Lindholm v. Brant
925 A.2d 1048 (2007)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code's entrustment provision, a merchant buyer who has doubts about a seller's authority to sell still qualifies as a buyer in the ordinary course of business if they take investigatory steps that are reasonable under the circumstances and conform to industry standards, even if those steps do not provide absolute proof of the seller's title.
Facts:
- In 1987, Kerstin Lindholm purchased the Andy Warhol painting 'Red Elvis' through art dealer Anders Malmberg.
- In 1989, Lindholm loaned the painting to a museum for an exhibition, where a label identified it as from a 'Private Collection, Courtesy Anders Malmberg.' Peter M. Brant saw the painting and this label at the exhibition.
- In November 1999, during her divorce, Lindholm signed an agreement designating Malmberg as her agent to sell 'certain works,' though Red Elvis was not among them.
- On December 6, 1999, a court in Lindholm's divorce case issued an order enjoining her from selling property, and her counsel notified Malmberg of this order.
- Around February 2000, Malmberg falsely told Brant that he had purchased Red Elvis from Lindholm and offered to sell it to him.
- On March 20, 2000, believing Malmberg was arranging for the painting to be shipped to another museum on her behalf, Lindholm provided a letter authorizing the Guggenheim Museum to release Red Elvis into Malmberg's custody.
- On April 12, 2000, after Malmberg took possession of the painting, Brant wired the final payment of a $2.9 million purchase price to Malmberg and took possession of Red Elvis.
- In January 2001, still unaware of the sale to Brant, Lindholm authorized Malmberg to sell Red Elvis to a purported Japanese buyer for $4.6 million, even providing an invoice for the fraudulent sale.
Procedural Posture:
- Kerstin Lindholm filed a complaint in a Connecticut trial court against Peter M. Brant, alleging conversion of the painting 'Red Elvis.'
- Brant asserted the special defense that he was a buyer in the ordinary course of business under General Statutes § 42a-2-403(2) and thus took good title.
- After a bench trial, the trial court rendered judgment in favor of the defendant, Brant, finding he had proven his status as a buyer in the ordinary course.
- The plaintiff, Lindholm, as appellant, appealed the judgment to the Connecticut Appellate Court.
- The Supreme Court of Connecticut transferred the appeal to itself for review.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a merchant art buyer, who has reasonable doubts about an art dealer's authority to convey title to a painting, qualify as a 'buyer in the ordinary course of business' under UCC § 2-403(2) by taking extraordinary investigatory steps, such as hiring counsel and conducting lien searches, even without obtaining definitive documentary proof of the seller's ownership?
Opinions:
Majority - Sullivan, J.
Yes. A merchant art buyer who has reasonable doubts about a seller's title qualifies as a buyer in the ordinary course of business by taking investigatory steps that are reasonable under the circumstances. The court applied the entrustment rule of UCC § 42a-2-403(2), which states that entrusting goods to a merchant who deals in such goods gives the merchant power to transfer all the entruster's rights to a buyer in the ordinary course of business. Lindholm entrusted the painting to Malmberg, an art merchant, by authorizing its release to him. The central question was whether Brant was a 'buyer in the ordinary course,' which requires buying in good faith—defined for a merchant as 'honesty in fact and the observance of reasonable commercial standards of fair dealing.' The court acknowledged that a merchant buyer has a heightened duty of inquiry when circumstances raise doubts about the seller's authority. Brant had such doubts, fearing a claim from Lindholm's husband and that the deal was a 'flip.' However, he took extraordinary steps beyond the industry norm of a simple handshake and invoice; he retained counsel, negotiated a formal contract with title warranties, and conducted lien and Art Loss Register searches. The court found these actions sufficient to satisfy his heightened duty. It was also reasonable for Brant to rely on assurances from Malmberg and another respected dealer, and Malmberg's ability to take possession from the Guggenheim further allayed Brant's concerns. The court deferred to industry customs that prioritize confidentiality over demanding documentary proof of title, concluding that such proof is only required when circumstances cast 'severe doubt,' which was not the case here.
Analysis:
This decision clarifies the 'buyer in the ordinary course of business' standard under the UCC for merchant buyers in specialized markets with unique customs, such as the art world. It establishes that a heightened duty of inquiry arising from doubts about title does not require the buyer to obtain absolute proof of ownership. Instead, the buyer can satisfy the good faith standard by taking investigatory steps that are reasonable under the specific circumstances, even if those steps yield only 'minimal assurances.' The ruling places significant weight on industry norms, balancing the protection of original owners against the UCC's goal of promoting commercial fluidity, ultimately placing the risk of loss on the owner who entrusted their property to a fraudulent merchant.
Unlock the full brief for Lindholm v. Brant