How to Write a Consignment Agreement with a Gallery

Consignment contracts need not be written to be binding. Most states merely require that one of the parties make an offer to sell the item (or items) on consignment (in legal parlance consideration) and the second party accepts the offer to sell his jewelry, crafts or art work on consignment to make the contract binding.

The problem with handshake consignment agreements, however, is that oral contracts can evolve over time and they can be misunderstood by one or more of the parties. Accordingly, it is best to write down most consignment contracts in order to ensure that there is an agreement as to what each party to the consignment intends.

Some galleries will have a contract that they use. You can chose to sign that contract "as is" or use the gallery contract as a starting point for negotiating your business relationship. If you modify the original contract, be sure both parties initial each change. If you modify the contract after signing the original document, be sure to put all amendments in writing.

This tutorial will go through the elements that each party should consider when writing or signing a consignment contract.

Step 1: Determine the scope of agency. Will the relationship be exclusive or non-exclusive? If the artist will have an exclusive relationship with the gallery, what is the scope of territory that exclusivity clause covers? Will it be the city? the state? a region of the country? does the exclusivity clause include the internet?

Step 2: Establish the list of consignment  inventory. Be sure to list all inventory consigned along with a description, photograph in the contract and all subsequent contracts.

Step 3: Determine your  pricing and terms of payment. What is the split between gallery and artist? Typical splits are 50% artist /50% gallery or 60% artist/ 40% gallery.

Step 4: Discuss whether there will be a discount. Who sets the retail price, the gallery or the artist? Is the gallery allowed to negotiate a discount to the retail price? If not, the contract should specify that there is a “No Discounts” policy. If so, how does the discount factor into artist compensation?

Step 5: Discuss payment. How long after sale will the artist get paid? How will the artist get paid? by check? into a PayPal account? wired to the bank?

Step 6: Consider regular accounting practices. How often will the gallery give  an accounting to the artist?

Step 7: Discuss ownership. Contracts should specify that the art work is owned by the artist in order to prevent creditors from taking the artists items if the gallery goes bankrupt. Note that under the Uniform Commercial Code (UCC), in most states artists in a consignment agreement have little if any protection from creditors and little chance of payment if the gallery goes into Scope of agency. Will the relationship be exclusive or non-exclusive? If the artist will have an exclusive relationship with the gallery, what is the scope of territory that exclusivity clause covers? Will it be the city? the state? a region of the country? does the exclusivity clause include the internet?

Step 8: Anticipate shipping issues concerning the artwork. Who pays for shipment of unsold goods?. What method or carrier will be used?

Step 9: Discuss issues regarding loss or damage. What happens is the art work is stolen or destroyed (by fire, flood or other means)? Will the gallery compensate the artist or is loss an acceptable business risk for the artist to bear?

Step 10: Consider insurance. Who carries insurance on the goods? If the gallery carries insurance, who pays the deductible on the goods?

Step 11: Discuss promotion, reproduction and copyright issues. What rights will the gallery have to promote and photograph the artists work? For how long? Will these rights last for the duration of the consignment or beyond?

Step 12: Discuss the security interest in the works. The contract should include a legal clause stating that the artist owns the consigned work until the artist is paid in full. This clause is designed to protect the artist from claims of the gallery' s creditors in the event the gallery goes into bankruptcy. Just a few states have laws protecting an artist’s work held on consignment from the creditors of a gallery. An executed consignment contract with a security interest clause may cut off a creditor’s rights in bankruptcy. In addition, artists works held on consignment may be protected against creditors if the gallery displays a sign in the gallery stating that the work sold is on consignment; unfortunately, few galleries will agree to such signage.

Step 13: Establish the duration and term of the contract. How long does the merchant have to sell the craft goods? Who decides when the goods will be returned to the artist? the gallery or the artist? Is the time fixed for a week, a month, a year?

Step 14: Agree on the governing law should the contract be disputed. What law will govern the contract? The law of the state where the gallery is located or the law of the state where the artist is located? If there is not a governing law provision in the consignment contract, does the contract specify that any dispute must be subject to arbitration. If so, what rules govern arbitration.
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Step 15: Consider future contract amendments. All contract amendments should be put in writing and signed by both parties.

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