In any consignment, the consignor is the party that owns the goods and hands them over, and the consignee is the party that receives them, either as a carrier’s named recipient or as a merchant tasked with selling them. The core difference between a consignor vs. consignee is title: the consignor keeps legal ownership until a customer buys the item, while the consignee only holds, ships, or sells the goods on the consignor’s behalf. That single fact drives everything else that separates the two roles, from who files paperwork to protect the inventory, to who insures it, to who reports what on a tax return.
Who Owns the Goods
In a true consignment, legal title stays with the consignor the entire time the goods sit on the consignee’s shelves. The consignee has physical possession but never owns the inventory. Title passes only when a third-party customer buys the item at retail. Until that sale closes, the merchandise belongs to the consignor, and the consignee holds it as a bailee.
The Uniform Commercial Code sets the baseline. Under UCC § 7-102, a consignor is the person named in a bill of lading as the one from which goods were received for shipment, and a consignee is the person to whom the bill promises delivery.1Cornell Law Institute. Uniform Commercial Code 7-102 – Definitions and Index of Definitions Those shipping-document definitions carry over to retail consignment, where the consignor delivers goods to a merchant instead of a carrier.
Article 9 draws a tighter line for retail arrangements. A transaction counts as a consignment under Article 9 when goods worth at least $1,000 per delivery go to a merchant who sells that type of goods under a different name, isn’t an auctioneer, and whose creditors don’t generally know the merchant sells other people’s inventory. The goods also can’t be consumer goods at the time of delivery.2Cornell Law Institute. Uniform Commercial Code 1-201 – General Definitions
Consignment is not the same as a “sale or return.” UCC § 2-326 treats a sale or return as a completed sale where the buyer takes title but can return unsold items. In that setup, the buyer’s creditors can reach the goods unless the original owner takes specific protective steps.3Cornell Law Institute. Uniform Commercial Code 2-326 – Sale on Approval and Sale or Return; Consignment Sales Labeling a contract “consignment” doesn’t automatically make it one. What matters is how the arrangement actually functions.
Protecting the Consignor’s Ownership
Here is where most consignors get burned. If a consignor doesn’t file a UCC-1 financing statement to perfect its interest in the goods, the consignee’s creditors can seize that inventory as though the consignee owned it. Under UCC § 9-319, when the consignor’s security interest is unperfected, the consignee is treated as having full rights and title to the goods for purposes of creditor claims. If the consignee files for bankruptcy with unperfected consignment inventory on hand, the consignor stands behind secured creditors and may recover nothing.
To avoid that outcome, the consignor files a UCC-1 in the state where the consignee is located, describing the consigned goods. UCC § 9-505 lets the filing use the plain terms “consignor” and “consignee” instead of the standard Article 9 language.4Cornell Law Institute. Uniform Commercial Code 9-505 – Filing and Compliance With Other Statutes and Treaties for Consignments, Leases, Other Bailments, and Other Transactions Filing fees vary by state and typically run $5 to $35.
Filing is only the first step. If the consignee already has a lender with a blanket security interest covering its inventory, the consignor has more work to do. A consignor’s interest qualifies as a purchase-money security interest in inventory under UCC § 9-103(d).5Cornell Law Institute. Uniform Commercial Code 9-103 – Purchase-Money Security Interest; Application of Payments; Burden of Establishing To beat the existing lender’s claim, the consignor must perfect the interest before the consignee takes possession and send written notice to the holder of the conflicting security interest describing the goods.6Cornell Law Institute. Uniform Commercial Code 9-324 – Priority of Purchase-Money Security Interests Skip that notice and the existing lender’s blanket lien wins, even though the consignor still owns the goods.
What the Consignor Owes
The consignor must deliver goods matching the description in the agreement, including accurate weights, quantities, and condition. When the consignor is a merchant selling goods of a particular kind, an implied warranty of merchantability attaches. The goods have to be fit for their ordinary purpose, conform to any label descriptions, and pass without objection in the trade.7Cornell Law Institute. Uniform Commercial Code 2-314 – Implied Warranty: Merchantability; Usage of Trade
Freight, insurance during transit, and any special storage costs typically fall on the consignor, since the consignee is providing a service by displaying and selling the inventory. A carrier can place a lien on the goods for unpaid transportation and storage charges, so paying promptly is in the consignor’s direct interest.
Product Liability Exposure
A consignor who manufactures or supplies goods faces strict liability if those goods injure a consumer. Product liability law reaches everyone in the distribution chain, and strict liability doesn’t require proof that the consignor was careless. The consumer needs to show only that the product was defective when it left the consignor’s hands and that the defect caused the injury. Defects fall into three categories: design flaws that existed before the product was built, manufacturing errors during production, and inadequate warnings or instructions. The consignor’s position at the top of the supply chain makes it the primary target in most product liability claims, and consignment agreements should address indemnification for this risk.
What the Consignee Owes
Once the consignee takes possession, the law imposes a duty of reasonable care over the goods. The consignee doesn’t own the inventory but holds it under a bailment for mutual benefit. That standard requires the consignee to protect the goods from theft, damage, and deterioration with the same diligence a reasonable person would apply to their own property. In a retail setting, the consignee also has an obligation to actually market and sell the goods. Letting inventory sit untouched in a back room defeats the purpose of the arrangement and can breach the agreement.
When an item sells, the consignee deducts a commission and remits the balance to the consignor. Commissions vary widely by industry. Art galleries commonly charge around 50%, while clothing consignment shops and general retailers often take 25% to 40%. The consignment agreement should specify the commission rate, the payment schedule, and what records the consignee must keep. Vague payment terms are the single most common source of consignment disputes.
Insurance
Standard commercial property insurance held by the consignee doesn’t automatically cover goods owned by someone else. A consignee holding significant consigned inventory should carry a bailee’s insurance policy, which specifically covers loss or damage to third-party property in the consignee’s custody. General liability insurance covers bodily injury or property damage claims from operations but won’t replace destroyed consignment inventory. The agreement should spell out minimum coverage amounts and require each party to name the other as an additional insured where possible.
Who Bears Risk During Shipment
For interstate shipments in the United States, the Carmack Amendment at 49 U.S.C. § 14706 makes carriers liable for actual loss or injury to property from the moment they take custody until delivery is complete.8Office of the Law Revision Counsel. 49 USC 14706 – Liability of Carriers Under Receipts and Bills of Lading Carriers must issue a bill of lading, and that document becomes the central piece of evidence in a damage dispute. Carmack preempts state-law cargo claims for interstate surface transportation, so it is effectively the only route for domestic freight disputes. Documenting condition at delivery with photographs and inspection notes protects both parties.
International Shipments and Incoterms
For consignments crossing international borders, the risk transfer point depends on the Incoterm the parties selected. The International Chamber of Commerce publishes 11 standardized trade terms that define exactly when risk shifts from seller to buyer. Four are especially common in consignment work:
- EXW (Ex Works): Risk transfers the moment goods are made available at the consignor’s premises. The consignee bears nearly all shipping risk.
- FCA (Free Carrier): Risk transfers when goods are delivered to a carrier at the named place. This is one of the most commonly used terms for containerized shipments.
- DAP (Delivered at Place): Risk stays with the consignor until goods arrive at the destination, ready for unloading.
- DDP (Delivered Duty Paid): The consignor assumes all risk and cost, including import duties and customs clearance, until goods reach the consignee.
The chosen Incoterm determines who insures the goods during each leg and who files the claim if something goes wrong. International consignment agreements should always specify which term applies.
Tax Treatment for Each Side
The two roles are taxed differently because they play different economic parts. The consignor reports the net proceeds from consignment sales as income. The consignee, acting as an agent rather than a buyer, reports only its commission as income and does not include the full sale price of consigned goods in its own revenue.
For sales tax, the consignee is generally the party responsible for collecting and remitting on retail consignment sales, because it is the one completing the transaction with the end customer. Rules vary by state, so both parties should confirm the arrangement with their state tax authority.
Consignment stores are generally not required to issue a 1099-NEC or 1099-MISC to individual consignors for the sale of merchandise, because payments for goods and inventory are exempt from 1099 reporting under IRS guidelines. If the consignee pays consignors through a third-party payment processor like PayPal or Stripe, the processor handles 1099-K reporting when the consignor’s gross payments exceed $20,000 and 200 transactions in a calendar year.9Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill – Dollar Limit Reverts to $20,000 Collecting a W-9 from every consignor at the start of the relationship saves headaches later.
When the Relationship Ends
When a consignment agreement terminates, unsold goods still belong to the consignor, and the consignee must return them. The agreement should specify who pays return shipping, how long the consignee has to prepare goods for pickup, and what happens to items mid-sale at termination. Without clear terms, disputes over return costs and timing are almost inevitable.
If the consignor fails to retrieve goods and stops responding, unclaimed property laws eventually apply. Most states require the party holding abandoned property to send written notice to the owner before the goods can be reported to the state. Notice periods and procedures differ by jurisdiction, but the pattern generally involves at least one mailed notice followed by a waiting period before the property escheats to the state. A well-drafted consignment agreement avoids that outcome by setting a hard deadline for retrieval and stating that the consignee may dispose of or donate goods left past that date.