Consignment

Consignment is an arrangement in which the owner (consignor) delivers PRODUCTs to a seller (consignee), with the seller acting as agent for the owner in the sales process. The seller does not own the products; rather, the owner retains title to the products until they are sold. At that time the seller receives a commission for assisting with the sale of the item. Consignment is typical in antique malls, art galleries, musical-instrument stores, and other businesses where an individual owner utilizes the skills and market contacts of an experienced businessperson to facilitate the sale of their possession. Consignment is one of three options within the category of sales transactions, called sales on trial. A sale on approval is an agreement in which goods are delivered to a buyer with the understanding that the buyer may use or test them to determine whether purchase is desirable. In a sale on approval, the title to the good and risk of ownership are not transferred until the buyer accepts the good. Because the title and risk of loss remain with the seller, goods held under a sale-on-approval agreement are not subject to claims from the buyer’s creditors until the buyer accepts the good. Taking a car home from a dealership overnight would be an example of a sale on approval. If a buyer fails to notify the seller of his or her decision not to return the good, the buyer is considered to have purchased the good. A second type of sales transaction is the sale or return in which goods are delivered to a buyer for resale to consumers with the understanding that the buyer has the right to return unsold items. Publishers and bookstores frequently use sale or return agreements allowing the bookstore to return for repayment unsold copies of a book. Since the buyer (the bookstore) has accepted the goods, the buyer is at risk for loss or damage, and the goods will be considered part of the buyer’s ASSETS in any bankruptcy litigation. Sales on consignment need to be clearly documented to avoid problems associated with the seller’s creditors. Under the UNIFORM COMMERCIAL CODE (UCC), a consignor must (1) make sure that a sign indicating the consignor’s interest is prominently displayed at the place of business, or (2) make sure that the merchant’s creditors know that the merchant is generally in the business of selling goods owned by others, or (3) comply with the UCC’s filing provisions. Most individuals are unlikely to be familiar with the requirements to protect their rights in consignment agreements. Many American consumers have found their assets attached as part of business bankruptcy proceedings from failure to comply with consignment regulations. In international trade, many EXPORTING agreements are sales on consignment. The owner ships the product to the buyer, retaining title to the goods, and the importer pays for the goods when they are sold. The importer’s bank will often act as trustee for the goods in this transaction. Consignment has been scrutinized when used as a means to control the resale price of a manufacturer’s product. This is known as vertical PRICE FIXING or resale price maintenance. Manufacturers are allowed to state a suggested retail price for products they sell to retailers, but it is illegal for the manufacturer to obligate a reseller to a specific price. If a consignment selling systems restrains price competition, it may be deemed unlawful.