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All contracts need to include relevant clauses for them to be enforceable. If important clauses are left out of your contracts, then the agreement may not cover what you want it to, and the courts may not be able to uphold its terms. This also applies to a New Zealand consignment agreement. This article will explain the most important clauses in a consignment agreement and why you should include them. 

What is a Consignment Agreement?

A consignment agreement is a contract that outlines the relationship between a consignor and a consignee. Consignment allows one party to sell goods on behalf of another party. The consignor will provide their goods to the consignee, and the consignee will usually take a commission for selling the goods. The substantial selling price goes back to the consignor. 

Consignment agreements can either be exclusive or non-exclusive. If the agreement is exclusive, the consignee is not able to sell goods from any other provider. However, a non-exclusive consignment agreement allows the consignee to sell goods from any consignor. Generally, the consignee will charge a higher commission if they are dealing with an exclusive consignment agreement.

Key Clauses

Details of the Parties

At the top of the consignment agreement, you should include all the details about the relevant parties. This should include full names and contact details. It is important that the contract clearly states who the relevant parties are. If there is a dispute and the details of the parties are not clearly defined, the courts can rule the agreement unenforceable. This is because one of the elements of a binding contract is certain terms.

Insurance

Another important clause to include in your consignment agreement is an insurance clause. As you are holding goods on behalf of somebody else, it is crucial that you have insurance arrangements in place. This might mean that your consignor’s insurance covers the period in which you hold the goods. Alternatively, you may agree that you cover the cost of any loss if the goods are unable to be sold or are destroyed. Either way, there needs to be an agreement in place so that you are not left footing a surprise bill.

Commission  

If you are acting as a consignee, you will need to include what your commission will be, for selling the consignors goods. The commission is usually expressed as a percentage and will differ depending on the industry you are in. Your consignment agreement should clearly display what the commission will be and may include growth of commission over several years.

Products

The consignment agreement should include the specific products you are selling on behalf of the consignor. These products should be clearly defined so that you can hold up the agreement in a dispute. You may also include a class of products instead of a specific one.

Price

Additionally, you should include the price you are selling your goods at in your consignment agreement. As they are still your consignor’s goods, your consignors will have a big say as to the price of the goods. There may be arrangements for selling the goods at a lower price if you cannot sell the goods at the specified price. 

Termination Clauses

Finally, it is always prudent to include a termination clause in your consignment agreements. A termination clause allows either party to cancel the agreement if they meet certain conditions. These conditions are usually a breach of contract or if the contract is not viable for either party. It is vital that you meet the conditions specified in the contract before terminating it. Otherwise, you could be in breach of contract through repudiation. This could leave you liable for damages. 

Key Takeaways

If you are involved in business, you will be used to dealing with contracts. Contracts are one of the most important instruments in commercial dealings and create trust between parties. A consignment agreement allows one party to sell goods on behalf of another in exchange for a fee. Any consignment agreement you enter into needs to include key clauses so that the courts can enforce the agreement in a dispute. If you need legal assistance with consignment agreements, contact LegalVision’s experienced contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I alter my consignment agreement?

Yes, but only with the permission of both parties.

Does the consignor have to provide insurance?

No, but it is always a good idea to have an insurance arrangement in place.

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