Also known as: true consignments · consignment
Written by attorneys · grounded in primary & secondary sources — see below
A delivery of goods by a consignor to a merchant consignee for the purpose of sale. The consignor retains title to the goods and the consignee must return any unsold items.
Prairie Seeds delivered pallets of branded seed to Green Valley Farm Supply. Green Valley displayed the seed for resale to farmers, paid Prairie only for bags sold, and retained the right to return unsold bags at season's end. When Green Valley's bank seized the pallets under its perfected inventory lien, Prairie's retained interest in the seed operated as a consignment subject to Article 9 filing and priority rules.
Leverett and Freeman delivered jewelry to Arthur A. Everts Co., a retail jeweler. The debtor displayed the items for sale and was required to remit proceeds or return unsold pieces. When the debtor entered bankruptcy and the bank asserted a blanket lien on inventory, the consignors' retained title in the goods functioned as a true consignment that required perfection to prevail over the bank's interest.
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A true consignment is a bailment in which the consignor retains title and the consignee sells the goods on the consignor's behalf with an obligation to return unsold items. A disguised security interest arises when the transaction is labeled a consignment but actually creates an obligation secured by the goods. Article 9 applies to both once the statutory definition is met.
Supporting sources
Yes. A true consignment falls within Article 9, so the consignor's interest is treated as a security interest that must be perfected by filing to prevail against the consignee's creditors and other secured parties claiming the same inventory.
A consignor holding a perfected purchase-money security interest in consigned inventory may obtain priority over a conflicting inventory secured party by filing before the consignee receives the goods and by giving the required notification to other inventory lenders who have filed.
Supporting sources
No. A secured party whose interest arises from a true consignment is not subject to the default and enforcement duties in Part 6 of Article 9.