Consignment Agreement

A consignment agreement, also known as a consignment contract, is a legal agreement between two parties, a consignor and a consignee, where the consignor (the owner) allows the consignee (the seller) to sell their goods, typically on a commission basis.

In this type of agreement, the consignor retains ownership of the goods and retains title to the items, while the consignee has possession of the goods and sells them on the consignor’s behalf. The consignee is responsible for the storage, display and sale of the goods, and is usually required to maintain appropriate insurance on the goods.

The terms of a consignment agreement will typically outline the commission rate that the consignee will earn for each sale, as well as how often the consignor will be paid. The consignment agreement also often includes details on how to set the prices of the products, return policy, and the length of the agreement.

A consignment agreement is commonly used in retail settings, where a store owner may not have the resources to purchase merchandise outright, but can still sell the products and earn a commission. It also can be used in art galleries, antique shops, and other types of retail businesses.

What are Consignment Laws?

Consignment laws are laws that govern the consignment of goods, and which outline the rights and responsibilities of both consignors and consignees.

Consignment laws vary by jurisdiction, and may include provisions related to:

• Registration and Licensing: Some states require consignment businesses to register with the state and obtain a consignment license.
• Record Keeping: Consignors are usually required to keep detailed records of the consigned goods, including the names of the consignors and the prices of the goods.
• Insurance: Consignees may be required to purchase insurance to protect the consigned goods from loss or damage.
• Sales and taxes: Consignment sales may be subject to state and local sales taxes. Consignee may be required to collect and remit sales taxes on behalf of the consignor.
• Payment: Consignment laws may require that consignees pay consignors for the sold goods on a regular basis, such as monthly or weekly.
• Liabilities: Consignment laws may outline who is liable for any damages, losses, or theft of consigned goods, usually the consignee is liable while they are in possession of the goods.
• Abandonment: Consignment laws may outline the conditions and time frame in which unsold goods can be considered abandoned and can be sold, donated or disposed of.

It is important to be aware of and abide by the consignment laws that apply to the consignment of goods in the jurisdiction in which the consignment is taking place, to avoid legal disputes and liability. It’s also important to have a detailed and legally binding consignment agreement in place, outlining the responsibilities of both parties, to avoid misunderstandings and disputes.

What Are the Components of a Consignment Agreement?

A consignment agreement is a legal contract between the consignor (the owner of the goods) and the consignee (the seller of the goods), outlining the terms of the consignment arrangement.

A typical consignment agreement will include the following components:

• Description of the goods: A detailed description of the goods that are being consigned, including the quantity and value of each item.
• Commission rate: The commission rate that the consignee will earn for each sale of the consigned goods.
• Payment terms: The terms for how and when the consignor will be paid for sold goods, including the frequency of payments, and any withholding or deductions from the consignor’s payments.
• Insurance: The consignee’s responsibility to maintain insurance on the consigned goods, including the type and amount of coverage.
• Record keeping: The consignee’s obligation to maintain detailed records of the consigned goods, including the names of the consignors, the prices of the goods, and the dates of sale.
• Display and Sale: The consignee’s responsibility for the storage, display, and sale of the consigned goods.
• Return policy: The terms of the agreement regarding the return of unsold or defective goods, or the handling of any disputes arising from the return.
• Duration: The length of the agreement and any renewal provisions.
• Taxes: The responsibility of the parties for the collection and remittance of any taxes on consigned goods
• Representations and Warranties: Each party’s representations and warranties about the goods, and their ownership, and any other relevant issue.
• Liability: Outlines the liabilities of the parties for damages, losses, or theft of consigned goods, and the procedure for dealing with any disputes arising from the consignment agreement.
• Governing law and jurisdiction: Identifies the state and jurisdiction whose laws will govern the consignment agreement and any disputes arising from it.

A consignment agreement should be written in clear and specific language and should be reviewed by an attorney to ensure that it complies with local laws and regulations.

What if There is a Breach of a Consignment Agreement?

Consignment agreements are legal contracts, and like any contract, there is a risk of one or both parties breaching (not fulfilling) the terms of the agreement.

Here are a few common consignment legal issues that can arise and their possible remedies:

• Failure to pay: One of the most common issues in consignment agreements is a failure by the consignee to pay the consignor for the sold goods. The remedy for this breach would be for the consignor to terminate the agreement and seek monetary damages.
• Failure to maintain insurance: Another common issue is when the consignee fails to maintain insurance on the consigned goods as specified in the consignment agreement. The remedy for this breach would be for the consignor to terminate the agreement and seek monetary damages for the loss of the goods.
• Misrepresentation of the goods: If the consignee misrepresents the goods to the customer and the consignor suffers damages as a result, the remedy for this breach would be for the consignor to seek monetary damages from the consignee
• Failure to follow the return policy: if the consignee does not abide by the agreed return policy, the remedy would be for the consignor to terminate the agreement and seek monetary damages.
• Failure to keep accurate records: If the consignee fails to keep accurate records of the consigned goods, the remedy would be for the consignor to terminate the agreement, and seek monetary damages.
• Failure to pay taxes: if the consignee fails to pay taxes on the consigned goods, the consignor may be held liable and the remedy would be for the consignor to seek monetary damages.
• Failure to return unsold goods: If the consignee fails to return unsold goods to the consignor, the remedy would be for the consignor to terminate the agreement and seek monetary damages.

A consignment lawyer can help with breach of consignment agreement remedies in several ways.

Here are a few examples:

• Evaluating the breach: An attorney can review the consignment agreement and the circumstances of the breach to determine the appropriate remedy. They can help you understand the options available to you and the likelihood of success of each option
• Negotiating with the other party: An attorney can help you negotiate with the other party to reach an amicable solution, such as an agreement to pay a debt or return of unsold goods.
• Filing a lawsuit: If negotiation is not possible or successful, an attorney can help you file a lawsuit seeking damages for the breach of contract. They can represent you in court and assist you in collecting evidence and preparing your case.
• Drafting demand letters or Cease and Desist letters: An attorney can help you draft a demand letter, outlining the facts of the breach and the remedy you are seeking. They can also help you draft a cease and desist letter, which informs the other party that you believe they are in breach of the agreement and requests them to stop their actions.
• Advising on local laws: An attorney can advise you on the local laws and regulations that apply to consignment agreements and the remedies for breach of contract, to make sure you understand your rights and the best course of action for your particular case.
• Mediation and arbitration: If the case is not resolved through negotiation, an attorney can help you seek mediation or arbitration services, where an unbiased third party will help both parties to come to an agreement.

Having a consignment lawyer representing you in case of a breach of consignment agreement will provide legal protection and guidance, and increase the chances of obtaining a fair and adequate remedy.

Do I Need a Lawyer If I Draft A Consignment Agreement?

While it is not strictly necessary to have a commercial lawyer draft a consignment agreement, it can be beneficial to have one review it to ensure it is legally sound and complies with local laws.

An attorney experienced in consignment law will be able to advise you on the legal requirements that apply to your agreement and ensure that all the necessary terms and clauses are included. They will also be able to identify any potential legal issues that may arise and advise you on how to avoid them.