RAHANIAN v. AHDOUT (1999)

Exactness in the use of words is the basis of all serious thinking.   You will get nowhere without it.   Words are clumsy tools, and it is very easy to cut one's fingers with them, and they need the closest attention in handling;  but they are the only tools we have, and imagination itself cannot work without them.   You must master the use of them, or you will wander forever guessing at the mercy of mere impulse and unrecognized assumptions and arbitrary associations, carried away with every wind of doctrine.  (Felix Frankfurter, Some Reflections on the Reading of Statutes, The Association of the Bar of the City of New York, 1947, at 29)

This case illustrates what occurs when exactness in the use of terms is not employed.

We are concerned here with the different kinds of sales made between a wholesaler and a retailer.   In a consignment sale, the wholesaler delivers the merchandise to the merchant but retains the title to it.   The merchant sells the goods basically as the agent of the owner.   In a “sale or return,” the wholesaler delivers the goods and title to the merchant.   However, the merchant can return the merchandise (and the title) to the owner at the merchant's option.   Obviously, the answer as to who has title, and the right of possession of the merchandise, will depend upon the type of sale contemplated.   This is true despite the terminology the parties used to describe the transaction.

In June of 1997, plaintiff David Rahanian, a wholesaler of Persian rugs, delivered Persian carpets to defendants for resale.   Defendants assert the carpets were delivered pursuant to a memorandum dated June 5, 1987, which listed their number and dimensions, and provided, inter alia, “These rugs have been [given] to us by Arzoo Rahanian and Dr. Noormand on consignment basis and the price of these rugs have been determined by telephone with Mr. David Rahanian.”   The bottom of the memo continued, “These rugs received at our office 4 months ago but because of insurance purposes the order to sell them has been given to us only one month ago from David.”   Both of these entries were signed by Khosro Ahdout.

Plaintiff asserts the delivery was “on a consignment basis.”   Thereafter, according to plaintiff, in August 1993, a demand for the return of the carpets was refused and this action for conversion and breach of contract was then commenced in March of 1994.   Defendants, in their answer, denied owing plaintiff any money, claiming they had already paid $115,000 for the goods to plaintiff's family.

In September of 1995, defendants moved for summary judgment seeking to dismiss the complaint as barred by the Statute of Limitations.   Defendants asserted that the causes of action arose in 1987 and that since the action was not commenced until 1994, the claims were time-barred.   Defendants noted that, accepting arguendo, plaintiff's theory that the rugs were transferred “on consignment,” in the absence of an express time for the consignment to terminate the consignment would end after a “reasonable” time and more than six years was “unreasonable” as a matter of law.

Both parties appear to have confused a “consignment” with a “sale or return.”   The parties, at nisi prius and upon appeal, state that the transaction was a “consignment” agreement, but analyze the issues pursuant to the Uniform Commercial Code provision applicable to a “sale or return.”   The two types of agreements are very similar, as we have seen, but the parties' confusion also stems from the fact that UCC 2-326, 2-327, governing “sales on approval” and “sale or return” contracts, deem certain “consignment” contracts to be contracts of “sale or return” (see, UCC 2-236[3] ).   This is true even where, as in this case, the agreement uses the terminology “on consignment” or “on memorandum.”   However, these latter provisions only apply to consignments where the rights of creditors of the buyer are involved.   Since in this matter no creditor's rights are implicated, if the contract between the parties is found to be a consignment, these particular UCC provisions would not be applicable.

 Both consignments and sale or return agreements usually involve a wholesaler, like plaintiff, transferring possession of goods to a retailer, like defendants, who tries to resell the goods to the consumer.   In a sale or return, there is a true sale in which title and risk of loss passes to the buyer-retailer and the buyer is entitled to retain all proceeds of a subsequent sale, liable to the seller only for payment of the purchase price.   A sale or return involves delivery to the purchaser with an option in the purchaser to return the goods and revest title in the seller (see, In re Ide Jewelry Co., Inc., 75 Bankr 969, 973).   However, in a consignment, the purchaser acts more like an agent, with an option to take title upon the occurrence of certain conditions.   Title does not pass until that option is exercised.   Title and right to immediate possession remain with the seller-wholesaler (id.).

 Unlike a sale or return, a consignment sale that is not a secured transaction is not governed by the UCC (except as set forth in UCC 2-326 where the buyer's creditors intervene as noted above).   Rather, a true consignment sale is merely an “agency with a bailment” and basically governed by the law of agency and service contracts (see, 3A Anderson, Uniform Commercial Code § 2-326:44, at 429 [3d ed.1990] ).

Analyzing the transaction herein as a consignment under the principles of agency law, although defendants maintained possession, title remained with plaintiff and in the absence of a contrary provision, plaintiff could have revoked the agency at will and retaken possession of the property by any lawful means (see, Anderson, supra, § 2-326:51, at 434 citing Parks v. Atlanta News Agency Inc. 115 Ga.App. 842, 156 S.E.2d 137).   If the underlying transaction is treated as a consignment, plaintiff's right in the first instance to demand that defendants return the carpets is clear.   An issue arises as to when plaintiff's right to make that demand terminated.   The memo introduced by defendants allegedly evidencing the transaction does not provide a time for termination of the agency with respect to the carpets or any limit on plaintiff's right to demand return.

 In a bailment of personal property of infinite duration, the Statute of Limitations for a conversion action against a bailee does not commence until the bailee refuses to return the property pursuant to the bailor's demand (see, Martin v. Briggs, 235 A.D.2d 192, 198, 663 N.Y.S.2d 184 citing Guggenheim Found. v. Lubell, 77 N.Y.2d 311, 319, 567 N.Y.S.2d 623, 569 N.E.2d 426).   However, an owner of property who has knowledge of its location, as plaintiff did, “cannot unreasonably delay making demand upon the person possessing the property.”   Plaintiff was required to make his demand within a “reasonable” time (id. at 198, 663 N.Y.S.2d 184).   Assuming as true, plaintiff's claim that he demanded return of the carpets in 1993, there nevertheless remains a question of fact as to whether the six-year delay from 1987 to 1993 was reasonable.   Thus, the IAS court properly denied the motion for summary judgment.

 Under the law governing a “sale or return,” title passes to the buyer as in any other sale of goods with the buyer retaining a right to return the goods and transfer title back to the seller (see, In re Ide Jewelry Co., Inc., supra;  Anderson, on Uniform Commercial Code, 3rd ed., vol. 3A, § 2-236:18).   Unlike a consignment, in a sale or return, the seller has no right to demand return of the goods.   If the contract the parties entered was a sale or return, plaintiff could not maintain a cause of action for conversion since he had no ownership or possessory right in the rugs justifying a demand for their return.   The UCC provides for a buyer's right to return goods under a sale or return contract and under a “sale on approval” contract.   Where no provision for the time of return is provided, an option to return must be exercised “seasonably” (UCC 2-327[1][b] ).  However, there is no suggestion in the Code that the seller (such as plaintiff) in a sale or return contract maintains a right to demand return of the goods.   Where no such provision is negotiated between the parties, there is no right on the part of the seller to demand return of the goods.   Such a provision would allow a seller to recall goods when they have appreciated in value after he sold them to a distributor but before the distributor has resold them.   Plaintiff's remedy for defendants' alleged nonpayment would be to bring an action for breach of contract for the price of the goods, a cause of action which plaintiff concedes, is untimely.   Therefore, if the memorandum submitted by defendants constituted a “sale or return” agreement, plaintiff did not retain any right whatsoever to demand repossession of the carpets.

 Accordingly, since neither the parties' submissions nor the memo itself clearly delineate whether the underlying agreement was a consignment or sale or return agreement, a question of fact exists as to which type of contract is before the court (Rosalinda v. Kent Co., 86 A.D.2d 587, 588, 446 N.Y.S.2d 312).   The issue of whether plaintiff's demand for the return of the carpets was timely depends upon the type of agreement entered.   Defendants also claim they paid in full for the carpets while plaintiff asserts he was never paid.   The memorandum, which indicates that “prices of these rugs have been determined by telephone with [plaintiff],” is ambiguous as to whether it refers to prices plaintiff was charging defendants (which would be a sale tending toward a finding of a “sale or return”) or to prices fixed by plaintiff, as to which defendants were to try to resell the carpets (suggesting a consignment).   The statement at the bottom of the memo that “the order to sell [the carpets] has been given to us only one month ago from [plaintiff]” is also ambiguous.   This seems to suggest that plaintiff had not sold defendants the carpets, since it implies that defendants were not authorized to resell the carpets without plaintiff's approval and that defendants were acting as agents of plaintiff (which would be evidence of a consignment).   These issues of fact preclude summary judgment at this time.

Accordingly, the order of the Supreme Court, New York County (Paula Omansky, J.), entered February 27, 1998, which denied defendants' motion for summary judgment seeking to dismiss the complaint on Statute of Limitation grounds, should be affirmed, with costs and disbursements.

Order, Supreme Court, New York County (Paula Omansky, J.), entered February 27, 1998, affirmed, with costs and disbursements.

NARDELLI, J.

All concur.