A consignor’s rights and responsibilities come down to this: you keep legal title to your goods until a buyer pays for them, you are entitled to the sale proceeds minus the agreed commission, and you can reclaim anything that doesn’t sell, but in exchange you must deliver the goods honestly, honor the pricing terms you agreed to, and take specific legal steps to keep your property safe from the consignee’s creditors. Miss those steps and the law can treat your goods as if the consignee owned them.
What You Owe the Consignee
Handing over goods is the start of an obligation, not the end of one. The consignee is agreeing to sell what you described, under terms you both set, and your side of that bargain has real content.
Deliver the goods in the condition you promised. If you consigned a piece of furniture as “excellent condition” and it shows up with water damage, you’ve undercut the sale and may have breached the agreement.
Disclose anything that affects value or saleability. For art and antiques, that means certificates of authenticity, restoration history, and ownership records. Concealing a defect isn’t just bad practice; it can expose you to fraud claims.
Agree on pricing and respect the schedule. Most consignment contracts set either a fixed asking price or a minimum you’ll accept. Many shops also use automatic markdowns, commonly every 30, 60, or 90 days, with each reduction calculated from the original listing date rather than the last price drop. Read the schedule before you sign so you know the lowest number the consignee can legally sell at.
Pay the commission. Retail consignment commissions commonly run 40% to 60% of the sale price, and some consignees add per-item listing or processing fees on top. Your net proceeds can be well below the sticker price, and the agreement controls which deductions are allowed.
What the Consignee Owes You
Consignment law tilts toward the person who actually owns the goods. Four rights matter most.
Payment After a Sale
Once your item sells, you are entitled to the sale proceeds minus the agreed commission. The agreement should set a payment schedule, whether a fixed number of days after each sale or a monthly cycle. If the contract is silent on timing, your position for demanding prompt payment weakens considerably, which is one of the strongest arguments for a written agreement.
Return of Unsold Goods
You can get your property back if it doesn’t sell. In a standard consignment, the consignee can return unsold goods and the consignor can reclaim them when the term expires or the agreement is terminated.1Credit Research Foundation. The Benefits of Properly Documenting a Consignment Transaction and the Potential For Recovery By Creditors that Don’t Watch for reclaim fees or return shipping charges if you want items back before the contract period ends.
Retained Ownership
Your goods do not become the consignee’s property just because they sit on the consignee’s shelf. You hold title until a third-party buyer completes the purchase.2Legal Information Institute. UCC 2-326 – Sale on Approval and Sale or Return; Consignment Sales and Rights of Creditors That ownership has to be defended with the right paperwork, as described in the next section, but as a baseline matter the goods are yours.
Access to Sales Records
You are entitled to see the records that show how your goods were sold and what was deducted. In the livestock industry, federal regulations specifically require market agencies selling on commission to give consignors copies of the bills covering charges deducted from proceeds.3eCFR. 9 CFR 201.45 – Market Agencies to Make Records Available for Inspection by Owners, Consignors, and Purchasers Even where no regulation applies, your agreement should guarantee access to transaction records. Without it, you have no way to confirm you’re being paid correctly.
Protecting Your Goods If the Consignee’s Business Fails
This is where consignors who treated the arrangement casually lose their property. Calling something a “consignment” and signing an agreement does not, on its own, protect your goods from the consignee’s creditors. If the consignee’s bank or supplier holds a security interest in the consignee’s inventory, those creditors may be able to claim your goods unless you’ve filed the right paperwork.
The Uniform Commercial Code governs this question. Under Article 9, a consignment of goods delivered to a merchant who sells goods of that kind under its own name qualifies as a consignment only if the goods are worth at least $1,000 per delivery, the merchant isn’t an auctioneer, isn’t widely known by its creditors to sell other people’s goods, and the goods weren’t consumer goods right before delivery. Transactions below that $1,000 threshold fall outside Article 9’s consignment rules and are governed by general state commercial law, without the same built-in protection framework.
File a UCC-1 Financing Statement
For qualifying consignments, your interest in the consigned goods is automatically classified as a purchase-money security interest in inventory.4LII / Legal Information Institute. UCC 9-103 – Purchase-Money Security Interest; Application of Payments; Burden of Establishing That classification only helps if you perfect it by filing a UCC-1 financing statement in the correct jurisdiction. The filing puts the world on notice that goods in the consignee’s possession belong to you.
Skip the filing and the consequences are severe. Under UCC Section 9-319, while goods are in the consignee’s possession and the consignor hasn’t perfected, the consignee is treated as having the same rights and title to the goods as the consignor.5Legal Information Institute. UCC 9-319 – Rights and Title of Consignee With Respect to Creditors and Purchasers In practical terms, the consignee’s creditors can seize your property as though the consignee owned it.
Getting Ahead of Existing Lenders
Filing protects you against future creditors, but many consignees already have lenders with a blanket security interest over all their inventory. Jumping ahead of those existing creditors takes more than a filing. You must perfect your interest before the consignee takes possession, send written notice to every holder of a conflicting security interest describing the goods, and make sure those holders actually receive the notice. Miss any step and an existing secured creditor’s claim will outrank yours.
If the Consignee Files for Bankruptcy
Perfection becomes everything in bankruptcy. If you perfected before the bankruptcy filing, your claim to the consigned goods has priority over unsecured creditors and can even beat prior secured creditors when you followed the notification steps. If you didn’t perfect, a bankruptcy trustee can treat your interest as a general unsecured claim, putting you behind secured creditors and leaving you to recover pennies on the dollar, even though you still technically hold title.
Who Pays If the Goods Are Damaged or Stolen
Because you retain ownership until sale, damage or theft is your financial loss unless the agreement shifts it. The consignee has physical custody, but standard business insurance policies often exclude property the business doesn’t own. That gap can leave your goods uninsured while they sit on someone else’s shelf.
The fix is to require the consignee to carry bailee coverage, a form of insurance designed for businesses holding property that belongs to someone else. Bailee policies typically cover physical loss or damage from fire, theft, and water damage. Your agreement should set a minimum coverage amount tied to the value of your goods and require the consignee to name you as a loss payee. If the consignee won’t carry it, consider adding a rider to your own policy, though that route is more cumbersome.
Taxes on Consignment Income
Consignment sales create taxable income, and the timing catches people out. You don’t recognize income when you hand goods over. Income is recognized when the item actually sells to a third-party buyer. At that point you report the full sale price as gross income and deduct the commission as a business expense. Consigning regularly usually means reporting on Schedule C as self-employment income.
Sales tax rules vary. In most states the consignee, as the party completing the retail transaction, collects and remits sales tax, but some states treat the consignor as the retailer, so check your state’s rules before assuming the consignee handles it. If a consignee pays you more than $600 in commissions or proceeds during the year, expect a 1099 reporting that income to the IRS.
What to Put in the Written Agreement
A handshake consignment is how property goes missing and proceeds go unpaid. A written agreement protects both sides and should cover these points at a minimum:
- A specific description of the goods, including condition, quantity, and agreed value.
- A clear duration, with instructions for what happens when the term ends: return, auto-renewal, or markdowns.
- The initial asking price and any automatic reductions, including the lowest price the consignee can accept without your approval.
- The commission percentage or flat fee, plus any additional listing, storage, or processing charges.
- Payment timing and method after each sale, such as net-15 or net-30.
- Insurance requirements, including minimum coverage and whether you must be named as a loss payee.
- Consent to the filing of a UCC-1 financing statement where the transaction qualifies under Article 9.
- Early-termination rights, notice periods, and any reclaim or restocking fees.
- Your right to inspect sales records, including dates, sale prices, and buyer information where appropriate.
Getting these terms down before the first item changes hands is the single most effective thing a consignor can do. Every legal protection described above depends on the underlying agreement being clear, written, and complete.