The Case against Statutes of Limitations for Stolen Art

Bibas, Steven A., The Yale Law Journal

In the mid-1960's, a mailroom clerk at the Guggenheim Museum in New York City stole a Marc Chagall watercolor entitled The Cattle Dealer. Museum officials did not notify the police, the FBI, Interpol, or other museums or galleries of the theft. In 1967, Jules and Rachel Lubell bought The Cattle Dealer from a reputable New York gallery and displayed it in their home for over two decades. After learning of the painting's location in 1985, museum officials demanded its return. When Mrs. Lubell refused, the museum began a lawsuit that dragged on for years.(1) Mrs. Lubell claimed ownership as an adverse possessor and under the statute of limitations.(2) In 1991, the New York Court of Appeals sent the case back to the trial court for a determination of the relative blameworthiness of the parties, further prolonging the litigation.(3)

The balancing-test approach adopted by the New York Court of Appeals in Guggenheim exemplifies one of several tangled threads in the law of stolen chattels.(4) Many of the commentators who have written about statutes of limitations for personal property advocate adverse possession, a doctrine borrowed from land law.(5) Other authors endorse a multi-factor balancing of the equities called the discovery rule, an approach similar to the one adopted in Guggenheim.(6) Related doctrines, such as the due diligence and laches rules, also balance the relative equities of the parties.(7)

All of these approaches are flawed. Adverse possession, a doctrine that works well for real estate, is not suited to the very different realm of movable, concealable personal property. Because it ignores an owner's diligence, adverse possession doctrine hurts diligent owners who have reported thefts but are unable to find their property. Since multi-factor balancing tests do not automatically award title to theft victims, they do not adequately deter trafficking in stolen goods. Adverse possession law and balancing tests do not automatically reward theft reporting, nor does either doctrine routinely penalize the purchase of stolen property. Thus, neither approach creates adequate incentives to report thefts and deter the buying of stolen art.(8) Judges and academics have been too preoccupied with ex post dispute resolution to see the ex ante impact of their rules upon future behavior. Therefore, current approaches fuel the market for stolen goods and encourage more thefts.

This Note's thesis is simple: victims of art thefts who promptly report the thefts to the police and to a computerized theft database should never be legally barred from recovering their property. In other words, statutes of limitations should not apply to actions brought by owners who have promptly taken two simple steps to protect their legal titles. Often, a so-called bona fide purchaser (BFP) is negligent when investigating title to an artwork. Now that an international computerized art-theft registry is available, buyers should be encouraged to check the registry and should be held liable if they fail to do so.

Part I of this Note surveys the arguments commentators have marshalled in support of statutes of limitations for personal property and considers the judicial trend toward restricting protection of BFP's. Courts have gradually offered more protection to owners but have done so ad hoc, suggesting that the time is ripe for wholesale legislative reform. Part II criticizes the arguments for protecting BFP's from diligent owners' claims. Part III outlines an alternative legal regime that would protect a BFP if and only if the owner had not reported the theft. This Note concludes that protecting owners by abolishing limitation periods for many types of personal property would be both economically efficient and morally just.

I. LIMITATION PERIODS FOR CHATTELS: COMMENTATORS AND COURTS

To understand why the current law is unsatisfactory, one must understand what the law is and how it arose. Adverse possession, for instance, is a land law doctrine that courts first imported into cases involving stolen animals. Adverse possession may have suited stolen horses in the late nineteenth century, but it works poorly for small, concealable objects (such as artworks) in a highly mobile society. Recognizing that this real-property doctrine is inappropriate for most personal property, courts and commentators have moved toward case-by-case balancing of the relative diligence and blameworthiness of each theft victim and each buyer. Judges and academics have gradually recognized that theft victims often deserve to recover their art from buyers of stolen goods. But because no one has advocated bright-line rules, the law has perpetuated perverse incentives for buyers not to investigate title and has failed to encourage victims to report thefts, as Part III argues.

Section A lays out the common law rule that protects an original owner's title to stolen goods. More than a century ago, American courts and commentators began supporting adverse possession of chattels, a doctrine that favors buyers. Section B explores this approach. More recently, courts have drifted away from protecting buyers by tempering limitation periods in various circumstances. In art theft cases in particular, they have been less willing to find for possessors than most academics would be. Sections C and D consider doctrines the courts have used to curtail protection for buyers of stolen art: the demand-and-refusal rule, the laches rule, the due diligence doctrine, and the discovery rule. Section E considers the reasons behind the gradual erosion of protection for possessors. When courts face real cases involving real people, judges and juries intuitively blame the possessor because he(9) is usually the least cost avoider and is at least as negligent as the theft victim. Courts have increasingly favored owners, but they have done so in an ad hoc fashion. As Part III argues, Congress should replace this ad hoc judicial approach with an explicit, bright-line rule that would deter art theft.

A. The Common Law of Stolen Property

At common law, a thief's title is void.(10) The thief cannot give a buyer, even a BFP, good title.(11) Thus, a buyer does not take title if somewhere back in the buyer's chain of title a claim rests on theft.(12) Over the past century, the various doctrines of limitation periods described below have carved out exceptions to this rule. Nevertheless, the Uniform Commercial Code perpetuates the common law rule: unless one of the limitation doctrines applies, title remains in the original owner.(13)

B. Adverse Possession of Chattels

1. Academic Literature

Under adverse possession doctrine, a possessor who has actual, exclusive, open, notorious, continuous, and hostile possession of land under a claim of right for the statutory period can take good title and thereby defeat the original owner's claim.(14) Academics have long argued that adverse possession of chattels is desirable for precisely the same reasons that adverse possession of land is: namely, to punish the original owner's delay, to protect the possessor's settled expectations, and to avoid the evidentiary problems caused by stale claims.(15)

Some authors have recognized differences between realty and personalty but have nonetheless supported adverse possession for both. John Dawson, for instance, noted that the usual requirement of open and notorious possession does not fit chattels well because chattels are movable and often inconspicuous.(16) Nonetheless, he supported adverse possession of chattels as a way of protecting a BFP's reliance interest.(17) Similarly, Patty Gerstenblith notes that even if a possessor uses personal property openly, notoriously, and visibly, a diligent owner may still have no notice of her property's whereabouts.(18) Thus, Gerstenblith says, courts face a difficult choice between two innocent parties.(19) Nevertheless, she supports adverse possession of chattels because it protects commercial expectations and rewards possessors' good faith.(20) In her opinion, an adverse possession rule that relies on possessors' good faith is a clear, predictable, fair substitute for the requirement of open and notorious possession.(21)

2. Case Law on Adverse Possession

By barring untimely suits by owners to recover property, statutes of limitations indirectly defeat the common law rule that a thief cannot pass title. Though most statutes of limitations for recovering personal property do not mention the requirements for adverse possession of land, courts have read such standards into the statutes.(22) This approach was firmly settled by the first quarter of this century. The majority of reported cases on adverse possession of chattels between 1870 and 1930 involved horses, cattle, sheep, and mules.(23)

This case law, crafted to fit stolen animals that remained in one state, did not work nearly as well when it was later extrapolated to cover smaller, concealable goods (such as artworks) that had been transported to a different state or nation. Because adverse possession of chattels unfairly penalizes theft victims who cannot find their goods, many jurisdictions have replaced adverse possession law with various balancing-test doctrines.(24)

In the seminal case of Dragoo v. Cooper,(25) Cooper sued to recover a stolen horse from Dragoo, a BFP who had held the horse for four years. The court held for Dragoo. "[W]e perceive no valid reason why the rule of construction adopted in suits relating to realty [i.e., adverse possession] shall not be applied in actions for the recovery of personalty."(26) The court claimed that the policies of quieting titles and preventing lawsuits apply equally to chattels and land.(27) The Dragoo scenario recurred in different states, with different animals, over the next six decades. Courts gradually imported more and more of the land law tests into the law of chattels. One court, for example, stressed that a possessor had held openly and notoriously.(28)

Animals are mobile and thus hard to find. To address this problem, some courts interpreted the open-and-notorious test to require that the possessor hold the property openly and notoriously in the vicinity of the theft: "[I]t has been uniformly held that the two-year statute of limitation is applicable to an action for the recovery of stolen property, where the property is held in open and notorious possession and within the jurisdiction of the court."(29) Likewise, the Dragoo court declared that "departing from the state" would toll the statute of limitations.(30) This doctrine guaranteed the owner a reasonable chance to find her animal and bring suit.(31) In contrast, where a possessor held a mare openly and notoriously in the locale of the theft, he deserved title because of the owner's "utter lack of diligence" in finding and recovering the mare.(32)

With this refinement of the open-and-notorious test, adverse possession may have worked well for livestock in the late nineteenth century. Animals, like land, are durable, valuable, and responsive to investment, such as feeding and medical care. The requirement of open and notorious possession in the jurisdiction insured locational stability. Animals grazed on open land and were visible to the public. Many animals bore brands or distinguishing marks that uniquely identified them from a distance.(33) Communities were much smaller and word of mouth much more potent. If a stolen horse stayed in the owner's community for several years without being found, it was relatively likely that the owner had neither actively looked for it nor alerted her neighbors. Punishing an owner's laziness might have made sense in small rural communities--adverse possession law barred stale claims and rewarded the possessor for feeding and caring for the animal.(34)

But this reasoning was plausible only when one could blame delay on an owner's laches (i.e., lack of diligence). Over time, communities grew larger, people grew more mobile, and courts extended adverse possession to less noticeable goods. Furthermore, the tolling of statutes of limitations for property outside the jurisdiction disappeared from the case law.(35) These changes made it increasingly implausible to blame owners for not bringing suit sooner.

Courts that had to assign the loss to one of two innocent parties split in their approaches. Most interpreted open and notorious use to mean using property as openly as an ordinary owner would; these courts usually sided with possessors. For example, one case held that using a typewriter in plain view in a business counted as open and notorious possession.(36) Another case treated use of a violin in a possessor's house and at music lessons as sufficiently open and notorious.(37) In a third case, having a piano in one's house sufficed as "public" use, even though two witnesses testified that they had not known about the piano.(38) Another court treated the use of bonds for loan collateral as sufficient because the possessor "h[e]ld the bonds as openly and notoriously as the nature of the property would permit."(39)

A small minority of courts read "open and notorious" as requiring use that an owner was likely to discover; these courts usually sided with owners. The Supreme Court of California held that using a piano in one's house "was not open and notorious, but clandestine, and the owner was without the means of knowing in whose possession it actually was."(40) An Oklahoma court asked whether the possessor held a diamond ring "openly and notoriously ... within plaintiff's vicinity so that plaintiff had a reasonable opportunity of knowing the ring's whereabouts."(41) Utah law went even further and tolled the statute until an owner had actual knowledge of facts that should have put her on notice.(42) These cases began the trend toward insuring fairness to owners. This focus on the owner's knowledge and culpability presaged the laches and discovery rules, discussed below in Part I.D. As a result of these concerns, such major jurisdictions as New York and New Jersey have abandoned adverse possession law in favor of balancing-test doctrines.(43)

C. The Demand-and-Refusal Rule

One line of cases holds that an owner's cause of action against a BFP does not accrue until the owner demands that the BFP return her property and the BFP refuses.(44) In contrast, a cause of action arises at once against a thief or other wrongdoer, and so no demand is necessary.(45) For example, the demand requirement protects a BFP from criminal prosecution for possession of a stolen car until the owner has demanded its return and the BFP has refused. The rationale for demand and refusal, in contexts other than limitation periods, is that the BFP, unlike the thief, does no intentional wrong by holding the property and therefore should not be liable until made aware of the owner's Claim.(46) The requirement fosters private dispute resolution and immunizes a BFP from civil and criminal liability for the taking (though he must still return the property).(47) In other words, the rule is supposed to protect a BFP by postponing liability until after he learns of the theft victim's claim and refuses to honor it.

Without examining the policies behind the rule, several courts have applied the demand-and-refusal requirement to toll statutes of limitations until the owner makes a demand and the possessor refuses to return the property.(48) Though this version of the rule extends to all types of chattels, a number of these cases have involved stolen art or artifacts.(49) Since this rule allows the owner to bring suit no matter how much time has elapsed between the theft and her demand, courts that sympathize with owners use the rule "as a bulwark against the handiwork of evil, to guard to rightful owners the fruits of their labors."(50)

Though sympathy for theft victims is understandable, the method chosen to protect these victims is not. The pure demand-and-refusal requirement eviscerates limitation periods by allowing owners to postpone making a demand indefinitely. It helps thieves, for whom the statute of limitations runs at once,(51) while harming innocent buyers. And far from serving its original goal of protecting a BFP from lawsuits, it makes him perpetually vulnerable to suit.

Because of these problems, most courts have abandoned the pure form of the rule. Some cases have addressed these problems by running the limitation period from the time when an owner first gained the right to make a demand (i.e., the time of the theft or conversion).(52) This change effectively abolishes the demand requirement. Other cases, as the next Section shows, have used laches and due diligence doctrines to soften the demand-and-refusal requirement.

D. Laches, Due Diligence, and the Discovery Rule

Courts in chattel replevin cases have adopted doctrines variously labeled as laches, due diligence, and the discovery rule, all of which rest on ad hoc balancing of myriad relevant factors. Cases such as …

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Publication information: Article title: The Case against Statutes of Limitations for Stolen Art. Contributors: Bibas, Steven A. - Author. Journal title: The Yale Law Journal. Volume: 103. Issue: 8 Publication date: June 1994. Page number: 2437+. © 2009 Yale University, School of Law. COPYRIGHT 1994 Gale Group.

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