Consignment Sales

CraftsLaw022Under a consignment arrangement, a gallery or store agrees to sell an artist’s work and to pay the artist the proceeds minus the gallery’s commission (usually 40 to 50% of the sale price). If the work doesn’t sell, the gallery can return the work to the crafts artist.

Consignments account for over $3 billion in annual U.S. crafts sales. But consignment obviously comes with risks and obligations. What if the store doesn’t pay? How do you retrieve unsold merchandise? Who’s responsible when crafts are damaged? And—dread of dreads—what do you do when a gallery goes belly up?

Three Options

There are three types of legal protection for crafts artists: the Uniform Commercial Code, state consignment laws and written consignment agreements. We explain the first two options below, and if you wish to use an agreement, we provide a consignment agreement here. Of the three options, we would recommend the use of a written agreement because it is the least bureaucratic and least confusing.

Regardless of your legal options,  do some research, check out the gallery, and rely on your common sense. Ask other crafts persons about their experiences with specific stores and galleries. Avoid large consignment orders with an unknown shop until you have built a level of trust.  And if you’ve got a funny feeling about a gallery, trust your intuition.

The Uniform Commercial Code

Some version of the Uniform Commercial Code (UCC) has been adopted by every state. Under the UCC, if damage to your consigned crafts results from the store’s negligence, the store must pay for the loss. If the damage is not the fault of the store—for example, there’s a flood or fire—the store may or may not be liable, depending on how the courts in that state interpret the UCC.

Normally, under the UCC, if a store files for bankruptcy, the store’s creditors can seize your consigned goods as payment for debts. In other words, anyone owed money by the store can take your crafts as payment. You must stand in line behind the other creditors and hope that the judge awards you some compensation. However, the UCC gives crafts artists ways to prevent the creditor of a gallery from claiming your work as payment in the event of the gallery’s insolvency or bankruptcy. You can avoid this unhappy outcome by fulfilling one of three requirements:

  • file a UCC form (known as UCC Form 1 or UCC-1) at the time of the consignment, in the county where the store is located,
  • have the store owner post a sign telling the public that the goods are consigned (not applicable in all states), or
  • prove that the creditors were aware that the gallery sold consigned goods.

These efforts are referred to as “perfecting a security interest.” Having a security interest gets you certain rights over other creditors—for example, your work can be seized by court officials if the gallery doesn’t pay you. Although crafts people rarely use these cumbersome UCC requirements, you may find it worthwhile, in the case of high-ticket one-of-a-kind crafts items, to file the UCC form. The filing creates a lien (a legal claim over property) elevating you to the level of a “secured creditor” and putting you at the head of the line in bankruptcy court. If you do file the form and obtain the lien, you must remove the lien at the time of any sale.

Having the store or gallery post a sign—the second UCC requirement—is a troublesome request. In general, galleries prefer not to post such notices. However, some galleries are complying with such requests, and we have included an optional provision in the sample consignment agreement for this purpose. It requires that the gallery post a notice such as “Crafts at this Gallery are Sold Under The Terms of a Consignment Agreement.” As noted, this may not be effective in all states.

Most crafts workers will find the third requirement difficult to accomplish. It requires some legwork when it comes to obtaining proof that creditors of the store were aware of the consignment. Some consignors have accomplished this by sending creditors a copy of the consignment agreement. As you can imagine, the average crafts worker—who does not know who the store’s creditors are and who may not have a written consignment agreement—would find this impractical.

Keep in mind that in the event of a store bankruptcy you must prove to a bankruptcy court that you have met one of these three conditions—which usually means hiring an attorney.

State Consignment Laws

Because the UCC has proven to be a frightening trapdoor for crafts people, many states have passed special consignment laws to protect artists from gallery abuses and bankruptcy. So far, these states have passed art consignment laws—Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington and Wisconsin.

Each of these laws is unique, but all of them operate under one basic presumption: Whenever art is handed over to a gallery, store or dealer, it’s presumed to be a consignment unless the artist is paid at the time of delivery. Most of these laws provide two benefits:

  • any art held under a consignment arrangement or any money from a consignment sale is held in trust by the gallery for the artist (that is, the artist always owns the work and the proceeds), and
  • the artist is shielded from bankruptcy, because creditors are prohibited from seizing consigned goods. (In reality, enforcing these laws usually requires hiring a lawyer and filing claims in bankruptcy court.) Half of the state laws require a written consignment agreement as a condition for enforcing the law.

The problem for crafts artists in these states is proving that their work qualifies as “art” under state laws. The determination can be confusing. Some state consignment laws apply only to “fine art.” Fine art is traditionally defined as a painting, sculpture, drawing, graphic art or print, but not multiples. Many states—for example, Arizona and Ohio—specifically include crafts in the definition of “artwork” (defining them as any work made from clay, textile, fiber, wood, metal, plastic or glass). Some statutes are vague, and it’s not clear whether crafts are covered.

Check out our consignment agreement