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In Law, What Is Consignment?

Jewelry is often offered for sale by consignment.
Fine art is typically sold in consignment.
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  • Written By: Lainie Petersen
  • Edited By: Jenn Walker
  • Last Modified Date: 04 November 2014
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In the United States, consignment is an arrangement whereby the owner of an item hands the object over to a seller while maintaining ownership of the item until it is sold. After the sale, the seller typically pays the sale price to the original owner, less an agreed-upon percentage for himself. Because the owner of the item retains ownership until it is sold, she normally can cancel the arrangement at any time and ask for her item back. The owner may assume some risk of loss should anything happen to the item while the seller has possession of it, unless a contract has made provisions for such an occurrence. Consignment-selling offers affordable bargain shopping in many areas of the world, but legal restrictions and rules may vary by country or region.

This type of sale provides advantages to both sellers and owners of retail goods. The seller benefits by not having to put up his own money to buy an item with no guarantee that it will sell. The owner doesn't generally have to work as hard to get a seller to handle her goods as she would if the person were buying the item at wholesale. She also may be able to command a higher percentage of the final sale price for herself. Consignment shops and galleries also tend to offer new and unknown artists an opportunity to get greater exposure for their work than they might otherwise have if selling their work directly to buyers.

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Questions sometimes arise as to the extent of both the owner's and the seller's liability for damage to goods sold this way. In the U.S., under a state's Uniform Commercial Code, a negligent seller would usually have to compensate an item's owner for damage caused by the seller's negligence. Damage caused by something outside the seller's control, such as a flood, might mitigate the seller's responsibility, however, depending on the laws in the state where the item is being offered for sale.

Owners of items being sold on consignment may face another risk: if a shop or gallery goes bankrupt, creditors may be able to seize all goods on the premises to offset the seller's debt. If this happens, the owner of the item may not be able to reclaim her property and will instead have to file a claim against the seller in hopes of some compensation. In the U.S., owners can protect themselves by filing a UCC Form 1 with the county government in the area where the store is located. This establishes a lien on the item, so that the owner can claim it should the seller run into financial trouble.

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anon355942
Post 5

I have comic books in an online consignment. They priced my comics and put them up for sale. They take 2.50 to 5.00 for grading the comic when it sells and in addition are taking 50 percent of the selling price. I look at my sales and a comic sold for $9.50, which should be a good sale, but they take 50 percent so, at $4.75, then take out the $4.99, so I would owe them money. They gave me 10 cents, so their percentage of my comic they keep is 98.94 percent. I received 1.05 percent of the sale.

I asked for my remaining comics back and they said they get to keep them for 30 months. Do I have any legal recourse?

stl156
Post 4

@jcraig - That is quite interesting and I am hoping that the consignment shop I take items to does not take a percentage of my profits.

The major problem I can see with a consignment shop doing something, such as that, is that it will drive the prices of the item up and will cause less business.

I also have to wonder about how protected a consignment business is from things that are outside of their control. I am sure that there are laws concerning this that vary from state to state, but I am really wondering if someone could provide an example of the differences depending on the laws and area one is in?

jcraig
Post 3

@matthewc23 - Well, drawing from my own experience the process by which one puts an item in a consignment shop is quite simple.

The consignment shop that I take my items to requires me to get a shelf, which one has to wait for one to become available. Next, assuming one is next in line to be offered a shelf, they are given a small monthly fee for having the shelf and they are free to put whatever they feel on it to sell, assuming the owner of the shop does not have a problem with it.

Now it is different other places, but at the consignment shop I go to we do not have to give them a percentage of the sale of the item, but this all depends on the store policy.

Finally, I had to sign an agreement with the owner that I will not hold the owner responsible if they were to break one of my items. If a customer breaks one then they will have to pay for it and if there are circumstances the owner cannot control, like a robbery or act of God, then they are exempt from having to pay damages.

matthewc23
Post 2

@Emilski - Absolutely. The beauty of a consignment shop is that for a small fee a person does not have to worry about going through the trouble of finding a buyer for their item.

If someone were to have a unique item, but not something everyone would want to have, then it can be a little difficult to sell it, because then one would have to keep trying to sell it until someone interested comes along.

A consignment shop provides people a way not to deal with this trouble, for just a small fee. What I am wondering though is how exactly the process of getting an item consigned works and what might one expect if they were to decide to go this route with an item they are looking to sell?

Emilski
Post 1

I never really understood exactly what consignment was until reading this article, but now it seems to me that it is really something that is quite common.

Say someone has an item that is worth some money, but it would take awhile to find someone looking to buy it. This is where they can take it to a consignment shop, where it can sit on a shelf until someone decides they want the item.

This allows the owner to not have to waste their time trying to find a seller for an item that is not high in demand, but valuable nonetheless.

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