Contracts and Collections for Artists
A contract is an agreement between individuals or entities to do something. A myriad of state and federal laws affect the dozens of types of contracts encountered by artists. To have a legally binding contract there must be a “meeting of the minds,” in other words, the parties making the contract have to understand and knowingly consent to the terms of the agreement. Laws in most states require certain contracts to be in writing, such as contracts not to be preformed within a year, contracts for the sale of goods over $500 and contracts to answer for the debt of another. Under federal law, contracts transferring an interest in a copyright (such as assignments or exclusive licenses, not non-exclusive licenses) must be in writing.
As a general rule, written contracts are preferable to oral contracts because they avoid ambiguity and misunderstanding between the parties and constitute better evidence than mere recollection if it becomes necessary to prove the agreed terms in the event of a dispute. Artists encounter contracts, written, oral and implied in three 3 major areas: contracts for services, contracts to use copyrightable creations and contracts with third parties for agency and management services.
THE "4 Ps"Artists can protect their rights and avoid legal fees by creating their own contracts or "letter agreements" containing the "4Ps": Parties, Property, Performance, and Price.
o Who is bound by the agreement?
'Parties' refers to the names of the individuals or the companies that will be legally responsible for the obligations in the contract. Always be sure you are contracting with a valid legal entity. Avoid entering into contracts with small companies using a business name that does not disclose the form or legal entity of the company. Be sure to ask whether the company is a corporation, (and if so, in which state the company is incorporated) an LLC, a sole proprietorship or a joint venture. Always find and use the actual street address where the other party is located, not a post box address. Knowing the actual physical location of the other party is essential because it informs the artist of the physical location where her or his artwork is located, and more important, gives a delivery address if it becomes necessary to serve a summons and bring a lawsuit to enforce the terms of the contract or recover wrongfully converted property.
o What is being bargained for?
Property' is a specification of exactly what property is the subject matter of the contract. The agreement should describe in excruciating detail the dimensions, materials and media for works of visual art, exact specifications for written, recorded or 3 dimensional works, ownership of copyrights and other rights and other details necessary to avoid misunderstandings between the parties as to exactly what property is involved.
o What is supposed to happen, including who does what, when?
Performance sets forth who does what and when, i.e., the agreed dates for delivery of drafts and final work, the exact location for the rendition of services or the delivery of finished goods, any special considerations such as credit, shipping and travel plans, special exhibition or performance requirements or restrictions, return and risk of loss of original art work, scheduling issues, audit rights, accountings and other specifics related to each party's obligations under the agreement.
o How much, paid when and how?
'Price" is all about money. Parties should carefully spell out not just the total price for the finished work or goods, but should also specify the time and amount of all payments including amounts paid on signing the agreement and on delivery of the final product, advances against future royalties, 'kill fees' if the job is cancelled, whether advance payments are recoupable, allowable deductions in royalty calculations, reimbursement for expenses, and manner of payment, i.e., cash or certified check, wire transfer, etc.
Pro-Artist "Boilerplate"Some helpful "boilerplate" or standard pro-artist terms to add to contracts include 1) rights to copyrighted works created by the artist transfer only upon full payment of artist's final invoice, 2) a "kill" fee due if the job is cancelled for any reason, 3) that the prevailing party in any dispute under the contract is entitled to recover his, her or its attorneys fees in addition to any other relief or recovery, and 4) that any rights not expressly granted in the contract are reserved to the artist.
COLLECTIONSWhen a party fails or refuses to pay money that is owed, it may become necessary to commence actions to collect the unpaid debt. Artists and other businesses can vastly increase the chances of collecting money owed by following precautionary business practices such as using written contracts, adding attorney's fees and other pro-artist clauses described above, demanding payment in advance when possible, or demanding 1/2 of the full fee to be paid on signing of the contract, the other 1/2 paid at the time the finished work is delivered. The old saying "possession is 9/10ths of the law" is a good lesson when delivering a valuable work of art to a gallery or prospective purchaser as the artist incurs additional risk and loses considerable negotiating leverage once the artwork leaves the artist's studio and is in the buyer's possession and control.
The first step in collecting an unpaid debt is to assemble all relevant notes and paperwork related to the debt and ascertain exactly how much is owed by whom for what goods or services. Knowing all the relevant facts and the exact amount owed is essential to a successful collection effort. A written demand letter should be prepared setting forth the amount owed and demanding payment within a short deadline. Delivering the demand letter by messenger, certified mail (return receipt requested) or by overnight mail provides confirmation that the demand was received and gives a higher priority to the correspondence. Follow up with phone calls and emails represents a final effort to obtain payment without resorting to court intervention.
If payment is refused or unreasonably delayed it may be necessary to use formal channels to collect the debt. For debts of $5,000 or less, a simple breach of contract lawsuit brought in small claims court may be the fastest and most economical way to obtain payment. Claims for breach of contract in any amount may be brought in state court. Claims based on copyright infringement or claims in excess of $75,000 between parties in different states may be brought in United States District (i.e., federal) court.
In many states, civil laws protect artists selling works on consignment. A gallery, museum or dealer holding artwork on loan or consignment which refuses to return the consigned or loaned artwork to the artist/owner may be in violation of criminal embezzlement statutes and subject to arrest by local police and criminal prosecution.
In many cases, some type of "alternative dispute resolution" ("ADR") may be preferable to a lawsuit and trial. Arbitration, where the dispute is decided by a neutral third party in a less formal setting than a courtroom, is sometimes faster and less expensive than a lawsuit in court. However there are many drawbacks to arbitration. Specifically, there is little or no right to appeal an arbitration decision and fees charged by the arbitrator and the arbitration administration service may be prohibitively expensive. In contrast, mediation is a type of ADR in which the parties discuss the case before a third party neutral mediator. In mediation, the mediator does not decide the case or impose any ruling on the parties. The mediator acts as a facilitator to keep the settlement negotiation moving forward and productive. Resolution of the dispute occurs only if the parties voluntarily agree to the terms of settlement in writing at the conclusion of the mediation. Because the outcome of mediation is controlled entirely by the parties, it is often better for both sides and less "arbitrary" than the outcome of arbitration or litigation.