Consignment Agreement

What is a Consignment Agreement?

A Consignment Agreement is a document between two parties, the "Consignor" and the "Consignee" for the sale of goods on consignment. A sale on consignment means that the Consignee will sell the goods for the Consignor for a fee. The Consignor is the owner of the goods that the Consignee will sell.

Example: Maria designs jewelry such as necklaces, bracelets, and earrings. Maria wants to sell her jewelry but doesn't want to open a store. In order to sell her goods, Maria enters into a Consignment Agreement with Ryan who owns a shop. Maria delivers the jewelry to Ryan so he can display it in his shop. Although Maria delivered the jewelry, the ownership of the jewelry remains with Maria. When Ryan sells the jewelry to the customers of his shop, Ryan gives the selling price to Maria (minus his commission for selling the jewelry). If Ryan fails to sell the jewelry, the jewelry should be returned to Maria since they are still her property.

A Consignment Agreement can be used to sell just one product or a series of products. A Consignment Agreement is beneficial to both parties as the Consignee will not have to pay for the goods that they will sell while the Consignor will not have to exert effort in selling the products.

What is the difference between a Consignment Agreement and a Distribution Agreement?

In a Consignment Agreement, the distributor (called the "consignee") does not buy the products but sells them for the supplier (called the "consignor") in exchange for a fee, which is usually a percentage of the sales price. On the other hand, in a Distribution Agreement, the distributor sells, or distributes the products of the supplier, and the distributor obtains ownership over the products before their actual distribution to customers.

In other words, in a Consignment Agreement, the ownership of the products will remain with the consignor and the consignee sells the products only on behalf of the consignor, while in a Distribution Agreement, the ownership of the products is transferred from the supplier to the distributor, and the distributor sells the products under this own name.

Is it necessary to have a Consignment Agreement?

Yes, because this will lay down the terms and conditions of the agreement between the Consignor and the Consignor and will prevent the parties from reneging on the Consignment Agreement. This will also serve as documentation for what was agreed upon by the Consignor and the Consignor.

What must a Consignment Agreement contain?

A Consignment Agreement contains the following information:

• The details of the Consignor and the Consignor,
• The products that will be sold and the manner of selling,
• If desired, an option for the Consignor to provide advertising materials,
• If desired, an option to provide a policy on the return of products,
• The fees that will be paid by the Consignor to the Consignee, including the manner of payment,
• The obligations of the Consignor and the Consignor, and
• The duration of the agreement.

Who can enter into a Consignment Agreement?

The parties to a Consignment Agreement are the Consignor and the Consignor and they must sign the same. They may either be individuals or organizations.

The organization's representative must be equipped with a Secretary's Certificate if the Consignor or the Consignor is a corporation, a Partners' Certificate if the Consignor or the Consignor is a partnership, or a Special Power of Attorney if the Consignor or the Consignor is a sole proprietorship or individual before they sign the Consignment Agreement.

What can be the duration of a Consignment Agreement?

The Consignor and the Consignor are free to choose how long the Consignment Agreement will last. It can be for a fixed period, and can also be renewed after the end of the Consignment Agreement's fixed period if the Consignor and the Consignor agree thereto. The Consignor and the Consignee can also agree that the Consignment Agreement will last indefinitely.

What has to be done once a Consignment Agreement is ready?

Once the document is completed, at least two original copies of the Consignment Agreement should be printed, and all of the attachments (referred to in the next question) described in the document should be attached. The Consignor and the Consignor, or their authorized representatives, should read, and then sign all the copies of the document and each should keep an original copy.

After this, the document may be notarized. If the parties would want to notarize the Consignment Agreement, the document also includes an Acknowledgment portion, in which case, at least three original copies should be printed. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity. To notarize the document, the parties must go to a notary public to acknowledge that they have signed the Consignment Agreement freely and voluntarily. They should also present a valid I.D. issued by an official agency bearing their photograph and signature such as a driver's license or a passport, among others.

Once notarized, the Consignor and the Consignor should each keep at least one copy of the notarized document, and the last one will be given to the notary public.

Which documents should be attached to a Consignment Agreement?

The following should be attached if applicable:

• The document listing the products to be sold,
• The document listing the prices of the products,
• The document listing the appropriate payment methods and their details,
• A copy of the authorization that shows that a representative can act on behalf of the Consignor or Consignor,
  • The representative must have a Partner's certificate if the Consignor or Consignor is a partnership, or a Secretary's certificate if the Consignor or Consignor is a corporation.
  • The representative must have a Special Power of Attorney if an individual Consignor or Consignor will appoint someone else to sign the Consignment Agreement for him.

Is it necessary to notarize a Consignment Agreement for it to be valid?

No, however, notarization of the Consignment Agreement converts the same from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

What are the costs involved in the finalization of a Consignment Agreement?

If the Consignment Agreement is notarized, a certain percentage of the rent may be asked as a fee by the notary public. This is usually at 1%.

What should be complied with if the Consignor sells all of his products under the Consignment Agreement?

If the Consignor sells all of his products under the Consignment Agreement, the Consignor may be required to apply for a Certificate of Registration of Bulk Sales before the Department of Trade and Industry.

The purpose of this certificate is to avoid defrauding the creditors or other stakeholders of the Consignor. The Consignor should make a sworn statement laying down the list of creditors to whom the Consignor may be indebted including the amount of any existing loans that are not yet paid by the Consignor.

The Consignor should also provide a detailed inventory of the products before they will be sold by the Consignee, and notify the creditors listed in the sworn statement at least ten days before the actual sale of the products by the Consignee.

The above requirements and other requirements (i.e. sole proprietorship, partners, or corporate board resolution) included in the following website of the Department of Trade and Industry should also be completed.

Which laws are applicable to a Consignment Agreement?

The law on Sales and Agency found in the Civil Code of the Philippines applies to this document. Other laws, such as the Philippine Competition Act (Republic Act No. 10667), and the Bulk Sales Law may also apply.

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