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In re Fabers, Inc.

United States District Court for the District of Connecticut
12 U.C.C. Rep. Serv. 126 (1972)


Mehdi Dilmaghani & Company Inc. (the Dealer) (plaintiff), a member of the Oriental Rug Dealers Association, agreed to allow Fabers World of Carpets (Fabers) to sell its rugs. Afterward, the parties put an ad in the newspaper stating, “By Special Arrangement, we proudly introduce: A distinctive collection of Mehdi Dilmaghani…” The so-called consignment agreement stipulated that the Dealer would keep title to the rugs while Fabers sold them, “in the ordinary course of business.” The agreement also said that the proceeds of rug sales belonged to the Dealer and that Fabers would hold the money “in trust.” Lastly, the agreement placed the risk of damage and loss on Fabers. Both the Dealer and Fabers believed that the agreement was a consignment agreement and not subject to the requirements of Article 9 of the Uniform Commercial Code (UCC) for perfecting a security interest. Fabers went bankrupt. The Dealer petitioned the court for the return of the rugs, claiming that the rugs were still its property under this “true consignment” arrangement.

Rule of Law


Holding and Reasoning (Seidman)

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