Consignment Agreement
(Pro-consignee)

Summary

This consignment agreement template can be used between a manufacturer or supplier of goods (the consignor) and a party who will acquire the goods for resale (the consignee). This template includes practical guidance, drafting notes, and alternate and optional clauses. This template has been drafted with terms that favor the consignee and, accordingly, it does not include many terms a consignor will likely seek, such as requiring the consignee to maintain insurance for the value of the consigned goods, a force majeure provision, and an anti-assignment clause, to name a few. Under a consignment arrangement, the consignee takes possession of the consignor's goods, but does not acquire title to the goods and is not obligated to pay for them until the goods are sold (or used) by the consignee. Usually, any consigned goods not sold after a designated period will be returned to the consignor. Most consignment arrangements are governed by the Uniform Commercial Code's Article 9 (secured transactions). UCC § 9-109(a). Article 9 provides that the consignor has a purchase-money security interest (PMSI) in inventory with respect to the consigned goods. UCC § 9-103(d). A PMSI would provide the consignor with priority over the consignee's creditors holding prior inventory security interests so long as the consignor satisfies the requirements of UCC § 9-324 with respect to PMSIs. A consignment is defined as a transaction in which goods are delivered to a merchant for the purpose of sale and (1) the merchant (a) deals in goods of that kind under a name other than the consignor, (b) is not an auctioneer, and (c) is not generally known by its creditors to be substantially engaged in selling the goods of others; (2) the aggregate amount of each delivery of consigned goods is at least $1,000; (3) the goods are not consumer goods immediately before delivery; and (4) the transaction does not create a security interest that secures an obligation. UCC § 9-102(20). For purposes of determining the rights of creditors of a consignee, while the consigned goods are in the possession of the consignee it is deemed to have the same rights and title to the goods as the consignor had the prior to the transfer to the consignee. UCC § 9-319. Accordingly, the consignor will need to file a UCC financing statement to maintain a protected interest in the consigned goods to prevent the consignee's creditors from acquiring judicial liens and security interests in the consigned goods. For additional information and resources regarding consignments, see Consignment Agreements, Consignment Agreement Drafting Checklist (Consignee), Consignment Agreements Resource Kit and Supply of Goods Resource Kit. For a template agreement favoring the consignor, see Consignment Agreement (Pro-consignor).