What is a consignment agreement and how does it work?

A consignment agreement is a contract in which the owner of goods, the consignor, delivers them to another party, the consignee, who tries to sell them on the consignor's behalf and keeps a commission on any sale. The consignor retains ownership of the goods until they are sold, and the consignee, such as a retail shop or gallery, displays and sells them without buying them outright. When an item sells, the consignee pays the consignor the agreed amount after deducting its commission, and unsold goods are typically returned to the consignor. The agreement should specify the goods, the pricing, the commission rate, the duration, who bears the risk of loss or damage, and how and when the consignor is paid. Because the consignor still owns the goods while they are in the consignee's possession, the agreement should address insurance and risk. Consignment lets owners reach buyers through a seller's location while retaining ownership until sale, with the consignee earning a commission rather than purchasing inventory.

Who owns the goods under a consignment agreement?

Under a consignment agreement, the consignor retains ownership of the goods until they are sold to a final buyer, even though the goods are physically in the consignee's possession. The consignee holds and displays the goods and is authorized to sell them, but title does not pass to the consignee; instead, ownership transfers directly from the consignor to the end buyer at the point of sale. This ownership structure has important consequences if the consignee runs into financial trouble: because the goods belong to the consignor, the consignment relationship can affect whether the consignee's creditors can reach the goods. Under Article 9 of the Uniform Commercial Code, certain consignments are treated as security interests, and a consignor may need to file a financing statement and provide notice to protect the goods from the consignee's creditors. Because ownership remains with the consignor but the goods sit with the consignee, the agreement and, where applicable, UCC filings should clarify and protect the consignor's ownership rights.

How is the consignee paid under a consignment agreement?

Under a consignment agreement, the consignee is paid through a commission, which is a percentage of the sale price retained when an item sells, with the remainder going to the consignor. The agreement specifies the commission rate, which varies by industry and the value of the goods, and how payment is calculated and timed, such as periodic settlements for items sold during a period. The consignee does not pay for the goods up front; it earns money only when items sell, which reduces its inventory risk compared with buying stock outright. The agreement should also address how sale prices are set, whether the consignee can offer discounts, and how returns or damaged goods are handled. Because the consignee profits only on sales while the consignor bears the risk of unsold goods, the commission structure and payment schedule are central terms. Clear provisions on the commission rate, the timing of payments to the consignor, and reporting of sales help avoid disputes between the parties.

What happens to unsold goods in a consignment agreement?

Unsold goods in a consignment agreement are generally returned to the consignor at the end of the consignment period, because the consignee never purchased them and ownership remained with the consignor. The agreement should specify the duration of the consignment and what happens when it ends, including the consignor's right to retrieve unsold items and any deadline for doing so. Some agreements provide for markdowns over time to encourage sales before the period ends, or allow the consignee to extend the term by agreement. The agreement may also address who pays for return shipping and what happens if the consignor does not retrieve the goods within a set time. Because the consignor bears the risk that goods may not sell, the return terms protect the consignor's ability to recover unsold property. Clear provisions on the consignment period, the handling of unsold items, and any markdown schedule prevent disputes about what occurs when the consigned goods do not sell during the term.

Who is responsible if consigned goods are lost or damaged?

Responsibility for consigned goods that are lost, stolen, or damaged depends on what the consignment agreement provides, which is why allocating that risk is an important term. Because the consignor owns the goods while they are in the consignee's possession, the parties should agree in writing on who bears the risk of loss and whether the consignee must insure the goods against theft, fire, or damage while in its care. Many agreements require the consignee to maintain insurance covering the consigned items and to exercise reasonable care, given that the goods are in the consignee's control. Without a clear provision, disputes can arise over liability when goods are damaged or disappear. The agreement may set the value used to settle a loss, often the amount the consignor would have received on a sale. Because the consignor retains ownership but the consignee has custody, addressing insurance, the standard of care, and the consequences of loss protects the consignor and clarifies the consignee's obligations.

Consignment Agreement

This Consignment Agreement (hereinafter referred to as the "Agreement") is entered into on [Effective Date] (the "Effective Date") by and between

[Consignor’s name], [Consignor Type] residing at [Consignor’s Address], [Consignor’s City], [Consignor’s State] [Consignor’s ZIP](hereinafter the "Consignor"), and

[Consignee’s name], [Consignee Type] residing at [Consignee’s Address], [Consignee’s City], [Consignee’s State] [Consignee’s ZIP](hereinafter the "Consignee"), collectively referred to as the "Parties" and individually the "Party".

WHEREAS the Consignor desires to diversify and increase the sales and distribution of specific products (the "Consigned Items") on consignment;

WHEREAS the Consignee wishes to sell the Consigned Items on behalf of the Consignor according to the terms and conditions specified herein;

NOW, THEREFORE, in consideration of the obligations contained herein and other valuable considerations, the Parties have agreed as follows:

Subject of the Agreement

The description of the Consigned Items shall be placed [Items Location] of this Agreement.

The Consignor agrees to deliver, and the Consignee agrees to accept for the purpose of sale, on the terms and conditions hereinafter recited in this Agreement, the following described Consigned Items: [Consigned Items].

The Consignor warrants that the Consigned Items being sold are owned by the Consignor and that there are no liens, judgments, or other encumbrances against the ownership, including all rights of sale or transfer.

Right to sell. The Consignor hereby grants the Consignee the [Include Exclusive Rights] right to display and sell the Consigned Items according to the terms and conditions of this Agreement.

Proceeds of sales

The Consignee shall have the right to display and sell the Consigned Items [Sales Territory].

The sales prices shall be determined by the Consignee. The Parties shall agree on the minimum price at which the Consignee may sell the Consigned Items (the "Minimum Price").

The Parties agree that the Minimum Price is [Minimum Price]. If the Consignee sells the Consigned Items for less than the Minimum Price, the Consignor shall be entitled to the same payment the Consignor would receive as its share of the sale price under this Agreement had the Consigned Items been sold for the Minimum Price.

The Consignee is entitled to a consignment fee calculated as a difference between the price at which the Consigned Items are sold and the Minimum Price (the "Consignment Fee").

For the purpose of this Agreement, the "Sales Proceeds" mean funds received from the sale of the Consigned Items.

The Consignee shall receive the Sale Proceeds due to the Consignor and, after deducting the Consignment Fee, deliver the Sale Proceeds to the Consignor within [Number of days] days of the sale.

Delivery conditions. The Consignor shall deliver the Consigned Items to the Consignee, subject to the Consignee’s request (quantity and address of delivery). The [Delivery Responsibility] shall make all freight and delivery payments.

Upon the Consignor’s demand, the Consignee will be responsible for returning the Consigned Items in good order and condition.

Records

The Consignee should maintain regular and accurate records on the number of the Consigned Items sold under this Agreement.

The Consignor has the right to carry out an inspection of such records. The Consignee is obliged to provide the Consignor with access to such records upon request.

Title to merchandise

The Consigned Items shall remain the property of the Consignor until sold in the regular course of business.

Loss and insurance

The Consignee shall be solely responsible for the storage, loss, or damage of the Consigned Items since they are under the Consignee’s control.

The Consignee shall be solely responsible for maintaining insurance coverage on the Consigned Items sufficient to compensate for their fair market value in case of damage or loss.

Liability and indemnification

The Consignor warrants that the Consigned Items are in good condition, free from defects, and suitable for sale. The Consignor shall be responsible for the quality of the Consigned Items if the Consigned Items are not manufactured to the quality standards of the same products. The Consignee shall not be held responsible for any defects or damages that existed before the delivery of the Consigned Items.

The Consignor shall indemnify and hold harmless the Consignee from any claims, damages, or liabilities arising out of or related to the quality, damages, and defects of the Consigned Items unless such damages and defects are a result of gross negligence or wrongful acts of the Consignee.

If a Consigned Item is found defective, the Consignee shall promptly notify the Consignor of the defect. The defect shall be described in detail, including supporting documentation or evidence.

After receiving the returned defective item, the Consignor shall [Defective Action].

The Consignor reserves the right to inspect and evaluate the defects in order to establish if the defects are not a result of the Consignee’s or third party’s wrongful acts or gross negligence.

Neither Party’s liability for any claim, loss, or liability arising out of or connected with this Agreement shall exceed the amounts paid to the Consignor during a period of [Period] immediately preceding the event giving rise to such a claim or action by either Party.

Neither Party shall be liable to the other Party for any indirect, incidental, consequential, special, or exemplary damages, including, without limitation, business interruption, loss of or unauthorized access to information, or damages for loss of profits, incurred by the other Party arising out of the services provided under this Agreement, even if such Party has been advised of the possibility of such damages.

Payroll taxes

The Consignee shall be exclusively liable for the Consignee’s employment taxes and insurance, including payroll taxes, insurance premiums, wages, or other employment-related fees. The Consignor has no liability for any of these taxes and fees.

Sales tax

The sales tax shall be collected and remitted by the [Sales Tax Responsibility].

Warranties

Each Party to this Agreement hereby represents and warrants to the other Party that they have full right, power, and authority to enter into and perform this Agreement and that its execution has been duly authorized by all necessary actions.

Defaults

In case the Consignee fails to perform the obligations under the Agreement or violates the provisions of this Agreement (the "Default"), the Consignor has the right to provide the Consignee with an appropriate written notice (the "Default Notice") with a demand to cure the Default within [Cure period days] days. If the Consignee fails to meet the Consignor’s requirements stated in the Default notice within a specified term, the Consignor shall be entitled to take all and any actions to protect personal interests. Specifically, the Consignor has the right to take protective and preventive measures, including but not limited to declaring all sale proceeds immediately due and payable, demanding to return the Consigned Items immediately, terminating the Agreement unilaterally without prior notice, etc.

Term and termination procedure

This Agreement shall enter into force on the Effective Date and shall be valid for [End Date](the "End Date").

Termination procedure: [Termination Procedure].

This Agreement may be terminated before the End Date.

This Agreement may be terminated unilaterally by either Party upon providing [Termination notice in days]-day prior written notice to the other Party.

Governing law and dispute resolution

This Agreement will be governed by and construed in accordance with the laws of the State of [Governing law], except for its conflict of laws principles.

The Parties agree on exclusive jurisdiction in the court of the State of [Governing law].

Miscellaneous

Severability. If and to the extent any provision of this Agreement is held illegal, invalid, or unenforceable in whole or in part under applicable law, such provision or such portion thereof will be ineffective as to the jurisdiction in which it is illegal, invalid, or unenforceable to the extent of its illegality, invalidity, or unenforceability.

Entire agreement. This Agreement is the complete and exclusive understanding between the Parties with respect to the subject matter hereof, superseding any prior agreements and communications, both written and oral, regarding such subject matter.

Amendments. This Agreement may only be modified, or any rights under it waived, by a written document executed by both Parties.

Binding effect. This Agreement shall be binding for the Parties and their respective permitted successors and assigns.

Details and signatures of the Parties

The Consignor

Full name: [Consignor’s name]

Address: [Consignor’s Address], [Consignor’s City], [Consignor’s State] [Consignor’s ZIP]

Phone: [Consignor’s Phone]

Email: [Consignor’s Email]

The Consignee

Full name: [Consignee’s name]

Address: [Consignee’s Address], [Consignee’s City], [Consignee’s State] [Consignee’s ZIP]

Phone: [Consignee’s Phone]

Email: [Consignee’s Email]

Party 1

________________

Signature

Date: ________________

Party 2

________________

Signature

Date: ________________

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What Is a Consignment Agreement?

A Consignment Agreement in the United States records the obligations the parties accept and the terms governing their arrangement.

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.

The 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.

When Do You Need a Consignment Agreement?

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.

What to Include in Your Consignment Agreement

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.

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@misc{formslegal-consignment-agreement,
  author       = {{Forms Legal}},
  title        = {Consignment Agreement (United States)},
  year         = {2026},
  howpublished = {\url{https://forms-legal.com/usa/business/contracts/consignment-agreement}},
  note         = {Free legal document template. Based on Uniform Commercial Code (UCC)}
}

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Based on Uniform Commercial Code (UCC) — Template last modified June 2026

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