A consignment agreement sets the terms under which an owner delivers goods to another person or business for sale. It identifies who owns the inventory, who may sell it, how proceeds are divided, and what happens if the goods are lost, damaged, or unsold.

Flat illustration of a vase moving between an owner, a retail shelf, split proceeds, and a return box to represent a consignment agreement.

Key Takeaways

  • The consignor owns the goods, while the consignee possesses and offers them for sale.
  • Delivery to the consignee is not ordinarily an outright sale of the inventory.
  • The contract should define pricing authority, commission, payment timing, inventory records, and the consignment period.
  • Loss, theft, insurance, returns, markdowns, and termination require clear written rules.
  • An attached inventory schedule can track individual goods without overloading the main contract.
  • Certain consignments may raise Uniform Commercial Code, creditor, or bankruptcy concerns that require state-specific review.

What Is a Consignment Agreement?

A consignment agreement is a contract between the owner of goods and the person or business authorized to sell them. The owner is the consignor. The seller receiving possession of the goods is the consignee. A customer who ultimately buys an item is a separate third party.

The consignor generally retains ownership until an item sells. The consignee holds, displays, markets, and sells the goods under the contract's limitations. After a sale, the consignee usually keeps an agreed commission or fee and pays the remaining proceeds to the consignor. The agreement should state when that payment becomes due and how returns, refunds, taxes, and transaction charges affect the calculation.

Consignment differs from an outright sale. In an ordinary inventory purchase, a retailer buys goods from a supplier and becomes responsible for paying the purchase price according to their sales contract. The retailer usually bears the economic risk if the inventory does not resell. Under a consignment arrangement, the consignee does not buy all delivered inventory upfront. Payment to the consignor instead depends on sales, subject to the agreement.

Artists, clothing and furniture stores, manufacturers, publishers, specialty retailers, and resale businesses commonly use this model. A business considering a dedicated resale operation may also need to address branding and entity planning alongside its consignment store name. Whatever the industry, the written contract should match the actual handling of the goods rather than relying on the label "consignment" alone.

Simple Consignment Agreement Format

A simple agreement should follow the transaction from delivery through sale, payment, return, or termination. Use clear headings and attach a detailed inventory schedule when multiple items are involved. A practical format includes the following sections:

  1. Parties and effective date: Give each party's legal name, address, contact information, and role as consignor or consignee.
  2. Consigned goods: Describe the items, quantities, identifying numbers, condition, delivery date, and any quality standards.
  3. Consignment period: State when the arrangement begins, when it ends, and whether renewal requires written approval.
  4. Possession and ownership: Confirm that delivery transfers possession for the limited purpose of sale and state when title passes to a buyer.
  5. Pricing authority: Identify the initial price, any minimum price, and who may approve markdowns, promotions, or customer discounts.
  6. Commission and expenses: Specify the consignee's percentage or flat fee and explain how approved expenses, refunds, or processing charges are handled.
  7. Reports and payment: Set the sales-reporting schedule, payment method, due date, and supporting records.
  8. Unsold goods: Explain when and how goods must be collected, returned, discounted, donated, or otherwise handled.
  9. Termination and signatures: Address notice, final accounting, return obligations, surviving provisions, and signatures.

A one-page agreement can work for a low-value, one-time transaction if it still answers these points. Do not make it so short that the parties must guess who controls pricing or bears a loss. Transactions resembling auctions may require different sales procedures, so compare the arrangement with the terms commonly addressed in auction contracts.

Essential Consignment Agreement Clauses

The clauses you need depend on the goods, value, sales channel, and duration of the relationship. Most agreements should address these subjects:

  • Scope of authority: Limit where and how the consignee may sell. Address online listings, sub-consignment, relocation, and use of third-party platforms.
  • Acceptance standards: Let the consignee inspect and reject goods that do not meet agreed condition, age, authenticity, packaging, or quality requirements.
  • Pricing and markdowns: State whether the consignor sets a minimum price or the consignee has discretion. Require approval before discounts below an agreed threshold.
  • Commission calculation: Define whether the split applies to the actual sale price, gross receipts, or another stated amount. Explain deductions and customer refunds.
  • Accounting: Require itemized reports showing sales, returns, discounts, commissions, and amounts owed.
  • Care and storage: Set reasonable handling, display, security, segregation, and storage expectations.
  • Risk and insurance: Allocate responsibility for theft, fire, water damage, breakage, employee misconduct, and other losses. Identify any required coverage and proof of insurance.
  • Default and remedies: Address late payment, unauthorized sales, missing goods, inaccurate reports, and failure to return inventory.
  • Termination: Set notice requirements and deadlines for final reports, payments, and inventory return.
  • Governing law and disputes: Select applicable law and establish the agreed process and location for resolving disputes.

Do not assume that an "as-is" label resolves every condition or disclosure issue. The effect depends on the transaction and applicable law. If condition is central to the sale, review how an as-is sales agreement allocates risk and adapt the concept carefully.

Consignor and Consignee Responsibilities

The contract should assign each operational task rather than assuming both parties understand industry practice. The following table offers a starting point, but the parties may allocate responsibilities differently in writing.

Task Typical Consignor Responsibility Typical Consignee Responsibility
Delivery Provide accepted goods and an accurate inventory list. Inspect the shipment and acknowledge receipt.
Inventory tracking Review statements and report discrepancies. Track items by identifier, location, and status.
Marketing Supply approved product information or branding. Display and promote goods as the contract requires.
Sales reporting Keep received reports and reconcile payments. Report sales, returns, discounts, and remaining stock.
Payment Provide payment instructions and required documentation. Calculate the agreed split and pay on schedule.
Insurance Confirm what protection remains in effect after delivery. Maintain any coverage required while holding the goods.
Loss or damage Document original condition and value. Notify the consignor and follow the agreed claims process.
Return of goods Collect or accept properly returned inventory. Account for and return unsold goods as required.

The agreement should not use "owner," "seller," or "store" inconsistently. Define consignor and consignee once, then use those terms throughout. If insurance is required, identify the relevant risks, limits, evidence of coverage, and claims responsibilities rather than merely stating that a party must be insured. General information about insurance contracts and binding coverage can help you identify questions for an insurer or attorney.

Loss, Payment, and Termination Risks

A useful agreement addresses problems before they interrupt the relationship. For theft or damage, state who bears the loss while the consignee has possession, what standard of care applies, how quickly notice must be given, and who controls an insurance claim. Do not assume ownership automatically determines responsibility for every loss.

For missing inventory, require periodic counts and a process for investigating discrepancies. The contract can state when an unaccounted-for item is treated as sold, lost, or subject to reimbursement. For unauthorized discounts, identify a minimum permitted price and explain whether the consignee must absorb the difference. For partial sales, require reports and payments for sold units even while the remaining units stay on consignment.

Late-payment terms should identify the payment date, required statement, available remedies, and whether a missed payment permits suspension or termination. Customer returns also need treatment. State whether a refund reverses the commission and what happens if the item is no longer suitable for resale.

Termination provisions should cover ordinary notice and immediate termination for material problems such as nonpayment, misuse, insolvency, or failure to account for goods. Set a final inventory count, payment deadline, and return procedure. Specify who pays return shipping and what happens if the consignor does not retrieve the inventory. Any donation, disposal, or liquidation authority should be express rather than implied.

If the inventory is valuable, the parties operate in different states, or creditor priority, insurance, and termination rights matter, you can post your legal need on UpCounsel's marketplace. An attorney can tailor the contract, allocate loss, review state-law requirements, and determine whether a UCC filing or another protective step is appropriate. Responses typically arrive within a day.

Inventory Schedules and Ongoing Consignments

An inventory schedule keeps item-level details out of the main agreement while making those details part of the parties' records. Each entry can identify the item, SKU or serial number, quantity, condition, agreed price, minimum price, delivery date, and commission category. The parties can add columns for sale date, sale price, payment status, return date, and final disposition.

Both parties should confirm the schedule when goods are delivered. For recurring shipments, use consecutively dated schedules or receipts and state that each accepted schedule falls under the master agreement. Reconcile the records after sales reports, customer returns, transfers, or physical inventory counts. This approach helps distinguish goods that were rejected, sold, damaged, missing, or returned.

A one-time consignment of a specific item may need a fixed expiration date, an appraisal or condition record, a reserve price, and exact return instructions. An ongoing arrangement needs broader procedures. Consider recurring delivery rules, report frequency, staff access, sales channels, seasonal markdowns, audit rights, payment reconciliation, and a process for changing product or quality standards.

Train employees to distinguish consigned goods from store-owned inventory. Internal records should show that distinction and prevent an employee from applying an unauthorized storewide discount. Keep signed agreements, inventory schedules, delivery acknowledgments, reports, payment records, notices, and return receipts together. Each party should retain a complete signed copy and document later changes in writing.

UCC, Creditors, Bankruptcy, and State Law

Goods displayed at a consignee's business can appear to outsiders to belong to that business. This creates risk if the consignee has secured creditors, enters bankruptcy, or becomes subject to collection activity. A contract stating that the consignor retains ownership is essential between the parties, but it may not resolve every priority dispute involving third parties.

Uniform Commercial Code Article 9 treats certain commercial consignments as secured transactions for creditor-priority purposes. Not every arrangement falls within its consignment rules. The result can depend on the type and value of the goods, the consignee's business, what its creditors generally know, and other facts. When Article 9 applies, the consignor may need to consider filing a financing statement and taking other perfection or notice steps to protect its interest.

Do not file based only on a generic template. The correct debtor name, filing location, collateral description, timing, and additional notices can affect protection. Check the enacted UCC provisions in the relevant state and instructions from that state's official UCC filing office. An attorney can assess whether the transaction qualifies as a UCC consignment and whether another legal structure would work better.

State law may also affect contract enforceability, electronic signatures, interest or late fees, abandoned property, consumer sales, sales taxes, licensing, and required disclosures. A governing-law clause does not necessarily displace every mandatory rule in a state where the parties operate or the goods are sold. State-specific contract principles can vary, as illustrated by resources addressing Michigan contract law. Review the current law for every state materially connected to the arrangement.

Frequently Asked Questions

What Is a Consignment Agreement?

A consignment agreement is a contract authorizing one party to sell goods owned by another. Beyond documenting the commercial arrangement, it provides evidence of the parties' intent if a customer, insurer, creditor, or court later questions possession, authority, or payment. The signed document should be read together with accepted inventory schedules and later written amendments.

How Do You Make a Consignment Contract?

You make a consignment contract by agreeing on the business terms, recording them in a written document, attaching the initial inventory list, and having both parties sign. Before signing, confirm that the names match the parties' legal identities and that the person signing for a company has authority to do so. Give each party a complete copy.

What Is the Format of a Consignment Agreement?

The format is usually a main contract followed by one or more inventory schedules. The main contract contains rules that apply to the entire relationship, while each schedule records goods delivered at a particular time. This format allows an ongoing relationship to accept new inventory without renegotiating every general term whenever another shipment arrives.

How Do You Write a Simple Agreement?

Write a simple agreement by using defined terms, short sections, measurable obligations, and specific events that trigger payment or termination. Replace vague phrases such as "promptly" or "reasonable commission" with agreed procedures or amounts when possible. Read the document from both parties' perspectives and revise any sentence that could support conflicting interpretations.

Does a Consignment Agreement Need to Be Notarized?

A consignment agreement does not automatically require notarization merely because it concerns consigned goods. Signature formalities can depend on applicable law, the property involved, and the parties' chosen requirements. Even when notarization is unnecessary, dated signatures and reliable records help establish assent. Check current state rules if the transaction involves unusual goods or formal execution requirements.

Can a Consignment Agreement Cover Digital Goods?

A consignment-style arrangement can cover some digital products, but a standard goods contract may not address the main legal issues. Digital transactions can require licensing terms, intellectual property permissions, platform rules, access controls, reproduction limits, and royalty reporting. The parties should clarify what rights are licensed or transferred because physical possession and return concepts may not fit digital assets.