Back to Basics: Consignment vs. Price After Sale

| DRC

A lot of questions have been cropping up about consignment and price after sale. There seems to continue to be some confusion around these two terms and we thought it best to underline the differences and importance that they not be interchanged. During a consignment transaction, the receiver does not take title to the product whereas in a price after sale transaction, the receiver does take title to the product. In the case of a dispute, there are different requirements and burdens of proof for both transaction types.

Consignment:

The first thing to note about consignment is that the consignee does not own the product. It is owned by the consignor until it is sold at which point ownership is transferred from the consignor to the buyer. The consignee’s role is to sell the product at the best possible price available in the market less any expenses that have been agreed upon. It is the responsibility of the consignee to submit an itemized account of sales. The account of sales should indicate price, amount and date sold for each product in their care less-usual and customary expenses such as freight, warehousing fees, a commission and any other agreed upon fees or expenses for which the consignee has paid. A consignee is always entitled to commission on consignment which typically falls in the 8% to 15% range but it should be established in writing.

When a load is on consignment, there is no requirement for the consignee to request a federal inspection to prove the product is in good or bad condition. The only time a consignee is obligated to request a federal inspection is when more than 5% of the load is dumped. The inspection required in this case is a condition inspection to prove that the product being disposed of has no commercial value. This does not mean a dump certificate where the inspector witnesses the dumping of the product, the dump certificate is not sufficient to demonstrate the product had no commercial value.

The consignment transaction is based on trust between the consignor and the consignee. The consignor is limited to claim against the consignee based on the itemized account of sales, not on the condition or quality of the product unless more than 5% of the load is dumped.

The consignee is not obligated to sell the product at market prices, only obligated to do their best to sell at the best possible price. Market News or InfoHort are NOT a point of reference for sales in the case of a consignment transaction unless the parties indicated in writing a minimum guaranteed price or specific reference Market News or InfoHort in their written agreement.

On a consignment transaction, as a consignee, you are obligated to move the product quickly and sell at the best price possible in a proper and timely manner. On consignment you must give priority to that product. It is important to note that when you agree to sell on consignment, you cannot resell on consignment. Unless agreed to in writing, a consignee also may not sell to a sister company or companies that are linked to the consignee.

Price after sale:

Price After Sale (PAS) is a sale where no price has been agreed upon and is also sometimes referred to as open price sale or open sale. In the case of PAS, the buyer, after the product has been sold offers a return to the seller. If the seller does not agree with the return submitted, the buyer has the burden to show why they are giving this return at that price. An account of sales showing a prompt and proper resale is normally the most common method to show how the buyer reached the return offered. However, an account of sales is not required. If the return does not at least yield market prices, it is the responsibility of the buyer to show why they were not able to sell the product at market prices.  If an account of sales is submitted, it needs to include the same elements of an itemized account of sales as indicated in a consignment transaction, except a commission is usually not allowed unless agreed upon.  If there is no damage to the product, and the product was received in sound condition, the expectation is that the product will sell close to or at prevailing market prices. During a PAS transaction, when the buyer receives product and there is damage, the buyer is obligated to request a federal inspection to prove that the load fails or meets the DRC Good Arrival Guidelines.

Correcting interchanged terms on an invoice:

Consignment and PAS are two separate terms that should not be interchanged. If you receive an invoice that mistakenly interchanges the two terms, be sure to contact the other party to have it corrected. In the case of a consignment transaction, should there be an issue regarding this term, you have to show that this term was discussed, understood and agreed upon (preferably in writing). DRC Good Arrival Guidelines indicate that in the absence of an agreement on the terms of the transaction, the default would be FOB No Grade Good Arrival Guidelines. In addition, if there is no price agreed upon, the price defaults to market price.