Consignment Agreement Template

What Is a Consignment Agreement?

A consignment agreement is a legally binding contract between a consignor and a consignee under which the consignor delivers goods to the consignee for the purpose of sale to third-party buyers. The critical distinction between consignment and a standard wholesale transaction is ownership: in a consignment arrangement, the consignor retains ownership of the goods until they are sold to an end buyer. The consignee acts as an agent or intermediary, displaying and marketing the goods, facilitating the sale, and earning a commission on each completed transaction.

This ownership structure has significant legal and financial implications. Because the consignor retains title to the goods, the consignee does not need to purchase inventory upfront, reducing their financial risk. However, the consignee takes on the responsibility of safeguarding the goods, presenting them to potential buyers, and accounting for sales proceeds. If the goods are damaged, stolen, or lost while in the consignee's possession, the question of who bears the loss depends entirely on the terms of the consignment agreement.

Consignment arrangements are common across many industries. Art galleries frequently operate on a consignment basis, displaying artists' works and earning a commission when pieces sell. Clothing consignment shops accept gently used apparel from individuals and resell it, splitting the proceeds. Manufacturers use consignment to place products in retail stores without requiring the retailer to make an upfront purchase. Antique dealers, craft artisans, jewelry designers, and book publishers all use consignment models to reach broader markets.

The consignment model differs from other distribution arrangements in important ways. In a wholesale arrangement, the buyer purchases goods outright and assumes all risk of resale. In a commission arrangement, the agent typically does not take physical possession of the goods. In a consignment arrangement, the consignee takes physical possession but not ownership, creating a hybrid arrangement that requires careful documentation to protect both parties.

The Uniform Commercial Code (UCC) Article 9 governs certain aspects of consignment transactions, particularly regarding the rights of the consignee's creditors. Under the UCC, if the consignor does not take steps to perfect their security interest in the consigned goods, the consignee's creditors may treat the goods as the consignee's property and seize them to satisfy debts. This makes proper documentation and, in some cases, UCC filing essential for protecting the consignor's interests.

Why You Need a Consignment Agreement

Operating a consignment arrangement without a written agreement exposes both parties to significant risks. Here is why a consignment agreement is essential.

Ownership protection is the most fundamental concern. Without a written agreement establishing that the consignor retains title to the goods, there is a risk that the goods could be treated as the consignee's property. This could allow the consignee's creditors to seize the goods in a bankruptcy or collection action, leaving the consignor with nothing.

Pricing and commission clarity prevents disputes about money. The agreement specifies the retail price (or pricing authority), the commission percentage, when the consignee must remit payment after a sale, and how returns and discounts are handled. Without these terms in writing, disagreements about pricing and payments are inevitable and can destroy the business relationship.

Inventory accountability is critical when goods are in someone else's possession. The agreement establishes procedures for tracking inventory, conducting periodic counts, and accounting for any goods that are damaged, lost, or stolen. Without an inventory management framework, the consignor has no way to know the status of their goods.

Insurance and liability allocation determine who pays when things go wrong. The agreement specifies which party is responsible for insuring the goods against damage, theft, and loss while in the consignee's possession. Without clear liability provisions, the consignor may discover too late that their valuable goods were uninsured.

Termination and return procedures protect both parties when the arrangement ends. The agreement defines how either party can terminate the arrangement, the notice period required, and the procedures for returning unsold goods. Without termination provisions, a consignor may find it difficult to retrieve their goods from an uncooperative consignee.

Key Components of a Consignment Agreement

• Parties: Full legal names and contact information for the consignor and consignee.
• Description of Goods: A detailed inventory list of the consigned goods, including quantities, descriptions, and agreed values.
• Pricing: The retail price for each item or the consignee's authority to set prices within approved ranges.
• Commission Rate: The percentage of the sale price the consignee retains as compensation.
• Payment Terms: When and how the consignee must remit the consignor's share of sale proceeds.
• Ownership and Title: A clear statement that ownership remains with the consignor until sale.
• Inventory Management: Procedures for tracking, counting, and reporting on the status of consigned goods.
• Insurance and Risk of Loss: Which party is responsible for insuring the goods and bearing the risk of damage, theft, or loss.
• Display and Marketing: The consignee's obligations for displaying, marketing, and caring for the goods.
• Returns and Unsold Goods: Procedures for returning unsold goods and handling damaged or defective items.
• Term and Termination: The duration of the agreement, renewal provisions, and termination procedures.
• Governing Law: The jurisdiction whose laws govern the agreement.

How to Write a Consignment Agreement

1. Identify the Parties: List the full legal names and contact information for both the consignor and the consignee.

2. Create an Inventory List: Prepare a detailed list of all goods being consigned, including descriptions, quantities, conditions, and agreed values. Attach this as a schedule or exhibit to the agreement.

3. Set Pricing Terms: Specify the retail price for each item, or grant the consignee authority to set prices within an approved range. Address discount policies.

4. Establish the Commission: Define the commission rate and clarify whether it is calculated on the gross sale price or the net price after any discounts or returns.

5. Define Payment Terms: Specify how frequently the consignee must account for and remit sale proceeds (weekly, monthly, etc.) and the payment method.

6. Address Ownership and Security: Include a clear statement that the consignor retains title to the goods. Consider filing a UCC-1 financing statement to perfect the security interest.

7. Allocate Insurance and Risk: Specify which party insures the goods, the required coverage amounts, and who bears the risk of loss, damage, or theft.

8. Set Inventory Procedures: Establish requirements for regular inventory counts, written reports, and reconciliation with the consignor's records.

9. Include Termination Provisions: Define the circumstances and notice requirements for termination and the procedure for returning unsold goods.

10. Execute the Agreement: Both parties should sign and date the agreement. Each party should receive a copy along with the inventory list.

Free Consignment Agreement Template

CONSIGNMENT AGREEMENT

This Consignment Agreement ("Agreement") is entered into as of _______, 20 ("Effective Date"), by and between:

Consignor: ________________________, with a mailing address of ________________________ ("Consignor");

Consignee: ________________________, with a business address of ________________________ ("Consignee").

Consignor and Consignee are collectively referred to as the "Parties."

RECITALS

WHEREAS, Consignor is the owner of certain goods and desires to place them with Consignee for sale to the public; and WHEREAS, Consignee operates a retail establishment and is willing to display and sell Consignor's goods on a consignment basis;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:

1. Consigned Goods. Consignor shall deliver to Consignee the goods described in Schedule A attached hereto (the "Goods"). Each delivery shall be documented with a written receipt signed by both Parties listing the items delivered, their descriptions, quantities, and agreed values.

2. Ownership and Title. Title to the Goods shall remain with Consignor at all times until sold to a third-party buyer. Consignee shall have no ownership interest in the Goods. The Goods shall not be subject to the claims of Consignee's creditors. Consignor may file a UCC-1 financing statement to perfect its security interest in the Goods, and Consignee shall cooperate with such filing.

3. Pricing. The retail price for each item shall be as set forth in Schedule A, or as otherwise agreed in writing by the Parties. Consignee shall not sell any item below the minimum price specified by Consignor without Consignor's prior written approval. Consignee may offer discounts of up to __________% without Consignor's approval.

4. Commission. Consignee shall retain a commission of __________% of the gross sale price of each item sold (the "Commission"). The remaining __________% shall be remitted to Consignor as described in Section 5.

5. Payment Terms. Consignee shall provide Consignor with a written sales report and payment of all amounts due on a [weekly/bi-weekly/monthly] basis, no later than __________ days after the end of each reporting period. Payment shall be made by [check/electronic transfer] to ________________________. The sales report shall include a list of items sold, the sale price, the Commission retained, and the net amount due to Consignor.

6. Display and Marketing. Consignee shall display the Goods in a prominent and professional manner within its retail space. Consignee shall use reasonable efforts to promote and sell the Goods. Consignee shall not alter, modify, or damage the Goods without Consignor's prior written consent.

7. Care and Custody. Consignee shall exercise reasonable care in handling, storing, and displaying the Goods. Consignee shall keep the Goods in a secure location and shall protect them from damage, theft, and deterioration. Consignee shall not remove the Goods from its business premises without Consignor's prior written consent.

8. Insurance. Consignee shall maintain insurance coverage sufficient to cover the full agreed value of the Goods against loss, damage, theft, and fire while the Goods are in Consignee's possession. Consignee shall name Consignor as a loss payee on such insurance policy and shall provide Consignor with a certificate of insurance upon request.

9. Risk of Loss. Risk of loss, damage, or destruction of the Goods shall pass to Consignee upon delivery and shall remain with Consignee until the Goods are sold to a buyer or returned to Consignor. If any Goods are lost, damaged, or stolen while in Consignee's possession, Consignee shall promptly notify Consignor and shall pay Consignor the agreed value of the affected Goods within __________ days.

10. Inventory and Accounting. Consignee shall maintain accurate records of all consigned Goods, including items received, items sold, items returned, and items remaining in inventory. Consignor shall have the right to inspect the Goods and Consignee's records at any reasonable time upon __________ days' written notice.

11. Return of Unsold Goods. Consignor may request the return of any unsold Goods at any time by providing __________ days' written notice. Consignee shall return the Goods in the same condition as received, reasonable wear from display excepted, at [Consignor's/Consignee's] expense.

12. Term and Termination. This Agreement shall commence on the Effective Date and shall continue for a period of __________ [months/years], unless terminated earlier. Either Party may terminate this Agreement by providing __________ days' written notice. Upon termination, Consignee shall return all unsold Goods to Consignor within __________ days and shall remit all outstanding payments within __________ days.

13. Confidentiality. The Parties shall treat the financial terms of this Agreement, including pricing, commission rates, and sales data, as confidential and shall not disclose such information to third parties without the other Party's prior written consent.

14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of __________, including the Uniform Commercial Code as adopted in that state. Any disputes shall be resolved in the courts of __________ County.

15. Entire Agreement. This Agreement constitutes the entire agreement between the Parties regarding the consignment of the Goods and supersedes all prior negotiations and agreements. This Agreement may not be amended except in writing signed by both Parties.

16. Signatures.

Consignor: ________________________ Date: __________

Consignee: ________________________ Date: __________

Schedule A: Inventory of Consigned Goods

Item Description	Quantity	Condition	Agreed Value	Minimum Retail Price

How to Use This Template

1. Download the template in Word or PDF format and open it for customization.

2. Prepare the inventory list (Schedule A) with detailed descriptions, quantities, conditions, and values for every item being consigned.

3. Fill in the party details with the legal names and addresses of both the consignor and consignee.

4. Set the commission rate and pricing terms, ensuring they reflect the market standard for your industry and are acceptable to both parties.

5. Specify payment terms including the reporting frequency, payment deadline, and method.

6. Confirm insurance requirements and verify that the consignee can provide the required coverage and certificate of insurance.

7. Have both parties review the completed agreement and sign it. Each party should retain a copy along with the signed inventory list.

8. Document the delivery by having both parties sign the inventory receipt when the goods are physically transferred.