Question 1

What is the legal difference between consignment and an outright sale?

Accepted Answer

In an outright sale, title to the goods passes from the seller to the buyer at the moment of sale, the buyer becomes responsible for the goods, and the seller has no further interest beyond collecting the purchase price. In a consignment, by contrast, title remains with the consignor (the original owner) until the goods are sold to a third-party customer by the consignee (the merchant). The consignee acts as a sales agent, holds the goods as a bailee, and earns a commission rather than a markup. The practical implications are significant: unsold goods can be reclaimed, the consignor bears the risk of slow sellers, and the consignor's creditors generally have a claim against the goods, but the consignee's creditors may also reach them under UCC Article 9 unless protective filings are made.

Question 2

How does UCC Article 9 affect consignment arrangements?

Accepted Answer

Most U.S. consignments fall within UCC § 9-102(a)(20), which defines a 'consignment' for Article 9 purposes when (1) a person delivers goods to a merchant for sale, (2) the merchant deals in goods of that kind under a name other than the consignor's, (3) the merchant is not generally known to its creditors as substantially engaged in selling the goods of others, and (4) the goods are worth $1,000 or more in aggregate at delivery. If the arrangement qualifies, the consignee's creditors can reach the consigned goods unless the consignor perfects a purchase money security interest by filing a UCC-1 financing statement and giving notice to prior secured parties. Failing to perfect can result in losing your inventory to the consignee's bankruptcy estate or judgment creditors.

Question 3

Who holds title to the goods during a consignment?

Accepted Answer

The consignor retains legal title throughout the consignment period, until the moment the consignee sells the goods to a third-party customer in an arm's-length retail transaction. At that moment, title passes from consignor to customer (typically through the consignee as agent), and the consignee owes the consignor the agreed share of the proceeds. Because the consignor still owns the goods, the consignor bears the risk of theft and damage in many arrangements (which is why the agreement should require the consignee to insure the goods or assume risk of loss), and the consignor can demand return of unsold goods at the end of the consignment term.

Question 4

What happens to unsold inventory at the end of the consignment period?

Accepted Answer

The consignment agreement should explicitly address the disposition of unsold goods. Common approaches include: (1) the consignor can retrieve the goods at any time on notice; (2) the consignor must retrieve unsold goods within a defined window after the consignment term ends, after which the consignee may dispose of them; (3) prices automatically reduce on a schedule (30 days at full price, 60 days at 75%, 90 days at 50%) before being marked for return; (4) the consignee can buy the goods outright at a discount; or (5) the consignee may donate or destroy unclaimed goods after a notice period. Without a clear provision, disputes often arise over storage fees, abandoned property, and ownership.

Question 5

What are typical commission rates for consignment?

Accepted Answer

Commission rates vary widely by industry and item value. Retail consignment shops typically take 40% to 60% of the sale price, with 50/50 being the most common split for clothing and household goods. Art galleries usually take 40% to 50% of the sale price for emerging artists, and sometimes lower percentages for established artists with negotiating leverage. Vehicle consignment dealers take 10% to 20% of the sale price, often with a minimum dollar fee. Auction houses charge a seller's premium of 10% to 25% plus a buyer's premium of 15% to 25% paid by the buyer. High-end online resale platforms (Poshmark, The RealReal, StockX) charge 12% to 40% depending on the item and price tier. Always disclose whether commission is calculated on gross sale price or net of credit card fees and sales tax.

Question 6

How is consignment different for retail versus art?

Accepted Answer

Retail consignment is a high-volume, short-cycle business focused on moving inventory quickly. Items typically have a 60- to 90-day consignment period, prices are reduced on a schedule, and the consignee handles all customer interaction, returns, and refunds. Art consignment is lower volume, longer term, and more relationship-driven. A single piece may sit in a gallery for months or years, the artist often has approval rights over how the work is displayed and to whom it is sold, the gallery may pay for framing and exhibition costs that are deducted from proceeds, and many states have specific consignment statutes that protect artists by establishing the gallery as a trustee of the artwork and the proceeds. Use the right template for the right industry.

Question 7

What records should a consignor keep?

Accepted Answer

Maintain a complete inventory ledger for every consigned item, including: a unique consignment number; description and photographs; condition report at delivery; agreed retail price and minimum acceptable price; commission rate; date of delivery to the consignee; date of sale (or return); gross sale price; commission deducted; net amount paid to consignor; and disposition (sold, returned, marked down, donated). For high-value items like art, antiques, and vehicles, keep authentication documentation, certificates of authenticity, provenance records, and any reserve prices in a secure file. Tax authorities expect consignors to report sales income on Schedule C or as ordinary income, and the IRS frequently audits consignment-heavy businesses.

Question 8

Who is responsible if the goods are stolen or damaged?

Accepted Answer

By default, since the consignor retains title, the consignor often bears the risk of loss — but the consignment agreement should expressly allocate the risk and require the consignee to obtain insurance covering the consigned goods at full replacement value. Better-drafted agreements impose strict bailment liability on the consignee for losses caused by negligence, theft, fire, or water damage during the consignment period, and require the consignee to name the consignor as an additional insured on the store's commercial property and inland marine policies. For high-value art and jewelry, consider a separate 'wall-to-wall' fine art insurance policy paid for by the consignee.

Question 9

When does the consignee have to pay the consignor?

Accepted Answer

Common payment cycles include weekly, bi-weekly, monthly, and on-demand after each sale. Most consignment shops use a monthly cycle: at the end of the month, the consignee tabulates sales, deducts commissions and any agreed expenses, and issues payment within 5 to 15 days of month-end along with a sales statement showing each item sold. For art galleries, payment is often within 30 days of the gallery receiving payment from the buyer. For high-volume online consignment, weekly or twice-monthly automated payouts are standard. The agreement should also address what happens if the consignee is late paying — typically interest accrues at the lesser of a stated rate or the maximum permitted by state law, and chronic non-payment is grounds for termination and immediate return of inventory.

Question 10

Can a consignee sell the goods for less than the agreed price?

Accepted Answer

Only if the consignment agreement permits markdowns. The default position is that the consignee must obtain the consignor's consent before reducing the price below the agreed level. Many retail consignment agreements pre-authorize a graduated markdown schedule — for example, 25% off after 30 days, 50% off after 60 days — so the consignee does not need to seek approval each time. Art consignments typically require the consignor's prior written approval for any sale below the listed price. Document markdown authorizations in writing, and make clear whether the commission is calculated on the marked-down price or on the original full price (a frequent source of disputes).

Question 11

Does a consignment require the consignor to pay sales tax?

Accepted Answer

Sales tax responsibility varies by state and depends on whether the consignor is operating as a business or as a casual seller. In most states, the consignee (the merchant making the retail sale) collects and remits sales tax to the state, treating the transaction as a sale by the merchant for tax purposes regardless of who holds title. Some states (notably California, Texas, and New York) treat the consignor as the seller for sales tax in certain circumstances, particularly when the consignor is itself a registered business or when the consignment is essentially a conduit for the consignor's regular sales. For income tax, the consignor's net proceeds are taxable as ordinary income (Schedule C if a business, Schedule D if a one-off personal property sale). When in doubt, consult a tax professional in the consignor's home state.

Question 12

What rights does an artist have under state art consignment statutes?

Accepted Answer

Approximately 30 U.S. states have enacted art consignment statutes that give artists special protection. The typical statute provides that: (1) when an artist delivers a work of fine art to an art dealer for sale or exhibition, the dealer is an agent of the artist for the purpose of sale; (2) the artwork constitutes trust property in the hands of the dealer; (3) the proceeds of any sale constitute trust funds in the hands of the dealer for the benefit of the artist; (4) the artwork is not subject to the claims of the dealer's creditors; and (5) the dealer must hold the proceeds separately and not commingle them. California's Consignment of Fine Art Act (Civil Code §§ 1738-1738.9) is particularly strong. New York, Illinois, and many other states have similar protections. These statutes cannot be waived by contract.

Item	SKU	List Price	Min Price
Vintage Hermes Scarf	EW-001	$320	$240
Chanel Tweed Jacket	EW-002	$1,450	$1,100
YSL Leather Boots	EW-003	$485	$365

Component	Description
Parties	Legal names of consignor and consignee with addresses
Inventory Schedule	Detailed list of every consigned item with description and value
Title Retention	Express statement that title remains with consignor until sale
Pricing	Agreed list price and minimum acceptable price for each item
Commission	Percentage and basis (gross or net) of commission
Markdown Schedule	Pre-authorized price reductions over the consignment term
Term	Duration of the consignment with renewal or termination provisions
Risk of Loss	Allocation of risk for theft, damage, and destruction
Insurance	Insurance requirements and additional insured language
UCC-1 Filing	Financing statement and prior-creditor notice provisions
Display and Care	Standards for how goods will be stored, displayed, and handled
Reporting and Payment	Frequency of sales reports and payment timing
Sales Tax	Allocation of sales tax collection and remittance
Returns from Customers	Procedure for handling customer returns and refunds
Termination	Grounds for termination and post-termination obligations
Return of Unsold Goods	Procedure and deadline for retrieving unsold inventory
Governing Law	Choice of law and venue for disputes

Free Consignment Agreement Forms

What Is a Consignment Agreement?

Title Retained

Commission Based

UCC-1 Protection

Consignment Form Preview

Consignment Agreement

Section 1: Parties

Section 2: Consigned Goods

Section 3: Commission & Term

Section 4: Markdown Schedule

Types of Consignment Agreements

Consignment vs Other Sales Models

Consignment vs Outright Sale

Consignment vs Sale on Approval

Consignment vs Distribution Agreement

How to Create a Consignment Agreement: 8 Steps

Inventory the Goods Item by Item

Set the Commission Structure

Define the Consignment Term and Markdowns

Allocate Risk of Loss and Insurance

Address UCC Article 9 Protection

Set Payment Terms and Reporting

Include Sales Tax and Tax Reporting

Add Termination, Pickup, and Default Provisions

Key Components

Legal Requirements and Compliance

UCC Article 9 Perfection

State Art Consignment Statutes

Bailment Duty of Care

Sales Tax Liability

Documentation Best Practices

Sample Consignment Agreement

CONSIGNMENT AGREEMENT

Frequently Asked Questions

Official Resources

Create your Consignment Agreement in under 10 minutes.