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Consignment is an arrangement where the owner of an item delivers it to a seller, who sells it and pays the owner a percentage of the sale price. The owner retains ownership until the item is sold and may cancel the agreement. Consignment offers benefits to both parties, but legal rules and restrictions vary by region. Liability for damage to goods sold depends on state laws. Owners may face the risk of losing their items if the seller goes bankrupt, but they can protect themselves by filing a UCC Form 1.
In the United States, delivery is an arrangement whereby the owner of an item delivers the item to a seller, retaining ownership of the item until it is sold. After the sale, the seller typically pays the sale price to the original owner, less an agreed-upon percentage for himself. Since the owner of the item retains ownership until it is sold, he can usually cancel the agreement at any time and demand the return of his item. The owner may assume some risk of loss if something happens to the item while the seller has it, unless a contract provides for such an event. Selling on consignment offers convenient shopping in many areas of the world, but legal rules and restrictions may vary by country or region.
This type of sale offers benefits to both sellers and owners of retail assets. The seller benefits from not having to invest their own money to buy an item with no guarantee that it will sell. The owner typically doesn’t have to work as hard to get a seller to handle his merchandise as he would if the person were buying the item in bulk. It may also be able to get a higher percentage of the final sale price for itself. Consignment shops and galleries also tend to offer new and unknown artists the opportunity to gain more exposure for their work than they otherwise would if they were selling their work directly to buyers.
Sometimes doubts arise about the extent of the liability of both the owner and the seller for damage to goods sold in this way. In the United States, under a state’s uniform commercial code, a negligent seller would usually have to compensate the owner of an item for damages caused by the seller’s negligence. However, damage caused by something beyond the seller’s control, such as a flood, could mitigate the seller’s liability, depending on the laws of the state where the item is being offered for sale.
Owners of items sold on consignment may face another risk: If a shop or gallery goes bankrupt, creditors may be able to seize all assets on the premises to offset the seller’s debt. If this happens, the owner of the item may not be able to reclaim ownership of him and will instead have to file a claim against the seller in hopes of compensation. In the United States, owners can protect themselves by filing a UCC Form 1 with the county government in the area where the store is located. This establishes a lien on the item, so that the owner can reclaim it if the seller gets into financial trouble.
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