FAP ART MANAGEMENT GMBH & CO KG v INIGO PHILBRICK and Anor

A security agreement governed by New York law must be a valid contract before it can create a security interest. Where consideration is disputed, the agreement may be construed as granting a period for payment and corresponding forbearance from enforcement if that is the coherent reading of its terms.

Under UCC 9-313(a), possession through a third-party agent requires the debtor to have relinquished possession and the secured party or its agent to possess the collateral for the secured party. The possession must be unequivocal, absolute and notorious. Under UCC 9-313(c), a third-party bailee must authenticate a record acknowledging that it holds the collateral for the secured party’s benefit. Mere notification or ambiguous custody is insufficient.

The application was made under CPR 85.5 by Aiden Fine Arts Inc and V&A Collection LLC, third-party claimants to artworks taken under a writ of control obtained by FAP Art Management GmbH & Co KG to enforce European Orders for Payment against Inigo Philbrick and Inigo Philbrick Ltd.

The claimants asserted proprietary interests in ten artworks. The remaining disputes concerned whether a New York-law collateral agreement transferred or secured interests in specified works, whether a Christopher Wool painting had been fully paid for by a combination of money and credit, and whether the claimants remained owners of an Andy Warhol painting.

The application succeeded in part.

1. The Collateral Agreement was sufficiently certain and demonstrated mutual assent to its material terms. Although its drafting contained errors, it was to be read as a whole. Its provisions for payment by April 2020 necessarily gave the debtors additional time to pay and required Aiden to refrain from suing before default. That forbearance supplied consideration, so the agreement was binding.
2. Perfection of the security interest required either filing under UCC 9-310 or possession under UCC 9-313. No UCC-1 had been filed. Under UCC 9-313(a), possession through a third party required that party to act as Aiden’s agent, hold the goods for Aiden rather than the debtors, and be obliged to exclude the debtors from possession if necessary. The possession also had to be unequivocal, absolute and notorious.
3. Williams & Hill continued to regard Inigo Philbrick Ltd as its client and invoicing party, and its records showed that the works remained under the debtors’ account. Constantine likewise invoiced and recorded the works as held for the debtors. Neither company was therefore Aiden’s agent for possession. In any event, the alleged possession was ambiguous. The alternative case under UCC 9-313(c) also failed because no authenticated record acknowledged that either storage company held the relevant artworks for Aiden’s benefit.
4. The court accepted that the Christopher Wool painting had been paid for in full, including the disputed balance treated as a credit against sums owed by IP. Aiden therefore owned that work. Aiden also remained the owner of the Andy Warhol painting because the evidence showed its purchase and no evidence established a later transfer.
5. The claimants were entitled to their undisputed 50 per cent interests in two artworks and ownership of the Christopher Wool and Andy Warhol works. Their claims to the remaining interests in the first two works and to items 4–9, based on the Collateral Agreement, failed.