Secured Transactions

Lesson 31: Consignments

Welcome to Lesson 31 on Consignments, a part of the larger topic of Special Types of Security Interests. This lesson delves into the intricacies and nuances of consignments within the realm of secured transactions.

What is a Consignment?

Consignment refers to a commercial arrangement in which a consignor (owner of goods) delivers goods to a consignee (dealer or agent) to sell on behalf of the consignor, while the consignor retains ownership until the goods are sold.

Note: Both the consignor and consignee must adhere to specific legal provisions to ensure that the consignment is properly documented and secured.

Legal Framework

Consignments are governed under UCC Article 9, which provides a structured framework for creating and enforcing security interests in personal property, including consignments. For more in-depth understanding, consider reading Secured Transactions in a Nutshell.

Key Components of Consignment

Consignor: The owner of the goods.
Consignee: The party authorized to sell the goods.
Consignment Agreement: A legal document outlining the terms of the consignment.
Perfection: The process of legally recording the consignment to protect the consignor's interest.

Illustration of Consignment Process

graph TD A[Consignor delivers goods to Consignee] B[Consignee stores & sells goods] C[Consignee collects payment from buyer] D[Consignee remits sale proceeds to Consignor] A --> B B --> C C --> D

Perfection and Priority

Perfection of a consignment involves filing a financing statement to give public notice of the consignor's interest in the goods. This step is crucial for establishing the consignor's priority over other creditors.

Mathematics of Consignment

Let's consider the financial aspects of consignment using a simple mathematical formula:

\[ \text{Profit} = \text{Sale Price} - (\text{Consignor's Cost} + \text{Consignee's Commission}) \]

Best Practices

To ensure the consignment is legally sound and commercially viable, both parties should follow these best practices:

Draft a comprehensive consignment agreement.
File a financing statement for perfection.
Regularly audit inventory and sales reports.

For deeper insights, you can refer to Methods of Perfection and Automatic Perfection and Possession.

Conclusion

Understanding consignments and ensuring proper legal procedures are crucial for both consignors and consignees. Consignments offer a unique way to sell goods while maintaining flexibility and control over inventory.