Anatomy Of The Consignment Agreement

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Anatomy Of The Consignment Agreement

 (Art has no value until it’s sold.  Until then it’s an obsession and a storage problem.)

contract image- public domainEven in the world of fine art a long standing business relationship based on trust is simply no substitute for a solid contract.  Most art dealers, galleries and auctioneers do not purchase artwork outright for their own account.  Instead, they accept work “on consignment”, that is, borrowing the artwork from an artist or collector to display for sale in their gallery, and then paying the artist or collector when the piece sells.

It is a hybrid relationship. Is it a loan?  Is it a sale?  When should the piece be returned?  What are the conditions and terms for sale?  Under the best of circumstances, the business arrangement is rife with potential problems.  But then a well drafted consignment agreement can reduce or eliminate misunderstandings.

Central to the agreement are provisions authorizing the consignee (that is the dealer, gallery, auctioneer etc.) as the consignor’s (that is the owner’s) agent for the display and sale of the artworks.  A good agreement can protect a consignor against the consignee’s creditors if the consignee goes out of business.  The agreement should make clear whether the appointment of the consignee is exclusive or not.  Also, the agreement should clearly specify which artworks are being delivered for exhibition and which are intended for sale, and provide a mechanism for the parties to modify or reallocate the works on the list.

Other important provisions that should be included and discussed by the parties include:

  • The term or duration of the consignment;
  • Responsibility for shipping and delivery (i.e., Who pays for packing and shipping?);
  • Responsibility for loss or damage and insurance coverage;
  • A warranty of ownership and/or creation (i.e., Who created and/or owns the consigned artworks?);
  • Fiduciary responsibilities of the consignee with respect to the consigned artworks and any resulting proceeds of sale(s);
  • Notice of consignment requiring the consignee to give clear and conspicuous notice of the consignment agreement to the public;
  • Prohibitions against lending out or removing the artwork from the consignee’s premises or gallery should be addressed;
  • Pricing, the consignee’s commission and the terms of payment;
  • Framing and/or mounting the artwork;
  • The manner and methods of promotion and/or any restrictions;
  • Reproduction (i.e., Who has the right to make reproductions or copies and/or any relevant restrictions);
  • Accounting (i.e., The consignee should be required to account for all sales and resulting proceeds); and
  • Termination (How, when and under what circumstances?).

Like any other agreement, a consignment agreement should address subsequent modification(s), applicable choice of law, jurisdiction and venue for disputes arising under the agreement, succession and assignment of the rights and obligations, and waiver.

Much like the unique artwork(s) that are consigned, no two relationships or transactions are the same.  It is in the interests of both parties to have a full and frank discussion of all of these issues when negotiating terms of the consignment agreement.

August, 2014