It All Came Out in the Wash: Consignment Dispute Over Persian Rug

This was originally published on the SGR Blog.

Mundane business transactions involving relatively small amounts may nevertheless raise a variety of factual and legal issues. And, as a recent case illustrates, what started as a garden variety case arising out of the consignment of a Persian rug to a dealer became a far more complicated dispute with the passage of time.

Jahanshah Josh Nazimayal and Rugs and Kilim Corp. are carpet dealers. Peter Lentz owns a Persian Mahal rug. Pursuant to a consignment agreement dated June 21, 2011, Nazimayal and Kilim acknowledged receiving Lentz’s rug and agreed to try to sell it for a 20% commission.

The agreement, on Nazimayal and Kilim’s letterhead, estimated that the rug “as is” was probably worth $18,000. Still, if Nazimayal and Kilim were to wash the rug and do some minor repairs, the rug would likely be sold for between $25,000 and $35,000. And the agreement provided that the cost of washing (approximately $2,000) plus the cost of minor repairs caused by washing would be recouped by Nazimayal and Kilim from the sales price.

According to Lentz, in 2019, Nazimayal told him that they were unable to sell the rug, and Lentz asked for the rug back. Nazimayal refused unless Lentz paid $9,100 for expenses incurred to wash and repair the rug. Lentz insisted that Nazimayal never told him they had done that amount of work on the rug—and he never gave authorization for such expensive repairs. Lentz said he offered to pay Nazimayal $2,000 for the wash, but this was rejected. And observed that the rug had recently been put on sale for $80,000.

Lentz’s claimed that he was never supposed to pay anything for the washing of the rug unless it was sold. He sued Nazimayal and Kilim for breach of contract, breach of fiduciary duty, and conversion. He claimed that Nazimayal and Kilim had no right to retain the rug and that he was entitled to damages.

Nazimayal pointed out that they expended financial resources to wash the rug and to prepare it for sale. According to Nazimayal, he spent $3,100 for an antique wash on the rug in addition to $6,000 in repairs by an expert from Pakistan and others in New York. Nazimayal and Kilim contended that Lentz had failed to account for the money they expended to clean and restore the rug, and it would be wholly inequitable to just give the rug back to him.

Lentz contended that none of the issues raised by Nazimayal and Kilim were legitimate defenses to his claims. Nazimayal stressed that if Lentz made the repairs to the rug, it would have cost him well over $26,000 and that their relationship with experts allowed them to fix the rug at a greatly reduced cost.

The Court’s analysis started with the consignment agreement, which stated that “This is to acknowledge that we have received a Persian Mahal piece approximately 18×22 to be sold in our showroom. We are pricing it as is for $18,000, from which a commission of 20% will be paid out to Kilim, and the remainder will be paid out to you. In the event that antique washing is done, we estimate that the piece could be sold between $25,000 to $35,000, from which a commission of 20% would be paid out to Kilim, and the balance be issued to you. Kilim will pay for the wash, which is approximately $2,000, and any minor restorations caused by washing, to be reinstated once the piece is sold. Should you have any questions or concerns, please feel free to contact me”.

The rug did not sell, and the agreement did not say what happened if the rug did not sell after Nazimayal and Kilim advanced funds for cleaning and repairs. And that was exactly the issue here. The rug was still available to return; it had not been destroyed or damaged.

The Court noted that if Lentz demanded his rug back the week after Nazimayal and Kilim spent the money for cleaning and repair, no one would have expected Nazimayal and Kilim to hand it over without being paid back for their expenditures. The dispute would be about how much Nazimayal and Kilim were entitled — what did they spend, was it authorized (impliedly or expressly), was it reasonable? Even though years had passed, the inquiry was the same– although the passage of time worked in Lentz’s favor because obviously the cleaning and repairs did not work to sell the rug within a reasonable time.

So the case was about how much, if anything, Lentz must pay Nazimayal and Kilim in order to get his rug back. At one extreme, it could be nothing because Nazimayal and Kilim, who drafted the agreement, only provided for recouping expenses out of sale proceeds; in that event, it didn’t matter how much Nazimayal and Kilim spent — it could be chalked up to Nazimayal and Kilim’s lost investment, made in trying to earn a bigger commission. On the other extreme, it could be every penny Nazimayal and Kilim spent plus interest, especially if there was any communication with Lentz before he demanded the rug back, on the basis that the repairs were reasonable and necessary to preserve the integrity of the rug, without which the rug would have little value.

The amount in dispute was less than ten thousand dollars. Lentz was entitled to his rug back and must pay the defendant between zero and $9,100 plus interest.

However, in this action, Lentz did not ask for the rug back — in essence, he wanted to force the Nazimayal and Kilim to buy the rug. Nazimayal and Kilim never offered to buy the rug — they agreed to sell it for a commission. They were willing to give back the rug but did not want to chase Lentz for the expenses they claimed. Nazimayal and Kilim sought damages for unjust enrichment—which the Court found probably should be capped at the $9.100 (plus interest, etc.) because Nazimayal and Kilim were unable to sell the rug for any price.

Lentz took the position that Nazimayal and Kilim would be entitled to raise the expenses they incurred in an effort to sell the rug as an offset to any damages that Lentz might be entitled to collect. But the Court found that it would be inappropriate to force the Nazimayal and Kilim to buy a rug that they took on consignment and were willing and able to return. Thus, it made sense that Lentz pays whatever the finder of fact determined that Nazimayal and Kilim were entitled to recoup.

The positions of the parties were clear. Lentz’s theory was that, while he recognized the rug might require an investment of $2,000 for washing, he would not have agreed to expend an additional $7,100. In other words, Lentz believed that Nazimayal and Kilim incurred extraordinary expenses without first receiving his authorization. The goal of the consignment agreement was for Nazimayal and Kilim to sell the rug, not to rack up expenses that Lentz would have to repay– especially in the event that the rug did not sell. Moreover, Lentz insisted that the expenses were to be recouped from the sale of the rug, not by him.

And Nazimayal and Kilim’s view was that they used all of their expertise and decades in the industry to prepare the rug for sale and to try to sell the rug. They contended they used their connections to have the rug cleaned and repaired at below market value, and they should be compensated for these expenses.

The Court was unable to decide the case on the submissions. So the trier of fact will determine how much, if anything, Lentz must pay. In the meantime, Nazimayal and Kilim were ordered to keep the rug stored in a safe place. And, if the rug deteriorated and was not in good condition, then it would not be available to return, and Lentz’s damages would be quite different.

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