A consignment agreement is an agreement by which the owner of a good (consignor or supplier) leaves the goods in the possession of a retailer (consignee) for a certain period of time in order for the consignee to sell the consignor’s good to its clients. The consignee only has to pay the consignor when their product has been sold in exchange for a commission.

The consignment agreement is not a sales contract. The consignor is not selling their goods to the consignee as the consignee does not purchase the products from the consignor upon possession. Rather, the consignee is “leasing” the goods for a short period of time in order to sell them to its clients. During that period of time, the consignee will be responsible to any damage that could occur to the goods during their possession.

A consignor is the person who is giving over the goods. (ex. a fashion designer, food manufacturing, product creator…etc.)

The consignee is the person who is receiving the goods and will be selling them to their clients. (ex. retailer, distributor…etc.)

The main elements of a consignment agreement are:

1. Parties: The agreement will clearly identify the parties to the contract and their role in the contract (consignor-consignee).
2. Retail Purpose: The consignment agreement will identify the consignor’s role in the agreement as the provider of the goods and the consignee’s role as the merchandiser or seller of the good.
3. Length: The agreement will clearly state the length of the consignment relationship and in the event some goods are not sold, what will happen to them at the end of the term.
4. Delivery and Cost: The agreement will indicate how the goods will be delivered to the consignee and who will cover the shipping costs. Similarly, if at the end of the relationship some goods remain unsold, the agreement will indicate how those goods will be returned to the consignor and who will cover those costs.
5. Goods: The agreement should clearly described the goods that will be consigned and the amount of goods the consignee will be receiving.
6. Payment: The most pivotal portion of the agreement is the terms of payment. The agreement should clearly indicate how much the goods will be sold for and what commission the consignee will reap in the event of a sale.
7. Risk of Damage or Loss: An agreement need be made between the parties to determine which party will be responsible in the event that the goods or damaged or lost and when that responsibility will come into effect.
8. Insurance: The agreement should require the consignee to have and provide proof of insurance during the time that the consignee is in possession of the goods.
9. Termination of the agreement: The agreement should stipulate how the agreement could be terminated by either parties and in the event of termination, how the unsold goods will be return and who will cover those costs.
10. Default & Disputes: In the event of a default or dispute between the parties, the agreement should state how that dispute will be remedied. Will the parties go to arbitration, mediation? Will there be compensation? If so, how much?

In a consignment agreement, the consignee acts as an agent for the consignor by selling their products to third parties (ex. client, buyer, consumers…etc.).

Even though the consignee will have physical possession of the goods, the consignee does not own the goods. The goods will remain the ownership of the consignor until they are sold to a third party who then becomes the owner of the goods.

Generally, compagnies need to sign a consignment agreement in order to ensure that they remain the owner of the good during the sales process.

If you are creating products and you want your products to be sold to third parties through an agent, then you should be signing consignment agreements with them. Similarly, if you are a seller of goods or a retailer, then you should be signing consignment agreements with the product creators.

No. In a consignment agreement, the consignor retains ownership of the good until that good is sold to a third party (ex. consumer). On the other hand, in a conditional sales agreement, the retailer agrees to finance the purchase of the goods it intends to sell to its customers.

Yes, consignment agreements contain some more complex clauses that should be reviewed by a lawyer to ensure their enforceability.