A consignment agreement is entered into where one party (the “consignor”) supplies goods to another party (the “consignee”) for the purpose of selling those goods. The consignor retains ownership of the goods until they are sold, but they are in the consignee’s possession in order to enable the consignee to sell them. This article sets out some of the key issues you should keep an eye out for when reviewing or drafting a consignment agreement.

1. How does a Consignment Agreement work?

In a consignment arrangement the consignee acts as agent for the consignor for the purpose of selling to third parties (i.e. consumers) the goods that are the subject of the consignment arrangement. Even though the goods have been supplied to the consignee and the goods are in the consignee’s possession, the consignee does not become the owner of the goods. The consignor remains the owner of the goods until they are sold, when the consumer becomes the owner of the goods. The consignor may request that the goods be returned at any time, subject to the terms and conditions of the consignment agreement.

2. Should we enter into a Consignment Agreement?

Generally, a person or company will enter into a consignment agreement in order to ensure that it retains ownership over goods being sold by a third party. This may be because the consignor is unwilling to sell the goods to the consignee on an invoice basis or the goods may be of very high value, and the consignee might therefore not be in a position to pay for them until they are sold to the consumer.

3. Do we need to register a PPSR interest?

It is important to note that a consignor must register their interest in the goods under consignment through the personal property securities register (PPSR), otherwise there is a risk that their goods may not be returned in the event that the consignee defaults on its obligations to its creditors. Further information on the PPSR and registering an interest can be found by clicking on the following link: http://www.ppsr.gov.au/Pages/ppsr.aspx.

Conclusion

A consignment agreement is a specific agreement designed for a set purpose. It’s important to be sure that you do need to use a consignment agreement before going through the process of drafting it. The LegalVision Consignment Agreement can be used if you are either a consignor or consignee and is a well balanced agreement, covering all the important issues and biased to neither party. Contact LegalVision today on 1300 544 755 to speak with contract attorney today.

Lachlan McKnight

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