English law diverges from U.S. law with respect to stolen goods and acquisition of title. English law employs the rule of "market overt" (pp. 95-98), which Harvey describes as a "quaint, awkward, and far from creditable part of English law" (p. 99). The doctrine of market overt allows a buyer to acquire good title to stolen goods if they are purchased in good faith, without notice of any defect or want of title on the part of the seller, and sold in a "market" that is "open, public, and legally constituted by grant, prescription, or statute" (p. 96). In contrast, in the United States, a good-faith purchaser cannot generally acquire title to, or right to possession of, stolen property. n7

    In sharp contrast, in the United States two rules have evolved that may toll the statute of limitations on an owner's cause of action against a good-faith purchaser arising from the theft of artwork. n8 The minority rule, known as the "demand rule," tolls the statute of limita [*1746] tions until an aggrieved owner discovers the stolen item's whereabouts n9 and makes a timely demand for return of the item and the wrongful possessor refuses to return it. n10 The demand rule shifts the primary burden of investigation to the good-faith purchaser and requires that she attempt to verify the provenance of artwork or a violin prior to purchase. In contrast, the majority rule, known as the "discovery rule," tolls accrual of the owner's cause of action until the owner knows, or reasonably should know, the identity of the possessor. n11 Unlike the demand rule, the discovery rule shifts the primary burden to the owner by requiring that the owner notify relevant authorities and conduct a diligent search for the stolen item.

    Remove offending labels when appropriate;

    Use a prominent disclaimer in sales transactions in which a buyer may be misled as to attribution or description of the violin;

    Use due diligence when preparing certifications of authenticity, appraisals, or other documents that describe the instrument and identify in detail the instrument at issue;

    When advertising the sale of an instrument make it clear that you are in the trade and not selling as a private person;

    Do not attempt to exclude implied warranties of fitness and merchantability when defects are latent;

    Keep copies of all documents provided to customers that contain descriptions or attributions and keep records that will enable the violin dealer or maker to reidentify the instrument in the future; and [*1747]

    If you are a teacher or a dealer, do not accept or pay secret commissions arising from sales to students. n12

Harvey's practical guidelines should be helpful to those involved in the violin trade.

    It is common practice in the United States, and apparently in England, for teachers to receive secret commissions "from particular dealers in whose direction the pupil has been deliberately pointed" (p. 118). Harvey suggests that this practice is an abuse of the teacher's position of trust, may be a breach of the teacher's contract of employment, and may even be a crime in England (pp. 47, 118). In his practical guidelines section, he further states:

   Secret profits like these are held by the fiduciary (i.e. the teacher) in trust for the beneficiary (the pupil) and if the practice is discovered the teacher will be required to account for the money. Traders, too, should eliminate the payment of this type of commission in the terms of any Code of Practice. p. 118

The harm of secret commissions is felt not just by the student, who may be paying for his teacher's commission through an inflated sales price. In addition, violin makers and dealers who refuse to engage in this industry custom may suffer competitive injury when teachers choose to send their students elsewhere.

    Generally, students place special confidence and trust in their violin teachers, and teachers have great power to influence decisions made by their students, who typically rely on their teachers' expertise, superior knowledge, and training. In certain circumstances, there may be a special relationship of trust and confidence between teacher and student that may arguably give rise to an elevated duty of care by the teacher or even a fiduciary duty. n13 The special relationship that exists between a student and her violin teacher may expose the teacher to liability for accepting secret commissions when a conflict of interest exists between the teacher's self-interest in obtaining commissions and her duty to the student.

    The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is unlawful. n14

    In addition, concealing a commission may constitute actionable fraudulent concealment under the common law if the teacher's special or fiduciary relationship with the student gives rise to a duty to disclose. n15 In the absence of a fiduciary relationship, a teacher may commit actionable fraudulent concealment when she makes some representations relating to the sales transaction but suppresses the arguably material fact that she is receiving a commission from the seller. n16

    It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid. n17

    In Stephen Jay Photography, Ltd. v. Olan Mills, Inc., n18 a photographer paid commissions to schools in exchange for the schools' endorsement as the "official photographer." Both the photographer and the schools disclosed to the students that an unspecified portion of the [*1749] photograph price would be given to each school to support various school activities.

    Similarly, in Harris v. Duty Free Shoppers, n21 the court found no antitrust violation when the operator of a duty-free store made secret payments to tour companies and tour guides to promote its shop. The court concluded that the tour operators and guides were not in an agency or fiduciary relationship with their passengers and did not serve as intermediaries subject to the passengers' direct or indirect control as to the purchase of the store's goods. n22

    The Ninth Circuit distinguished the facts in Harris from the agency relationship in McCollum v. Friendly Hills Travel Center. n23 In McCollum, the court held that a fiduciary relationship existed between a tourist and his travel agent because the travel agent "had arranged his trip and had vouched for the excellent condition of certain sporting equipment," the defects of which later caused the plaintiff's injuries. n24

    Although section 13(c) does make an exception for services rendered in connection with the sale or purchase of goods, the exception will not apply when the teacher receives a commission for services rendered to the seller but against the best interest of the buyer. n25 [*1750]

    One way to avoid potential liability for violation of state unfair trade practices statutes, for fraud, or for violation of the Robinson-Patman Act in connection with commissions is for teachers to be compensated openly for the valuable expert service that they can provide to their students in the instrument-selection process by candidly accepting payment for such expert services. In the absence of such a disclosure, violin teachers, dealers, and makers expose themselves to possible liability if the requisite degree of trust and confidence is reposed in the teacher by the student with respect to circumstances surrounding the student's purchase of a violin.

   III. Discovery of Fraud and Deception: Fiddling Away the Time and the Statute of Limitations

    Harvey states in his summary of practical guidelines that to avoid or minimize potential liability "certificates etc. of authenticity should normally do no more then express an opinion" (p. 115). Under American law, however, the courts will likely treat a representation cloaked in "opinion" language to avoid liability for fraud, negligence, or breach of warranty as an actionable misrepresentation of fact when made by a violin dealer or maker who holds himself out to the public as an expert and when the buyer reasonably relies on such superior knowledge to her detriment. n26

    The applicable statute of limitations and the buyer's duty to dis [*1751] cover the seller's misrepresentation have been the subject of litigation in the art world with interesting and disparate results. In cases involving works of art, the First, n28 Second, n29 and Third Circuits n30 have foreclosed buyers from obtaining a remedy for breach of warranty claims when they failed to discover the breach until after the running of the applicable statute of limitations, which is generally four years from tender of delivery under the Uniform Commercial Code. n31 These circuits have held that the statute of limitations bars claims for breach of warranty when the warranty does not explicitly extend to future performance and when discovery of an alleged defect in a work of art does not necessarily await future performance. n32 This result may appear harsh when a buyer has no obvious reason to obtain a second opinion regarding attribution or description of a violin until he decides to sell the violin - in many instances more than four years after purchase and after the statute of limitations has arguably barred his breach of contract and warranty claims.

    In sharp contrast to the First, Second, and Third Circuits, the trial court in Balog v. Center Art Gallery-Hawaii, Inc. n33 found that the buyer was effectively precluded by the price of the artwork - purported works by Salvador Dali that were purchased for a total of $ 36,200 - as well as by the defendant's repeated assurances and fraudulent concealment of the truth, from undertaking an extensive investigation into the veracity of the seller's claims of authenticity until ten years after the purchase, when the buyer became aware of newspaper articles and television reports that indicated that the defendant's representations might be false. n34

   In the case of art work which is certified authentic by an expert in the [*1752] field or a merchant dealing in goods of that type, such a certification of authenticity constitutes an explicit warranty of future performance sufficient to toll the U.C.C.'s statute of limitations. n35

Applying the discovery rule, the Balog court further held that "the limitations period of a claim of a party seeking damages for breach of such warranty accrues at the time when the breach is discovered or reasonably should have been discovered." n36

    The type of claim pled by a purchaser of a violin or artwork may be critical because the measure of damages recoverable for a fraud or negligence claim - restoration to pretransaction status - may, depending on the jurisdiction, n37 preclude the buyer from obtaining lost profits or appreciation damages, n38 whereas a breach of contract or warranty claim may provide the buyer with compensation for the benefit of the agreement had it been fully performed. n39

    The discovery rule will only apply to claims for breach of warranty under U.C.C. 2-725(2) if a warranty explicitly extends to the future performance of the goods and if discovery of the breach must await the time of such performance. n40 As previously discussed, there is a split in authority as to how section 2-725(2) should be applied to claims involving artwork. The better view on the warranty-of-future performance prong of section 2-725(2) is set forth in Balog because the authenticity of a violin or artwork is not expected to change over time. Therefore, if a seller warrants that a violin is an authentic Stradivarius, [*1753] this warranty should be deemed a warranty that extends to future performance of the goods under U.C.C. 2-725(2). However, a purchaser of a violin remains at risk of failing to meet the second prong of U.C.C. 2-725(2) if the purchaser does not obtain a second opinion as to the authenticity of the violin within four years of tender of delivery.

    Violin Fraud is an interesting and enjoyable examination of the culpability that may arise out of the false attribution and description of violins, with a message targeted not only at consumers but also at violin dealers, makers, auctioneers, and other sellers of the violin. Harvey provides a valuable contribution in an area in which there is a dearth of legal discussion, although some of the issues raised closely mirror issues addressed in the field of art law. Violin Fraud provides an excellent foundation for further legal inquiry into, and analysis of, the gray areas implicated by the specialized area of violin commerce.

FOOTNOTES:

   n1. The term violin as used in this review encompasses all members of the violin family, including the violin, viola, cello, and double bass.

   n2. Professor of Law, University of Birmingham.

   n3. See, e.g., California Jury Instructions Civil BAJI 6.37 (7th ed. Supp. 1994) (regarding professional negligence).

   n4. See, e.g., Smith v. Zimbalist, 38 P.2d 170, 174 (Cal. Ct. App. 1934) (holding a sale to be unenforceable when there was a mutual mistake on the part of plaintiff collector and defendant violinist as to the authenticity of purported Stradivarius and Guarnerius violins).

   n5. See U.C.C. 2-316 (1990).

   n6. U.C.C. 2-725 (1990), which provides a four-year statute of limitations, likely applies to contract or breach of warranty claims involving the sale of a violin.

   n7. See U.C.C. 2-403 (1990) (providing that "a purchaser of goods acquires all title which his transferor had or had power to transfer") Clearly, a thief cannot transfer good title to anyone; nor can a person receiving stolen goods from a thief, or a person in line of possession of a thief, obtain title to stolen goods. See, e.g., Inmi-Etti v. Aluisi, 492 A.2d 917, 922-23 (Md. Ct. Spec. App. 1985) (holding that "a possessor of stolen goods, no matter how innocently acquired, can never convey good title") (quoting Schrier v. Home Indem. Co., 273 A.2d 248, 250 (D.C. 1971)); see also Suburban Motors, Inc. v. State Farm Mutual Auto. Ins. Co., 268 Cal. Rptr. 16, 19 (Ct. App. 1990).

   n9. In most cases, it will be difficult for a true owner to acquire actual or constructive notice of the identity of the possessor of a stolen violin or piece of art because the item is usually kept in a private collection or home. See, e.g., O'Keeffe v. Snyder, 416 A.2d 862, 871 (N.J. 1980) (finding the private residential display of stolen art insufficient to afford notice to the true owner). But see United States v. One Stradivarius Violin, 188 F. 542, 543-44 (S.D.N.Y. 1911) (finding the statute of limitations not tolled on a customs claim under a fraudulent concealment theory because the well-known Stradivarius violin was "habitually played on by different artists at defendant's Sunday afternoon musical parties" and on one occasion was played at a public concert), affd., 197 F. 157 (2d Cir. 1912).

   n10. See, e.g., Solomon R. Guggenheim Found. v. Lubell, 569 N.E.2d 426 (N.Y. 1991); DeWeerth v. Baldinger, 836 F.2d 103 (2d Cir. 1987) (developing modified demand rule to include requirement of due diligence on the part of the owner in searching for a stolen painting), cert. denied, 486 U.S. 1056 (1988); Kunstsammlungen zu Weimar v. Elicofon, 536 F. Supp. 829 (E.D.N.Y. 1981), affd., 678 F.2d 1150 (2d Cir. 1982); Menzel v. List, 267 N.Y.S.2d 804 (Sup. Ct. 1966), modified, 279 N.Y.S.2d 608 (App. Div. 1967), modification revd., 246 N.E.2d 742 (N.Y. 1969).

   n12. Harvey includes these and other suggestions in an appendix. Pp. 114-18.

   n13. See 36A C.J.S. Fiduciary 385 (1961) ("A fiduciary relationship may exist or come into being whenever trust and confidence are reposed by one person in the integrity and fidelity of another ... or when there is a reposing of faith, confidence, and trust, and the placing of reliance by one person on the judgment and advice of another."). Whether or not a fiduciary relationship exists is a question of fact. Id. at 387.

   n14. Cal. Bus. & Prof. Code 17045 (West 1987) (emphasis added); see also United States v. Di Girolamo, 808 F. Supp. 1445, 1450-52 (N.D. Cal. 1992) (finding that kickbacks paid to obtain a competitive edge violated California's Unfair Practices Act).

   n15. See, e.g., Heliotis v. Schuman, 226 Cal. Rptr. 509, 512 (Ct. App. 1986) ("Nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts." (citing 4 Bernard E. Witkin, Summary of California Law 459-464 (8th ed. 1974))).

   n17. 15 U.S.C. 13(c) (1988). See, e.g., Rangen, Inc. v. Sterling Nelson & Sons, 351 F.2d 851 (9th Cir. 1965) (holding that a corporate defendant's commercial bribes to a state employee to obtain competitive advantage violated 13(c)), cert. denied, 383 U.S. 936 (1966).

   n18. 713 F. Supp. 937 (E.D. Va. 1989), affd., 903 F.2d 988 (4th Cir. 1990).

   n19. 713 F. Supp. at 941.

   n20. Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 903 F.2d 988, 993 (4th Cir. 1990).

   n21. 940 F.2d 1272 (9th Cir. 1991).

   n22. 940 F.2d at 1275.

   n23. 217 Cal. Rptr. 919 (Ct. App. 1985).

   n24. Harris, 940 F.2d at 1274-75 (citing McCollum, 217 Cal. Rptr. at 923).

    Even when a seller renders a service for the benefit of the student-buyer, when the actual services rendered are de minimis, the exception to 13(c) will probably provide no refuge. Cf. Hennegan v. Pacifico Creative Serv., Inc., 674 F. Supp. 303, 306 (D. Guam 1987) (holding that 13(c) does not prohibit payments by store owners to tour bus drivers for services rendered in bringing tourists to their stores because such services are not de minimis).

   n26. See, e.g., Grinnell v. Charles Pfizer & Co., 79 Cal. Rptr. 369, 378 (Cal. Ct. App. 1969) ("Where the party making the representations has superior knowledge regarding the subject matter of his representations, and the other party is so situated that he may reasonably rely on such supposed superior knowledge or special information, the representations may be considered as fact and not opinion." (citations omitted)); see also Balog v. Center Art Gallery-Hawaii, Inc., 745 F. Supp. 1556, 1565 (D. Haw. 1990).

   n27. See, e.g., Rosen v. Spanierman, 894 F.2d 28, 32 (2d Cir. 1990) (holding that a breach of warranty claim for the sale of a fake painting brought 20 years after purchase was barred by the statute of limitations).

   n28. Wilson v. Hammer Holdings, Inc., 850 F.2d 3, 4-7 (1st Cir. 1988).

   n29. Rosen, 894 F.2d at 31.

   n30. Firestone & Parson, Inc. v. Union League, 833 F.2d. 304 (3d. Cir.), affg. without opinion 672 F. Supp. 819 (E.D. Pa. 1987).

   n32. See Wilson, 850 F.2d at 4-7; Rosen 894 F.2d at 31-32; Firestone, 672 F. Supp. at 822; see also Lawson v. London Arts Group, 708 F.2d 226, 228 (6th Cir. 1983) (noting in dicta that, although the plaintiff did not reasonably suspect a breach of warranty claim until well after the four-year statute of limitations set forth in U.C.C. 2-725(2), "it would not have been impossible for her to have discovered the breach earlier. Consequently, this discovery did not necessarily have to await the artwork's future "performance.' ").

   n33. 745 F. Supp. 1556 (D. Haw. 1990).

   n34. 745 F. Supp. at 1558-59, 1566.

   n35. 745 F. Supp. at 1570 (emphasis added). The court went on to note that artwork, as well as antiques, are "the type of thing about which questions as to authenticity normally arise only at some future time, usually the time of resale." 745 F. Supp. at 1570 n.22, 1571. "Since artwork does not "perform' in the traditional sense of goods covered by the U.C.C., and since the authenticity of a work of art, i.e. its "performance', would not change over time, defendant's warranty necessarily guaranteed the present and future existence of the art as authentic works of Salvador Dali." 745 F. Supp. at 1571.

   n36. Balog, 745 F. Supp. at 1572.

   n37. If a buyer sues under a tort theory, he may not be able to recover lost profits or appreciation damages. The result will depend on whether the jurisdiction follows the "benefit-of-the-bargain" rule, the "out-of-pocket-loss" rule, or some modification thereof. If the out-of-pocket-loss rule is followed, the defrauded plaintiff generally recovers only the consideration paid. If the benefit-of-the-bargain rule is followed, the plaintiff may be able to recover lost profits or appreciation damages. California has established a highly modified out-of-pocket-loss rule under Civil Code 3343 that authorizes recovery of lost profits as consequential damages. Cal. Civ. Code 3343 (West Supp. 1993). See, e.g., Hartman v. Shell Oil Co., 137 Cal. Rptr. 244, 248-49 (Ct. App. 1977); see also Koerner v. Davis & Stein Galleries, Inc., No. 85 Civ. 0742 (S.D.N.Y. May 21, 1987) (awarding the plaintiff a benefit-of-the-bargain measure of damages, which included appreciation damages, for claims of conversion for failure to return a stolen painting after demand).

   n38. Lost profits or appreciation damages may be an important component of a claim when a buyer purchases a violin made by a purported famous maker, which, if genuine, would have appreciated in value after purchase.

   n39. See, e.g., Menzel v. List, 246 N.E.2d 742, 745 (N.Y. 1969) (permitting a buyer to obtain appreciation damages for a breach of warranty of title claim under the Uniform Sales Act in connection with the sale of artwork).

   n40. U.C.C. 2-725(2) (1990).