, even if a somewhat ineffective shredder.
One wonders what must have run through the mind of the collector/buyer as she watched the piece she had just promised to pay over one million pounds for be quite literally cut to ribbons in front of her eyes. Of course, in the world of modern art this was far from a disaster. The Banksy authentication body, Pest Control, re-named the piece Love is in the Bin and the collector-buyer proceeded with the purchase. This ‘new’ piece is no doubt worth more in its half-shredded form and perhaps the purchaser is simply unlucky that the shredder gave out half-way through!
While much of the talk at the time, in the media and at the proverbial water-cooler, focused on the spectacle of it all - “who was in on it?”, “what does it mean?”, “isn’t Modern Art so strange” – I was, perhaps predictably, fascinated by the legal implications of the event. Who owned the painting when it was “damaged”? Who bears the risk if it decreased in value? Having likely increased in value, could the seller refuse to sell at the auction price? The answers to these questions are interesting because, although the facts of this case are extraordinarily unusual, the legal principles governing them are universally applicable, thereby demonstrating the law’s ability to effectively order our lives in all its wonderful variety and absurdity.
Contracts and Auctions:
Our starting point should be to determine what exactly are the legal implications of a successful auction bid. This is relatively simple. According to Section 58(2) of the Sale of Goods Act 1893, a sale by auction is complete when an auctioneer announces its completion by the fall of the hammer, or in another customary manner.
Thus, in our case the successful bidder had a concluded contract to buy the Girl with Balloon for £1.04m immediately before it was shredded.
Who Bears the Risk?:
This question could be reframed in our scenario to ask: ‘Who would bear the loss if the artwork had depreciated in value, the buyer or the seller?’. or conversely: ‘Who reaps the benefits of an increase in value?’
Well, again, we turn to the 1893 Act, which states, in Section 20, that: unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer. The first thing to unpack here is that it is open to the parties to agree amongst themselves when the risk should pass. Not being party to Sotheby’s exact Terms and Conditions, lets assume that there is no particular clause regarding this and, as such, risk passes when property passes.
Passing of Property:
A distinction must be drawn here between property and possession. Simply put, to hold or possess something is not necessarily to own it. To have the property in something is simply legalese for ownership. Certainly, Sothebys still had possession of the artwork, but who owned it at the time of its (un)fortunate demise – the buyer or seller?
Again, the 1893 Act gives us the answer. Section 17 states, simply, that where there is a contract for the sale of specific goods, as we have established there is here, property (ownership) passes when the parties intend. Thus, the contract might state something like “property does not pass unless the purchase price as per the successful bid is paid before a certain date”. This is a rather simplified example, but if this could be shown to be a part of the contract between buyer or seller, then that is when property would pass (showing this is not always so simple in reality).
Of course, think about your day-to-day life for a minute (leaving fantastical modern art auctions aside). How often, when purchasing things, be it groceries or a second-hand car, is there any such agreement between you and the seller? I’d wager, at least for these smaller purchases, almost never. Not to worry, the 1893 Act has that eventuality covered also. Section 18 contains a number of rules on when property should pass in default of agreement, depending on the situation. Rule 1 is perhaps the most appropriate in this scenario. This states that where there is an unconditional contract for the sale of specific goods then property passes when the contract is made, and it is immaterial that the time for payment or the time for delivery is postponed. For example, if you orally contract to purchase a specific car from a friend for €10,000, without more, you own the car at the conclusion of the contract, notwithstanding that you have not yet paid your friend. If Banksy then drives a bulldozer through the car for the sake of performance art you still owe your friend €10,000. Although, you can take consolation in your possession of a new trendy piece of Modern Art as you ride the bus to work!
The outcome, if we apply all of this to the case at hand, is that if the auction had no other Terms or Conditions built-in, the buyer would own the artwork upon the fall of the hammer and would bear the burden of its destruction (of course, she could likely successfully sue somebody for the damage caused to her property, but that, strictly speaking, takes place outside of Contract Law). Of course, it is extremely unlikely that the auction of a Banksy artwork, or indeed any auction at Sothebys, would not be attended by myriad terms and conditions covering when exactly property should pass. You do not need to be a lawyer to understand the chaos that would ensue for an auction house if one needed only to successfully bid on an item to become its legal owner. Let us assume, then, that Sothebys have terms and conditions reserving ownership to the seller, in line with section 17 above, until certain payment is actually received. In this situation, that would have the effect of leaving the seller with a damaged/improved painting and a legally enforceable contract to sell that painting to the buyer for £1.04m. What then?
Breach of Contract:
If we follow the train of reasoning above, the two parties have found themselves in the position where the seller has contracted to deliver the Girl with Balloon to the buyer and the buyer has contracted to pay the seller, through the auctioneers, £1.04m. Unfortunately, the artwork, in the form it was supposed to be delivered, has been destroyed. It is also, for all intents and purposes, irreplaceable. The seller can not simply pop down to the warehouse and pick up another one to satisfy the contract.
Strictly speaking, the seller is now in breach of contract if they do not deliver the painting in its original form. That may seem harsh given that it was Banksy, and not them, that destroyed the artwork. However, breach of contract is a strict liability action. This simply means that the Courts are not necessarily concerned with whether you meant to breach the contract, or your motives for doing so, or even whether breach was your fault (although there is a contractual doctrine called Frustration that I will leave aside for the sake of simplicity. Perhaps we’ll cover it the next time Banksy destroys one of his own artworks). The Courts simply ask whether the contractual obligation was fulfilled or not. If it was not, you have breached the contract. The seller can not help but breach the contract here. Thankfully, the matter seems to have resolved itself amicably. The seller received his money and the collector-buyer received a one of a kind performance artwork, with a free built in remote control shredder. But this scenario throws up two interesting legal ‘what-ifs’:
- What if the artwork had decreased in value?
- What if the artwork increased in value and, consequently, the seller decided not to sell?
What if the Artwork had decreased in value?
At its simplest, the buyer in this scenario would have two broad choices – affirm the contract and seek a diminution of the price or repudiate (abandon) the contract and sue for damages.
If the buyer still really wanted to own this Banksy even after a hyopthetical drop in value they could seek to enforce the contract and sue the seller for not delivering the artwork in the form contracted for. Assuming the artwork still maintains some intrinsic value, the net result of this would be a diminution of the contract price. How the damages are measured here may actually be counter-intuitive. One does not simply obtain an updated valuation post-shredding and pay that amount. Instead, the damages would be calculated, pursuant to Section 53 of the 1893 Act, as the difference between the value of the artwork pre-shredding and the value of the artwork post-shredding. The artwork’s value pre-shredding is not necessarily equal to the price it was knocked down for at the auction. So, imagine the intact artwork would have been worth £900,000 (ignore for the sake of this the difficulty in objectively valuing art), but that post-shredding it is worth £300,000 (a colossal error in judgement by Banksy). The ‘diminution’ is £600,000. The difference between what the artwork would have been worth and what it is now worth. Ultimately, the net result for the buyer is that they can take the artwork for £442,000 (1,042,000 – 600,000). You will note that they are still paying £142,000 over the odds, but this would have been the case in any event. The buyer is put in the position they would have been in had the contract been performed.
Alternatively, the buyer might decide that there is no place in her collection for a half-shredded painting. In that case she could simply repudiate the contract, refusing to accept the painting in its damaged form on the basis that it is not what was contracted for.
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What if the Seller Wanted to Keep the Painting after its Value Increase?
Imagine, for a minute, that you own an expensive Banksy painting. You excitedly put it up for auction anticipating a healthy payday. And a healthy payday you get. Even as you are jumping up and down with exultant joy in the auction house, or keeling over in shock Del-Boy style, the item that was to win you this payday gets shredded to ribbons. The seller might at that point have considered themselves to be exceptionally unlucky, but they might think it unluckier still when they later find out that the item they just sold likely doubled in value immediately after they contracted to sell it. A real-life sitcom sign-off moment. Do they now still have to sell it? Can they seek to retain the post-shredding increase in value.
The simple answer to this is that the buyer would be able to reap the benefits of the increase of value, one way or another.
The buyer, notwithstanding the altered state of the goods, could insist on enforcing the contract. If the seller refuses to go through with it, the buyer’s two primary remedies would be Damages or Specific Performance. Damages are calculated much like above, except in this instance the calculation is governed by Section 51 of the 1893 Act. The damages would simply be the difference between the value of the goods when they should have been delivered to the buyer and the contract price. Thus, on the premise that the artwork increased in value post-shredding and, further, that delivery was likely not meant to take place immediately upon ‘the fall of the hammer’, the ‘delivery time value’ might be something in the order of £2,000,000. In that instant, the seller would be liable to pay the buyer £958,000 (£2,000,000 – £1,042,000). This makes a great deal of sense. The buyer’s expectation under the contract was that he would receive an artwork that was worth (at the time of receipt) £2m for the sum of £1,042,000. Thus, she expected a profit of £958,000 and it is this loss of expected profit that the seller must compensate the buyer for.
Alternatively, the buyer might decide that they really want to own Love is in the Bin. After all, it is now a world-renowned artwork. What good is money when they can have the artwork and the option to reap the benefit of the increase in value whenever they choose by selling it. Plus, it comes with a free shredder! Typically, in more mundane day-to-day transactions, the Courts will limit the buyer to a remedy in damages and will not force the seller to part with their goods even if they have contracted to sell them. This is the case where the goods are normal articles of commerce – replaceable and ordinary. The rationale being that in ordinary commerce, the disappointed buyer can just go back to the ‘marketplace’ and buy replacement goods and sue the seller for any losses.
However, a Banksy painting that has been (half) shredded by the artist himself as a piece of performance art is neither ordinary nor replaceable. In such circumstances, where the ‘goods’ are unique, the Courts will more readily grant a remedy known as Specific Performance. This remedy does what it says on the tin. It forces the parties to do what they have contracted to do. In this instance, that would amount to forcing the seller to part with the painting for the sum agreed.
Contemporary Modern Art and Contract Law might seem like strange bed fellows for an article. However, the fact that we, as a society, have crafted rules, such as the above, that are rigid and general enough to effectively order our interactions with each other, yet flexible enough to offer solutions to strange and unexpected fact patterns such as the above is a marvel in its own way. Albeit, it does not come with a free shredder.
David Browne’s dedicated litigation team advise regularly on large commercial transactions and contract disputes
David Browne
Litigation Partner,
BDM Boylan Solicitors,
dbrowne@bdmboylan.ie,
0214313333