A Consignment Agreement is a commercial contract between a goods owner (the consignor) and a retail seller or dealer (the consignee) in which the consignor delivers merchandise to the consignee for sale, while retaining ownership of the goods until they are sold to a third-party buyer. The consignee earns a commission or markup on each sale, and unsold goods are returned to the consignor.

Consignment transactions are governed by Article 9 of the Uniform Commercial Code (UCC), which was significantly revised in 2001 to address consignment arrangements. Under UCC Section 9-102(a)(20), a consignment is defined as a transaction in which goods are delivered to a merchant for sale where the aggregate value exceeds $1,000, the goods are not consumer goods, and the consignor did not use the merchant as an agent. The critical legal implication is that under UCC Section 9-319, a consignor who fails to properly perfect a security interest in the consigned goods may lose priority to the consignee's creditors -- meaning that if the consignee goes bankrupt, the consignor's goods could be seized to satisfy the consignee's debts.

This agreement is fundamental to industries including art galleries, antique dealers, clothing boutiques, furniture stores, bookstores, and craft markets. It provides a risk-sharing model where the consignor accesses retail channels without upfront wholesale payment, while the consignee stocks inventory without capital outlay. However, without a proper written agreement and UCC filing, the consignor's ownership rights may be legally unprotected.

A Consignment Agreement is needed in these specific situations: when an artist places artwork in a gallery for sale, as governed by artist-gallery consignment statutes in states like New York (Arts and Cultural Affairs Law Section 12.01) and California (Civil Code Section 1738); when a clothing designer places garments in a boutique on a try-and-sell basis; when an antique dealer distributes items across multiple shops without transferring ownership; when a manufacturer places products with a distributor on a sale-or-return arrangement; and when an author places books with an independent bookstore on consignment terms.

Additional scenarios include estate sales where an estate liquidator sells items on behalf of heirs, craft producers placing goods at farmers' markets or fairs through a shared vendor, auto dealers selling vehicles on consignment for private owners, and jewelry designers placing pieces in retail stores.

Without a written consignment agreement, several serious legal problems arise. The consignee may claim ownership of the goods. The consignor loses priority to the consignee's secured creditors in bankruptcy proceedings under UCC Article 9. There is no documented basis for commission rates, leading to disputes over payment. Insurance coverage for the goods may be void if the insurable interest is unclear. In at least 30 states with artist consignment protection statutes, gallery owners can face criminal penalties for commingling consignment proceeds with their own funds.

A legally protective Consignment Agreement must include the following elements:

Party identification -- the consignor's and consignee's full legal names, business names, addresses, and tax identification numbers. The agreement should specify whether each party is an individual, LLC, corporation, or other entity.

Detailed inventory description -- a complete list of consigned goods with descriptions, quantities, serial numbers or identifying marks, condition at time of delivery, and the consignor's declared value for each item. Photographs or an attached inventory schedule are recommended.

Pricing and commission structure -- the minimum sale price (or pricing authority granted to the consignee), the consignee's commission percentage (typically 30-60% depending on the industry), and whether the consignee has authority to discount items. The agreement should specify whether commission is calculated on gross or net sale price.

Ownership and title retention -- an explicit statement that title to the goods remains with the consignor until sold to a third-party buyer. This clause is essential for UCC Article 9 compliance and creditor priority.

UCC filing authorization -- authorization for the consignor to file a UCC-1 Financing Statement to perfect their security interest in the consigned goods, protecting against the consignee's creditors.

Payment terms -- how frequently the consignee will remit sale proceeds (weekly, monthly, upon sale), the payment method, and accounting requirements. Many state artist consignment statutes require payment within 30-90 days of sale.

Insurance and risk of loss -- which party is responsible for insuring the goods while in the consignee's possession, and who bears the risk of loss from theft, damage, fire, or natural disaster.

Return of unsold goods -- the process and timeline for returning unsold merchandise, including who pays return shipping costs and the condition in which goods must be returned.

Term and termination -- the duration of the agreement, renewal terms, and the process for either party to terminate with notice.

Accounting and inspection rights -- the consignor's right to audit the consignee's sales records and physically inspect consigned inventory.