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Contents of a consignment agreement


skiingfiddler
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It's time to plan for selling off some of my instruments, bows, and books.

Manfio's recent thread made me aware that I really don't know anything about consignment agreements, what's typical, what isn't, what the consigner (the instrument owner) should look for to protect oneself.

Never having seen a consignment agreement, i assume it should contain the following:

1. A statement of the selling price.  This could be done in the following ways:

-- a. As an exact, single number.  The dealer agrees to sell the instrument at that exact price.  Changing that price would require getting confirmation for the change from the consigner.

-- b. As a price range.  The dealer could negotiate within that price range without consulting the consigner.

-- c. No specific price or range at all.  The consigner trusts the dealer to get fair market value with no additional consultation with the consigner.

2. A time-frame for the consignment.  Possibilities are:

-- a. The consigner and dealer agree on a certain date, prior to which the consigner will not seek return of the instrument.  After that date the consigner may ask for the return of the instrument, having given the dealer adequate notice, say, 7 days.

-- b. There is no time-frame, but the consigner may retrieve the instrument at any time, giving adequate notice, say 7 days, which the dealer may need to retrieve the instrument out on trial.  Once the dealer gets the notice that the consigner wants to retrieve the instrument, the dealer may no longer pursue its sale, even if it is in the hands of a willing buyer.

-- c. The dealer will no longer offer the instrument for sale after a certain, specific date, and the consigner must retrieve the instrument within a certain time period after that date, say, 14 days.

3. Fees for consignment. Any of the following can apply, I assume:

-- a. A  commission for the dealer based on the selling price.  I remember this to be between 20 and 30%.  Has that changed?.

-- b.  As an alternative to a, above, a fixed amount of dollars charged by dealer, regardless of selling price.  I've never heard of this, but maybe it happens with inexpensive instruments.

-- c. A charge for making needed repairs prior to offering the instrument for sale.

-- d. A price for evaluating the instrument to arrive at a fair selling price.  The dealer will need to evaluate condition and provenance of the instrument to determine a fair selling price.  Also the dealer would need to know market history and current market demand, specifically for that instrument and generally for instruments. The dealer could, reasonably, charge a fee for that.  Maybe they don't.

I thank anybody with experience with consignment agreements who can offer their insights into what works and what doesn't, and can offer judgments about what I've assumed, above.

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PhilipKT,

Thanks for that suggestion.  I've never used Ebay, so I probably won't do that.

You bring up a good point.  Selling the books will probably take a very different route than selling the instruments and bows.  Some violin dealers sell books, but I don't know if they are willing to sell books on consignment.

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Auctions are not a bad choice these days, more end users are in the game than ever and the difference between auction and retail prices has tightened to point where you may come close to the consignment price. And it can happen quickly (time is money).

But to your original question, most dealers have their terms laid out, I would look at what they usually do and ask for any modifications to your specific needs, in writing. And of course find the right dealer, someone who regularly sells the type of stuff you have.

BTW, I noticed you mentioned possible repairs, I wouldn't consign any instrument that might need repairs, just because it could get messy. This is T2 territory. Or I would pay outright for a repair before even discussing consignment,  and then go fresh from there.

You also might want to discuss any modifications (set up stuff-not repairs) that you might allow at a potential customer's request, things like higher/lower bridges, soundpost adjustments , strings, etc.

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deans,

Thanks for the tips.  I will definitely seek clarity on allowing or not allowing set up modifications.

I hadn't thought about using auctions.  I might consider using one dedicated to string instruments and related items only.  That might be a good place to sell the books, too.  That deserves further research.

My concern about auctions  with public viewings is the idea I have that there isn't any oversight about how potential customers are handling the instruments.  Any stranger can walk in and handle an instrument. (At least that's been my experience with the auctions I've been to, but those weren't auctions associated with major auction houses.)  At least with an instrument on consignment, possible buyers go through some kind of filtering process by having a dealer present the instrument to them.

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This is old, I am amazed I found it, and would now add a few things:

CONSIGNMENT CONTRACT

 

1.         Names.  ____________________________, Owner, and SHOP, Consignee, agree to the following consignment:

2.         Property Consigned.  Owner has delivered / will deliver the following Goods to Consignee on consignment:

 

Goods                                                 Minimum Sale Price

__________________________        _____________________________

__________________________        _____________________________

 

3.                  Title.  Title shall remain in the Consignor at all times until a final sale.

4.         Efforts to Sell.  Consignee will display the Goods and attempt to sell them at or above the prices listed in paragraph 2.  Consignee may ship the Goods to potential buyers outside the state of __________.  Consignee will obtain the oral or written or email consent of Owner before selling the Goods at prices lower than those listed in paragraph 2.

5.         Proceeds of Sale.  Following a sale, Consignee will retain from the sale proceeds a commission of 20% of the sale price plus any labor and material charges incurred in preparing the goods for sale.  In computing the commission, sales tax will not be added to the sale price. Consignee will send the balance of the sale proceeds to Owner within five days of the sale.

6.         Ownership Before Sale.  Owner will retain ownership of the Goods until they are sold.

7.         Risk of Loss.  While the Goods are in Consignee's possession, Consignor will bear the risk of damage to or loss of the Goods.  Consignee will immediately notify Consignor of any loss or damage.

8.         Termination of Consignment.  Owner or Consignee may terminate this contract at any time. If either party terminates the agreement, Consignee will return the Goods to Seller at:

[  ]  Seller's place of business at ___________________________________________________.

[  ]  Consignee's place of business at _____________________________________.

[  ]  Other: ___________________________________________.

Consignor is responsible for the cost of shipping should Consignor specify return to other than Consignee’s place of business.  Consignor may use any commercial carrier.

9.         Fee Avoidance.  Following termination of Consignment, should Consignor sell the Goods to a buyer located by the Consignee during the period of Consignment, the Consignor agrees to pay Consignee all money that would have been due to the Consignee had the Goods been sold during the period of Consignment. 

10.       Entire Agreement. This is the entire agreement between the parties. It replaces and supersedes any and all oral agreements between the parties, as well as any prior writings.

11.       Successors and Assignees.  This agreement binds and benefits the heirs, successors and assignees of the parties.

12.       Notices.  Notices may be made orally or via email and subsequently confirmed in writing.  A notice may be delivered to a party at the address that follows a party's signature or to a new address that a party designates in writing or email. A notice may be delivered:

 

 

(1) in person, or

(2) by regular mail

Initals: Consignor ________, Consignee ______.

Gianna Violins Consignment Contract with ___________________________________ page 2

 

13.       Governing Law.  This agreement will be governed by and construed in accordance with the laws of the state of ________________.

14.       Counterparts.  The parties may sign several identical counterparts of this agreement. Any fully signed counterpart shall be treated as an original.

15.       Modification.  This agreement may be modified only by a writing signed by the party against whom such modification is sought to be enforced.

16.       Waiver.  If one party waives any term or provision of this agreement at any time, that waiver will only be effective for the specific instance and specific purpose for which the waiver was given. If either party fails to exercise or delays exercising any of its rights or remedies under this agreement, that party retains the right to enforce that term or provision at a later time.

17.       Severability.  If any court determines that any provision of this agreement is invalid or unenforceable, any invalidity or unenforceability will affect only that provision and will not make any other provision of this agreement invalid or unenforceable and shall be modified, amended or limited only to the extent necessary to render it valid and enforceable.

 

Dated: ____________________

 

CUSTOMER

Name of Business: ______________________________________________

a ____________________________________________________________

By: __________________________________________________________

Printed Name: _________________________________________________

Title: _________________________________________________________

Address: ______________________________________________________

 

CONSIGNEE

SHOP

By: __________________________________________________________

Printed Name: _________________________________________________

Title: ________________________________________________________

Address: ___________________________________________________

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Stephen Perry,

Many thanks for that form.  That answers a lot of my questions.

I'm surprised by item 7, risk of loss.  That item makes the consigner responsible for any damages while the instrument is with the dealer.  I would have thought that shop insurance, rather than owner's insurance, would cover that.  That leads me to believe a consigner had better check with consigner's insurance to see if consigner's insurance would cover the instrument in the shop.  That, or seek another consignee, who is willing to insure the instrument while in the shop.

In a contract like the one, above, I wonder which insurance would cover the instrument while it's out on trial.  I'm guessing it would not be the dealer's (consignee's) insurance, if the dealer doesn't want to insure the instrument while it's in the shop.  

The more I think about it, the less I like item 7.  I wonder if it's typical.

Anyway, thanks again.  Would you be willing to elaborate on the changes you would like to make?

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Risk of loss is negotiable.  Owner assuming risk for everything except gross negligence is sometimes put in.  If I recall correctly (long time now since studying for the bar exam), if the bailment is for mutual benefit, then the bailee must exercise ordinary care and is liable for breach of that duty.  Contract can always trump.    I would likely leave 7 alone.  I would make more clear risk of loss and anything else I can think of when instrument is sent out.   I'd also add a section on owner being responsible for filing UCC-1.  Notify and return if bankruptcy contemplated.  Require secondary contact (I have had things left and been unable to find the consignor for years).  Disposition if consignor cannot be located.  Shipping costs.  Attorney fees if dispute.     

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29 minutes ago, Stephen Perry said:

  Notify and return if bankruptcy contemplated.  

 

Stephen,

Does the part I quoted from your post indicate that you believe the following proposed addition to a consignment agreement would be acceptable and enforceable in a consignment agreement? (I took the proposal from my post on Manfio's thread.)

Proposed addition to consignment agreement:

"Prior to the dealer ending ownership of their business or prior to the dealer beginning the process of declaring bankruptcy, the dealer agrees to return to the consigner the consigner's property or its fair market value."

i don't want to appear anonymously, here, while you are being quite open.  I know nothing formally about law.

Many thanks,

Steven Csik

 

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10 hours ago, skiingfiddler said:

 

 

Stephen,

Does the part I quoted from your post indicate that you believe the following proposed addition to a consignment agreement would be acceptable and enforceable in a consignment agreement? (I took the proposal from my post on Manfio's thread.)

Proposed addition to consignment agreement:

"Prior to the dealer ending ownership of their business or prior to the dealer beginning the process of declaring bankruptcy, the dealer agrees to return to the consigner the consigner's property or its fair market value."

i don't want to appear anonymously, here, while you are being quite open.  I know nothing formally about law.

Many thanks,

Steven Csik

 

There is no "the law."  There are statutes, judicial decisions, standard courses of dealing.  So, without any specific advice, I will simply observe that terms like "fair market value" end up debated in court.  

A big issue is when the consignee fails to honor this type of term and ends up in bankruptcy anyway.  You're still screwed.  The UCC-1 is likely more effective.

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Dear Ski,

I think your draft contract rather ignores two (at least) things.

Firstly, I wonder why I (or anyone else) should want to sell your violins for you at all. I wouldn't. I prefer to sell violins that belong to me (I have a whole house full of them). I am a violin restorer and not some desperate shopkeeper.

Secondly. Should I be in dire straights and have to file for bankruptcy (not something I intend or expect to do), it would be because I have no money (or credit) left. If I have no money or credit left I would be unable to pay you anything, even if I wanted to, and even if you came around with your contract glued to your forehead.

Thirdly, I rather wonder if it is any of your business, how much I earn from selling a violin, and wonder where the sense of entitlement arises from. After all, you are the one who wants to sell something.

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1.  It's not a draft contract.  It's an old contract from over a decade ago I found in my archives.  It likely was developed for someone who simply asked me to sell something for them.

2.  People consign items because they don't have the ability or desire to present their items to the market, they can't take credit cards, they don't know how to describe their items, they hate people, and so on.

3.  Characterizing shopkeepers as "desperate" is unnecessary and downright nasty.  Anyone approaching me to help them sell something and characterizing me as "desperate" would be shown the door.  Consignment is a legitimate and useful portion of a business model.  Not all business models, but it is a component, such as renting, manufacturing, custom work, and repairs.

4.  Bankruptcy does present issues.  Entities that go bankrupt have not necessarily exhausted all their assets. They simply cannot pay their debts.  Companies do this all the time.  A business model that's frequently used is to set up (sometimes from the beginning) a strategic bankruptcy.  Owners/managers sometimes arrange to extract large sums, wait a suitable period, and then bankrupt the business, restructure it, and make it work freed from its initial debts.  I find this distasteful, but if done correctly, it's both unethical and legal.

5.  Building on No. 4, bankruptcy results in restructuring of debt.  Note that I am not a bankruptcy attorney.  The creditors get in a line to split up assets or to get paid in the future or whatever.  Unsecured creditors are at the end of the line.  The trick is to be at the front of the line and entitled to full satisfaction.  One element of this in the US is putting other creditors on notice that you maintain an interest in your goods.  Thus the filing of a UCC-1 becomes very important.  You tag your goods in a formal manner.  A bank looking to loan the entity holding your goods will see that you have an interest that will be higher priority than their general interest in all the goods within the business.  

6.  I understand you don't see the value of contracts.  Perhaps you misunderstand.  Every dealing involves a contract, whether written or not.  Writing simply helps clarify things.  If you give something and get something there was a contract.  Best to have it written down.

7. Nothing I wrote suggests I have any interest or any shop or individual acting as consignee in how much anyone makes in making or selling things.  I have no sense of entitlement at all.  I would rather not, personally, take consignments.  From an objective perspective, a business just doing consignments might do well.  Perhaps with special sales events.  Those could, for example, be periodic auctions.  Oh, that's a business model we know.

8.  You're very prickly and personal.  You may wish to examine your presentation approach, especially when poking at people who actually know things in a domain where you clearly know absolutely nothing, and may even be proud of that.

 

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33 minutes ago, jacobsaunders said:

Firstly, I wonder why I (or anyone else) should want to sell your violins for you at all. I wouldn't. I prefer to sell violins that belong to me (I have a whole house full of them). I am a violin restorer and not some desperate shopkeeper.

I don't think this thread was meant as a suggestion for how you in particular should choose to run your business.

Many shops regularly consign, others don't, it usually doesn't have anything to do with desperation.

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12 hours ago, skiingfiddler said:

Stephen Perry,

Many thanks for that form.  That answers a lot of my questions.

I'm surprised by item 7, risk of loss.  That item makes the consigner responsible for any damages while the instrument is with the dealer.  I would have thought that shop insurance, rather than owner's insurance, would cover that.  That leads me to believe a consigner had better check with consigner's insurance to see if consigner's insurance would cover the instrument in the shop.  That, or seek another consignee, who is willing to insure the instrument while in the shop.

In a contract like the one, above, I wonder which insurance would cover the instrument while it's out on trial.  I'm guessing it would not be the dealer's (consignee's) insurance, if the dealer doesn't want to insure the instrument while it's in the shop.  

The more I think about it, the less I like item 7.  I wonder if it's typical.

Anyway, thanks again.  Would you be willing to elaborate on the changes you would like to make?

The agreement I use with a local shop states that he is responsible for the items and agrees to have insurance coverage at the asking price.

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1 hour ago, Stephen Perry said:

There is no "the law."  There are statutes, judicial decisions, standard courses of dealing.  So, without any specific advice, I will simply observe that terms like "fair market value" end up debated in court.  

A big issue is when the consignee fails to honor this type of term and ends up in bankruptcy anyway.  You're still screwed.  The UCC-1 is likely more effective.

Stephen,

I realize that "fair market value" is ambiguous.  I assume that that could be resolved by having a line in the contract: "Fair market value is _________."  Alternatively, one can use another term.  If the proposed addition were to appear in your old contract, I assume that addition would make reference to "minimum sale price." 

The addition in your old contract would thus read:

"Prior to the dealer ending ownership of their business or prior to the dealer beginning the process of declaring bankruptcy, the dealer agrees to return to the consigner the consigner's property or the minimum sale price established in item 2"

The wording, I leave to lawyers, but the idea was to hopefully get the instrument back before a shop closes or goes bankrupt.  In line with Jacob's thinking, I was afraid that there is no inoculation for the consigner against bankruptcy.  There is no way to force a dealer to deal with return of instruments before closing its doors.  

Would the UCC-1 force a dealer to return instruments before filing for bankruptcy?

Would there be any harm in having both the above proposed addition to a consignment agreement in the consignment contract and doing the UCC-1?  Does that create any conflict?  The proposed addition would at least remind the dealer what' the consigner expects of the dealer.

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1 hour ago, puckfandan said:

The agreement I use with a local shop states that he is responsible for the items and agrees to have insurance coverage at the asking price.

Exactly.  Contract trumps backup general legal principles and, except where specifically barred, statutes.  This is something that can be negotiated.  

My personal approach has been to state the ruling default law in written contracts, without reference to that law.  Push comes to shove, the case law refining the default laws meaning and application directly applies, simplifying analysis of the issues.  This avoids long and expensive arguments over what "is" means in this context!

 

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27 minutes ago, skiingfiddler said:

Would the UCC-1 force a dealer to return instruments before filing for bankruptcy?

Would there be any harm in having both the above proposed addition to a consignment agreement in the consignment contract and doing the UCC-1?  Does that create any conflict?  The proposed addition would at least remind the dealer what' the consigner expects of the dealer.

The UCC-1 merely provides notice to someone considering using an entity's inventory as collateral for a loan that someone else has a prior claim on those particular items listed.  There are likely fancy terms in there, but I haven't dealt with security interests in a decade, and am rusty.  Always check for the law in your jurisdiction and for the most current versions and interpretations. 

The UCC-1 has nothing to do with other agreements.  It just sits there, in a file, for people who are prudent to look at.  It provides constructive notice.  That is you knew about this, or if you'd bothered to exercise suitable diligence, you would know about this prior security interest, therefore you are behind the dude who bothered to file.  I suppose one could use a UCC-1 to demonstrate that something is yours, and that its filing without objection would be evidence that a consignee knew it was yours.

Note that I am not licensed in 49 states and can really only comment on general principles.  It's essential that those entering into contracts whether relying upon default law or their own statements understand what they are doing.  All US dealers should be familiar with what a dealer is under the UCC - uniform commercial code, how the code is enacted in the jurisdictions they do business in, and how the code is likely to apply given the nature of their particular business.  

Bailments (consignments being part of bailments) are especially interesting.  Another nifty area is risk of loss.  And buyer's remedies upon delivery of non-conforming articles is truly fascinating.  How I can buy a $100,000 Spumoni (as described) for $10,000, accept it, get an expert to testify it's a fake worth $10,000, and then go after the seller for the $90,000 difference.  This has been done in the violin trade, and carried through.  Look to express warranty of description.  

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2 hours ago, jacobsaunders said:

Dear Ski,

I think your draft contract rather ignores two (at least) things.

Firstly, I wonder why I (or anyone else) should want to sell your violins for you at all. I wouldn't. I prefer to sell violins that belong to me (I have a whole house full of them). I am a violin restorer and not some desperate shopkeeper.

Secondly. Should I be in dire straights and have to file for bankruptcy (not something I intend or expect to do), it would be because I have no money (or credit) left. If I have no money or credit left I would be unable to pay you anything, even if I wanted to, and even if you came around with your contract glued to your forehead.

Thirdly, I rather wonder if it is any of your business, how much I earn from selling a violin, and wonder where the sense of entitlement arises from. After all, you are the one who wants to sell something.

Jacob,

I assume your reference to a "draft contract" is to my outline in the initial post, and not specifically to Stephen Perry's old contract.

Either way, it sounds like you, in no way, would do something that is pretty common here in USA, consignment selling.  Is there any consignment selling in Austria at all by dealers who aren't auction houses?  Any you know of in Europe?  I assume the only response you could offer a violin owner who wants to sell an instrument is to buy the instrument outright from them.  That's fair enough.

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3 hours ago, Stephen Perry said:

 

You may wish to examine your presentation approach, especially when poking at people who actually know things in a domain where you clearly know absolutely nothing, and may even be proud of that.

 

The individual I wrote my last post too was addressed with name at the top of my post. I didn't refer to your post whatsoever, neither do I intend too.

 

Actually, I have been permanent appointed court expert for well over 20 years, and often have to accompany the bailiff to such mishaps. I well remember one occasion, standing in someone’s shop with the bailiff, the shop crowded with various peoples lawyers. The bailiff read out a list of the (documented) instruments that should have been there out, it was my job to check their identity against the list. He asked where these instruments were, and was answered (with an admirably straight face) “we were broken into”, whereupon everyone burst out laughing.

 

In fact almost every time I get taken somewhere by the bailiff, it is where somebody has sold a third parties violin, and was subsequently unable to pay it out. Machold for instance was basically nothing but a culmination of many such cases. My consequence has been to avoid such business, which would also be my advice to others. Ski should realise that when he asks someone to help him sell his violin, he is asking for a favour.

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OK, sorry about that.  

The courts are different in different places.  Laws are different.  

Damage, failure to perform work, loss of goods all show up with regularity in bailment situations.  I greatly prefer to work on my own stuff and not others', and especially to not have others' stuff for sale.  Hasn't been a comfortable thing.  

I had a case where a shop contracted to perform work, then damaged the item, lost components paid for directly by the item's owner, and failed to produce the item or account for its whereabouts for some time.  So all these aspects blur together regularly, at least in the US.  These are sad situations.  As are those where people send things in without providing contact information, or fail to pay for repairs, or for any other reason their possessions remain abandoned in some shop.  I actually have an abandoned instrument or several at the moment.  State law addresses what to do with these, but never makes me comfortable.

The policy I have advised on consignment sales is to put the entire sum realized into a separate account, as one would with a tenant's security deposit, and only release funds to the consignor and the shop upon passage of a period of time sufficient for a trial or for the funds to be unable to be pulled back from the shop's working account.  For attorneys with trust account, the money in the account isn't theirs until this is done.  Businesses do well to follow that pattern.

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38 minutes ago, jacobsaunders said:

Ski should realise that when he asks someone to help him sell his violin, he is asking for a favour.

No, he is entering an agreement where the seller keeps 25% (or some negotiated amount) of the proceeds as payment. Most of us don't usually view a routine business transaction as a "favor", unless maybe its something way out of the ordinary for a shop. Of course the seller has the right to decline a consignment, or any other transaction,  for any reason. But does that make everything else a favor?

One could argue that Ski would be doing a favor for the dealer, allowing him to generate income with minimal capital investment/risk.

 

 

 

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58 minutes ago, jacobsaunders said:

Ski should realise that when he asks someone to help him sell his violin, he is asking for a favour.

 

I don't regard it as a favor.  It's a business transaction in which I can get my property sold, and the dealer (the consignee) is compensated typically by 20% to 30% of the selling price.  The dealer has no property at risk, while possibly earning a sizable sum.  As others have mentioned, consignment selling is an acceptable business model,  at least in the USA, offering advantages to both consigner and consignee.

My questions about a consignment agreement is what it should look like so that this business transaction gets done to both the consigner's and consignee's satisfaction.

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