Overview of a Consignment Agreement

What is a Consignment Agreement?

A Consignment Agreement is a legal contract in which one party, referred to as a consignor, grants legal rights to another party, referred to as consignee, to sell, resell, storage, or transfer goods on the consignor’s behalf.

A Consignment Agreement also protects the unsold goods kept in the storage as they will be returned by the consignee to the consigner with no extra cost involved. A Consignment Agreement is also known as a consignment sales agreement or consignment inventory agreement.

Parties involved in a Consignment Agreement?

Consignment is a business arrangement or method in which the consignee agrees to store, sell, resell or transfer goods that are owned by the consignor, in exchange for a percentage of the sales, called commission. The consignor, in this case, has legal ownership of the goods, and the consignee is only acting within the authorized actions that are specified in the consignment agreement. Basically, there are two parties involved in a Consignment Agreement. i.e.; consignor and consignee. A consignor is a person or entity that owns the good, and the sender or the shipper of the goods to the consignee, in order for the consignee to sell, store, resell or transfer the goods on behalf of the consignor. A consignee is a party who receives the goods from the consignor and is given the right to store the goods in a warehouse, sell or resell the goods on behalf of the consignor, in exchange for a percentage of the sales as agreed on between the parties. Consignees are usually referred to as receivers or dealers.

What are the components of a Consignment Agreement?

When preparing a Consignment Agreement, it is very crucial to specify the rate of commission, sales deadline, and the consequences in the event of no sale, as this information is the key element of the consignment agreement so it can be clear for both parties. Some of the main components of a Consignment Agreement are:

Introduction of parties: As with any other legal document, Identifying the parties and the date of the agreement is mandatory. the party that is providing the goods or merchandise should be referred to as “Consignor.” The party that is selling the goods or merchandise should be referred to as “Consignee.”, as these names will be used throughout the agreement.

Payment and Commission: Since the consignment arrangement deals with selling goods through the consignee as a third party, the agreement should include a section or several clauses that indicate what percentage of the sale will be kept by the Consignee as a “fee” for its services.

Return of Products: During the consignment process, the consignor may request the consignee a return of its products by giving the consignee a notice. There might be some circumstances when a consignee has to return the products, usually, in such cases, a consignee can return the goods with no extra cost involved.

Risk of loss or damage of goods: This section states the consignee’s responsibility in maintaining and protecting the products while they are in possession, which means that if any products are damaged during that time, the consignee must compensate the consignor for that loss.

Termination: This section of the consignment agreement explains how the parties of this agreement can end the agreement at any time for any reason. If the parties do decide to end the agreement, then this section should indicate when and how any unsold products should be returned, and the amount of time the consignee has to return the property after the agreement ends.

Governing law and equitable relief: This section deals with the procedures that will be taken by both parties when conflicts or disputes arise. It allows the parties to choose the state and county laws that will be used to interpret the agreement. This section also allows the parties to seek equitable relief. For instance, any court remedies requiring a party to perform or refrain from performing certain acts for any violation of the agreement.

Conclusion

A Consignment Agreement is usually done by businesses who want to test the demands of the market by storing their merchandise in the consignee’s warehouse. As the consignee sells the merchandise to customers and transfers the payment to the consignor after deducting the commission fees that are specified in the agreement.

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