Consignment Agreement (Pro-Consignor)

Consignment Agreement (Pro-Consignor), Practical Law Standard Document...
Consignment Agreement (Pro-Consignor)

by Practical Law Commercial Transactions
Maintained • USA (National/Federal)
An agreement used by a seller (consignor) wishing to place goods on consignment for resale with a buyer (consignee),
drafted in favor of the seller. This resource includes terms commonly found in a consignment agreement, including inspection
and storage of the consigned goods, the passage of title and risk, as well as a grant of a security interest by the consignee.
While this is a pro-seller form, this Standard Document has integrated notes with important explanations and drafting and
negotiating tips for both parties.

Drafting Note: Read This Before Using Document
Scope of Standard Document
This Standard Document is a consignment agreement for the resale of goods under the Uniform Commercial Code
(UCC). It can be used as a stand-alone agreement or in conjunction with a sale of goods, distribution or reseller
agreement or vendor managed inventory agreement. While drafted in favor of the seller (consignor), this agreement
also contains integrated drafting notes that address the interests of the buyer, who is either a reseller or distributor
(consignee). For information about the roles of resellers and distributors in the supply chain, see Practice Note, Supply
Chain Overview.
Consignment agreements vary in length and complexity depending on a variety of factors, such as:
• The particular industry.
• The relationship between the parties.
• The size of the deal.
• Whether the goods are off-the-shelf or custom-made.
• The creditworthiness of the consignee.
© 2018 Thomson Reuters. No claim to original U.S. Government Works. 1

This Standard Document contemplates that periodically throughout the term:

• The consignee submits to the consignor a consignment request specifying the quantity of goods the consignee wishes to
take on consignment.
• The consignor sends the consignee a consignment confirmation.
• Following resale of the consigned goods by the consignee to its customers, the consignee sends to consignor a periodic
sales report detailing the resales of the consigned goods in that period.
• The consignor then sends the consignee an invoice based on the sales report.
Consignment Under Common Law
Consignment is a commercial transaction between a seller-consignor who delivers goods to a buyer-consignee without
receiving payment until the consignee either:
• Resells the goods to a third party, which is similar to a sale or return under the UCC (see Practice Note, Consignment:
Sale or Return).
• Uses the goods itself, which is similar to a sale on approval under the UCC (see Practice Note, Consignment: Sale on
Approval).
Typically under a consignment:

• The consignee:
• only pays for the goods if and when it resells or uses them; and
• has the right to return the goods if it cannot sell or use them, even if the goods conform to the contract.
• Title and risk remain with the consignor until the goods are either resold or used by the consignee, at which point title and
risk pass to either:
• a third-party buyer, if the consignee resells the goods; or
• the consignee, if the consignee uses the goods itself.
For more information on consignment under common law, see Practice Note, Consignment: Common Law Definition
of Consignment.
Consignment Under the UCC
The UCC, as adopted by the relevant state, governs consignment arrangements in the US. The UCC distinguishes
between:
• The sale of consigned goods, governed by Article 2.
• Security interests taken in consigned goods, addressed in Article 9.

(UCC § 2-326.)
Sale of Consigned Goods Under Article 2

Under Article 2, the sale of consigned goods is generally categorized as either a:
• sale or return; or
• sale on approval.
Sale or Return
The most common consignment arrangement in the US is a sale or return. Under Article 2, a sale or return is treated as
a present sale based on the condition that the consignee has the right to return unsold goods (UCC § 2-326). Generally
under a sale or return:
• The goods are delivered primarily for resale by the consignee.
• The consignee has the right to return unsold goods even though they conform to the contract (UCC § 2-326).
• Title and risk are deemed to pass to the consignee on delivery.
• The goods are subject to the claims of the consignee’s creditors while in the consignee’s possession (UCC § 2-326).
For more information on a sale or return, see Practice Note, Consignment: Sale or Return.
Sale on Approval
A sale on approval, also known as a sale on trial or a sale on satisfaction, is treated as a future sale that closes on the
acceptance of the consigned goods by the consignee. The consignor seeks to induce the sale by delivering the goods to
a prospective buyer who can satisfy itself of the appearance or performance of the goods before it accepts the goods.
Generally under a sale on approval:
• The goods are delivered primarily for use by the consignee, rather than resale to third parties.
• The consignee has the right to return unsold goods even if they conform to the contract (UCC § 2-326).
• Title and risk of loss do not transfer to the consignee on delivery, but only when the consignee accepts the goods.
• The goods are not subject to the claims of the consignee’s creditors until the consignee accepts them (UCC § 2-326(2)).
For more information on a sale on approval, see Practice Note, Consignment: Sale on Approval.
Security Interests in Consigned Goods Under Article 9

Under UCC Article 9, a consignment arrangement automatically creates a security interest in the consigned goods. If
the transaction meets the definition of consignment under Article 9, the consignor has an unperfected interest in the
consignee’s inventory, which is subordinate to the perfected security interests of the consignee’s creditors or a
bankruptcy trustee. Therefore, the consignor should perfect its security interest by:

• Filing a UCC financing statement.

• Notifying conflicting-interest secured parties.
For more information, see Practice Note, Consignment: Consignor Must Perfect its Security Interest to Defeat
Consignee’s Creditors.
Article 9 Definition of Consignment

The UCC defines consignment in Article 9, but not in Article 2. The Article 9 definition is more restrictive than the
common law definition of consignment. Consignment is defined under UCC Section 9-102(a)(20) as any transaction
where one party (the consignor) delivers goods to another party (the consignee) for the purpose of sale and:
• The consignee is a merchant who:
• deals in the same type of goods under a different name than the consignor;
• is not an auctioneer; and
• is not generally known by its creditors to be substantially engaged in selling the goods of others.
• The value of each delivery of the goods is at least $1,000.
• The goods are not consumer goods (goods that are used or bought for use primarily for personal, family or household
purposes) immediately before delivery.
• The transaction does not create a security interest that secures an obligation.
(UCC § 9-102(a)(20).)
For more information on consignment under the UCC, see Practice Note, Consignment: Consignment Under the UCC.
Assumptions
This Standard Document assumes that:

• The deal is large enough to warrant a long-form agreement. If the size of the deal is relatively small, the parties may
decide it is not worth the cost and time it would take to negotiate a long-form consignment agreement. If the deal is small, the
parties may document the sale by using only:
• a short-form consignment agreement; or
• a consignment clause added to the parties’ general terms and conditions for the sale of goods (see Standard Clauses,
Consignment Clause for Resale of Goods (Pro-Consignor)).
• The transaction meets the UCC Article 9 definition of consignment. The transaction qualifies as a consignment under
UCC Section 9-102(a)(20) (see Article 9 Definition of Consignment). Article 9 of the UCC therefore applies to the transaction and
the consignor automatically has a security interest in the consigned goods. Counsel should consult the state-specific version of the
UCC that applies to the transaction, which may be different than the model code.
• The terms are being used in a business-to-business transaction. These provisions should not be used for placing goods
on consignment with individual consumers, which may involve legal and regulatory requirements and practical considerations that
are beyond the scope of this resource.

• The parties to the agreement are US entities and the transaction takes place in the US. If any party is organized or
operates in, or any part of the transaction takes place in a foreign jurisdiction, these terms may need to be modified to comply with
applicable laws in the relevant foreign jurisdiction.
• This is a non-exclusive transaction. The consignor is not providing the consignee with any:
• exclusive rights to market, promote or resell the consigned goods. Consignors are unlikely to want to restrict themselves
to one particular consignee. A consignee may be unable, therefore, to obtain exclusive rights to resell the consigned goods; or
• assurances on what price the consignor may charge the consignee compared to the consignee’s competitors. To obtain
these assurances, a most favored nations (MFN) provision should be included. If parties agree to include an MFN clause, however,
they should be careful to comply with US antitrust law. For more information about antitrust laws in the US, see Practice Note, US
Antitrust Laws: Overview. For more information on the application of US antitrust law to vertical and price-related agreements
between a consignor and its customers, see Practice Note, Vertical Price Restraints.
• Similarly, the consignee is not restricted from:

• taking on consignment the same or similar goods from other consignors; or
• reselling the same or similar goods to its customers.
• There are no territorial restrictions on the parties. The consignor has the right to consign goods with another
consignee and the consignee can resell the consigned goods anywhere in the US.
• These terms are not industry-specific. This Standard Document does not account for any industry-specific laws, rules
or regulations that may apply to certain transactions, products, or services.
Bracketed Items
Bracketed items in ALL CAPS should be completed with the facts of the transaction. Bracketed items in sentence case
are either optional provisions or include alternative language choices, to be selected, added, or deleted at the drafter’s
discretion.
END DRAFTING NOTE

Consignment Agreement
THIS CONSIGNMENT AGREEMENT, dated as of [DATE] (this “Agreement”), is entered into between [CONSIGNOR
NAME], a [STATE OF ORGANIZATION] [TYPE OF ENTITY] (”Consignor”), and [CONSIGNEE NAME], a [STATE OF
ORGANIZATION] [TYPE OF ENTITY] (”Consignee”, and together with Consignor, the “Parties”, and each, a “Party”).


Drafting Note: The Parties
This Standard Document is a two-party consignment agreement between a:

• Consignor. The consignor is normally a seller, supplier or manufacturer that places the goods on consignment with the
consignee.
• Consignee. The consignee is a reseller or distributor that takes the goods on consignment from the consignor and resells
them to third parties, including customers, wholesalers, retailers, resellers or distributors.
For more information on the roles of the key participants in the supply chain, including suppliers, manufacturers,
distributors and resellers, see Practice Note, Supply Chain Overview.
END DRAFTING NOTE

WHEREAS, Consignor is in the business of [selling/supplying/manufacturing [DESCRIPTION OF GOODS]] (the
“Goods”);
WHEREAS, Consignee wishes to obtain delivery and purchase certain quantities of Goods from Consignor from time to time
on a consignment basis for the purpose of resale by Consignee to third parties (the “Consigned Goods”); and
WHEREAS, Consignor is willing to deliver and sell the Consigned Goods to Consignee pursuant to the terms and conditions
set forth herein.

Drafting Note: Recitals
While not legally required, recitals are used to provide information about the basic background and purpose of the
agreement. In this consignment agreement, they provide only a general description of the parties and the transaction.
The parties can supplement or revise these recitals to include additional information.
When drafting recitals, the parties should draft them in a way that avoids ambiguity. For example, the parties should

not include any language in the recitals that adds legally binding obligations or contradicts the wording contained in an
operative provision of the contract.
END DRAFTING NOTE

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Consignment of Goods.

Drafting Note: Consignment of Goods
Section 1 sets out the basic elements of the consignment transaction, including:
• The placement of goods on consignment for resale.
• The use of consignment requests and consignment confirmations.
• Inspection of the consigned goods on delivery.
• Storage of the consigned goods.
The initial section in many consignment agreements sets out:

• The appointment of the buyer as consignee.
• Whether or not the appointment is exclusive.
• The territory where the consignee is authorized to resell the consigned goods.
Provisions on appointment, exclusivity and territorial restrictions are more typical in sales representative or agency
agreements than in consignment agreements. If the consignment transaction includes these elements, the parties
should revise this Standard Document.
END DRAFTING NOTE


1.1 Consignment for Resale. Consignor shall deliver to Consignee the Consigned Goods for the purpose of resale by
Consignee to its customers (”Customers”). Consignor shall deliver the Consigned Goods to Consignee’s facility located
at [ADDRESS] (the “Facility”). All delivery and sale of Consigned Goods will be on a consignment basis, in
accordance with the provisions hereof.

Drafting Note: Consignment for Resale
Section 1.1 sets out that the consignor is delivering the consigned goods for the purpose of resale by the
consignee to its customers. Under the UCC, this type of consignment is known as a sale or return.
While less common, the consigned goods may also be delivered for use by the consignee itself. Under the UCC,
this type of consignment is known as a sale on approval.
For more information on both a sale or return and a sale on approval, see Drafting Note, Sale of Consigned
Goods Under Article 2. For more information on the differences between consignment for resale to customers
(sale or return) and consignment for use by the consignee (sale on approval), see Practice Note, Consignment:
Sale of Consigned Goods.
END DRAFTING NOTE

1.2 Consignment Requests and Consignment Confirmations. Following receipt of a Consignment Request (as defined
in Section 1.3) submitted by Consignee from time to time pursuant to this Agreement, Consignor shall issue to
Consignee a confirmation of consignment (”Consignment Confirmation”) which shall set forth specific terms of sale,
including the quantity and purchase price of the Consigned Goods.


Drafting Note: Consignment Requests and Consignment Confirmations
This agreement contemplates that the parties enter into several consignment transactions during the term using
consignment requests and consignment confirmations. This provides the parties with flexibility regarding the
precise quantities and price of the consigned goods.
This agreement provides for the placement of goods on consignment on a non-exclusive basis and therefore:
• The consignee is free to consign and purchase similar or competing goods from other consignors.
• The consignor is free to consign and sell the goods to other buyers.
• There are no minimum quantity purchase requirements.
If the parties wish to enter into an exclusive consignment arrangement, they should revise this Standard
Document by inserting a section:
• Appointing the consignee as the exclusive agent of the consignor for the resale of the consigned goods.
• Specifying whether the consignee must resell or purchase a minimum quantity of the consigned goods.
• Specifying the territory where the consignee has the right to exclusively resell the consigned goods.
END DRAFTING NOTE

1.3 Terms of Agreement Prevail Over Consignee’s Consignment Request . The terms of this Agreement prevail over
any terms or conditions of Consignee contained in any other documentation and expressly exclude any of Consignee’s
general terms and conditions contained in any consignment request, purchase order or other document issued by
Consignee (”Consignment Request”), regardless whether or when Consignee has submitted its Consignment Request
or such terms. Fulfillment of Consignee’s Consignment Request does not constitute acceptance of any of Consignee’s
terms and conditions and does not serve to modify or amend any Consignment Confirmation or this Agreement. In the
event of any conflict between the terms of this Agreement and the terms of any Consignment Request, the terms of this
Agreement prevail. In the event of any conflict between the terms of this Agreement and any Consignment
Confirmation, the terms of [this Agreement/the Consignment Confirmation] prevail.


Drafting Note: Terms of Agreement Prevail Over Consignee’s Consignment Request
Purchase Order and Sales Confirmation Versus Consignment Request and Consignment
Confirmation
In a simple sale of goods transaction, the buyer typically issues a purchase order and the seller responds with a
sales confirmation. In this agreement, the sale between the consignor and the consignee does not occur until
immediately before the resale by the consignee to its customer (see Section 2.1). Accordingly, instead of a:
• Purchase order, the consignee sends a consignment request.
• Sales confirmation, the consignor sends a consignment confirmation.
In some consignment agreements, however, the terms purchase order and sales confirmation are still used.
Section 1.3 incorporates purchase order into the definition of consignment request to:
• Allow for the possibility that a purchase order will serve as the consignee’s documentation.
• Prevent the consignee from arguing that its terms and conditions on the back of its purchase order were not excluded by
the consignor.
In the last sentence, the consignor chooses whether this agreement or the terms of a consignment confirmation
prevail in case of conflicting terms.
Battle of the Forms
Typically the consignee’s consignment request contains terms in its favor and inconsistent with the consignor’s
terms contained in its consignment confirmation and this agreement. When both parties impose their own
separate standard terms into the contract, difficulties arise in determining which terms prevail. This conflict
between standard forms is known as the battle of the forms.
Section 1.3 is drafted in favor of the consignor, specifying that:

• Any terms and conditions of the consignee are excluded. The second sentence is intended to overcome a statement
commonly found in many buyers’ standard terms and conditions limiting acceptance of the offer contained in the consignment
request to the buyer’s terms and conditions of purchase (see Standard Document, General Purchase Order Terms and Conditions
(Pro-Buyer): Section 1(a) and its accompanying Drafting Note).
• If a court still determines that the consignee’s consignment request is part of the contract, the terms of this agreement and
the applicable consignment confirmation prevail over any conflicting terms in the consignment request.
END DRAFTING NOTE


1.4 Inspection by Consignee.

(a) Consignee shall receive all Consigned Goods delivered to the Facility and shall inspect same immediately upon
such delivery. Consignee agrees to accept the bill of lading, express receipt or similar delivery document as
conclusive evidence of quantity, condition and quality of the Consigned Goods, unless Consignee advises
immediately in writing of any discrepancy with the quantity, condition or quality (”Nonconforming Goods”) and
issues a detailed notice on or before the second day after delivery regarding such discrepancy.

(b) Any Nonconforming Goods may be returned by Consignee to Consignor [at [Consignee’s/Consignor’s] cost],
provided that Consignee notifies Consignor in writing at least [NUMBER] days prior to such return.

Drafting Note: Inspection by Consignee
If the consignor delivers consigned goods that do not conform to the contract requirements, the consignee
has the same right as a buyer in a sale of goods transaction to either reject or accept those goods, in whole or
in part (UCC § 2-601). The UCC requires that the consignee-buyer to:
• Reject non-conforming goods within a reasonable time after delivery or tender.
• Timely notify the consignor-seller of the rejection (UCC § 2-602(1)).
This inspection period varies, but consignors usually specify a relatively short period after delivery, with five
business days being common. Section 1.4 is drafted in the consignor’s favor and requires the consignee to
inspect the consigned goods immediately on delivery.
The consignee can negotiate a lengthier:

• Inspection period.

• Notice period to issue the written receipt for any non-conforming goods.
The consignee’s right to return non-conforming consigned goods is separate from its right in Section 9 to
return consigned goods that it cannot resell, which arises even if the goods are conforming (UCC § 2-326,
official cmt. 1).
END DRAFTING NOTE

1.5 Storage of Consigned Goods at the Facility; Inspection by Consignor.

(a) Consignee shall store all Consigned Goods in the Facility in such a manner as to protect them from damage or
deterioration. Consignee shall store the Consigned Goods in areas of the Facility segregated from all other goods
and property located at the Facility (the “Segregated Area”) and shall clearly identify them as the property of
Consignor by conspicuous sign or placard. Such identification and marking shall include marking one or more units
of Consigned Goods in each lot thereof. [To the extent practicable, the Segregated Area shall be separated from the
rest of the Facility.]

Drafting Note: Storage of Consigned Goods at the Facility
Section 1.5(a) is intended to minimize the consignor’s risk that the consigned goods will be deemed to be
part of the consignee’s inventory and therefore subject to claims of the consignee’s creditors. It imposes on
the consignee the obligation to:
• Segregate the consigned goods.
• Identify the consigned goods as the property of the consignor.
Depending on the nature of the consigned goods and the rest of the consignee’s inventory, the consignee can
try to alternatively:
• Negotiate the exclusion of the entire section as impracticable.

• Shift the obligation to label the goods to the consignor, arguing that the consignor is in a better position to label its own
goods before delivery.
• Bolster its negotiating position by reminding the consignor that the consignee is the party bearing storage costs.
• Impose a storage fee on the consignor.
END DRAFTING NOTE

(b) For the purposes of this Section 1.5, Consignee hereby represents and warrants that the Facility designated
herein is appropriate for and conducive to the storage of goods such as the Consigned Goods and will permit the
storage thereof free from hazards and damage of any nature whatsoever. If, for whatever reason, either Party
believes or has reason to believe that the Facility is no longer appropriate for the proper storage of Goods, the
Parties shall, by mutual agreement, locate another facility suitable for the storage of the Consigned Goods. It shall
be the responsibility of Consignee, however, to maintain the Facility throughout the term of this Agreement in
such manner so as to remain suitable for the storage of the Consigned Goods, including maintenance of the
insurance coverage described in Section 16.

Drafting Note: Consignee’s Representation and Warranty Regarding the Facility
The consignee can resist the inclusion of the representation and warranty in the first sentence of Section 1.5.
It can argue that it is storing and insuring the consigned goods at its own cost and therefore the consignor is
adequately protected without a representation and warranty.
END DRAFTING NOTE

(c) Consignor shall have the right to inspect the Facility during business hours [with reasonable/ upon [NUMBER]

days’] prior notice.

Drafting Note: Inspection by Consignor
Section 1.5(c) is a typical provision in a consignment agreement which establishes the consignor’s right to inspect the
storage facility within regular business hours. The consignee can try to narrow the consignor’s inspection rights by:
• Restricting them to only the relevant storage area within the facility.
• Requiring the consignor to give a specific number of days’ notice.
END DRAFTING NOTE

2. Title and Risk of Loss.

2.1 Title Retained by Consignor. Consignor shall retain title to the Consigned Goods unless and until they are
purchased by Consignee at the time of resale to a Customer. When Consignee resells the Consigned Goods to a
Customer, title to the Consigned Goods shall pass from Consignor to Consignee and immediately thereafter from
Consignee to the Customer.

Drafting Note: Title Retained by Consignor
Section 2.1 provides that title does not pass to the consignee until the consignee resells the consigned goods to a
customer. Because the consignee has the right to return any consigned goods that it cannot resell to a customer,
the consignee becomes liable for the payment of the purchase price only when it resells the consigned goods (see

Section 9 and its accompanying Drafting Note). Therefore, the passage of title in Section 2.1 coincides with the
moment in time when the consignee’s obligation to pay for the consigned goods arises.
END DRAFTING NOTE

2.2 Risk of Loss Passes Upon Delivery.

(a) Consignor assumes the risk of loss, theft or damage to the Consigned Goods until the Consigned Goods are
delivered at the Facility. Consignor promises to replace or repair any Consigned Goods that are lost, stolen or
damaged before they are delivered at the Facility.

(b) Notwithstanding Section 2.1, Consignee assumes the risk of loss, theft or damage to the Consigned Goods
upon delivery of the Consigned Goods at the Facility. Consignee shall pay Consignor the replacement cost of any
Consigned Goods that are lost, stolen or damaged after such Consigned Goods are delivered at the Facility.

Drafting Note: Risk of Loss Passes Upon Delivery
The general rule under the UCC for the transfer of risk is that if the seller is a merchant, risk is transferred only on the
buyer’s actual receipt of the goods (UCC § 2-509(3)). However, the parties can vary the default rule by contract (UCC
§ 2-509(4)). Section 2.2 provides that the risk of loss in the consigned goods passes on delivery, which is:
• Consistent with many sale of goods transactions.
• Contrary to the common law of consignment (see Practice Note, Consignment: Common Law Definition of
Consignment).
The consignor can argue that this allocation of risk is a balanced approach because each party bears the risk of loss

while the consigned goods are in its possession or control. Otherwise, the risk of loss is exclusively the consignor’s.
The consignee can resist this risk allocation by arguing that:

• Title and risk should transfer at the same time.
• The risk of loss in consignments typically (as evidenced by common law) remains with the consignor until resale by the
consignee to a customer (see Practice Note, Consignment: Common Law Definition of Consignment).
For more information on risk of loss generally, see Standard Clause, General Contract Clauses: Risk of Loss.
END DRAFTING NOTE

3. [True Consignment. This Agreement is intended to be a true consignment agreement and the consignment created
hereunder is intended to be a true consignment, where title to the Consigned Goods remains with Consignor until purchased
by Consignee immediately before being resold to a Customer on terms acceptable to Consignor.]

Drafting Note: True Consignment
To determine the priority of security interests in consigned goods before the enactment of current Article 9, courts
often focused on whether a transaction was either a:
• True consignment.
• Sale or return, sometimes also referred to as a security consignment or a fake consignment.
Generally, if a court deemed the transaction to be a true consignment, then the consigned goods were not subject to the
consignee’s creditors’ claims. With the enactment of the 2001 revisions to the UCC, the determination of whether a
transaction is a true consignment is no longer dispositive of priority rights in the consigned goods. However, many
consignors still include optional Section 3:
• As an additional safeguard against the consigned goods being subject to the claims of the consignee’s creditors or a

bankruptcy trustee.
• To reinforce that the passage of title does not occur until immediately before the consigned goods are sold to a customer.
Even if successful in including Section 3, the consignor should:

• Not rely on this provision to defeat claims of creditors.
• Insist on the inclusion of Section 4.
• Always perfect its security interest in the consigned goods in case a court later deems the transaction an Article 9
consignment (see Drafting Note, Perfecting the Consignor’s Purchase-Money Security Interest).
For more information on true consignment, see Practice Note, Consignment: True Consignment Versus Sale or Return.
END DRAFTING NOTE

4. Consignor’s Security Interest in the Consigned Goods.

4.1 Grant and Perfection of PMSI. Without derogating from Consignor’s rights as owner of the Consigned Goods
consigned hereunder, and without affecting the parties’ intentions that the consignment hereunder is to be deemed and
construed as a true consignment of the Consigned Goods to Consignee by Consignor, Consignee:

(a) hereby grants to Consignor as security for the payment by Consignee of the purchase price of the Goods
purchased hereunder, as and when due, a purchase money security interest in all of Consignee’s right, title and
interest in and to the Consigned Goods to be purchased by Consignee and all documents of title covering such
Consigned Goods;

(b) shall cooperate with and assist Consignor in connection with establishing and maintaining Consignor’s (i) title
to the Consigned Goods, which have not been purchased by Consignee and (ii) priority of ownership interest in and
to such Consigned Goods as against claims of secured and unsecured creditors of Consignee. In particular,
Consignee authorizes Consignor, pursuant to Article 9 of the Uniform Commercial Code (”UCC”) to file UCC
financing statements, as Consignor may deem appropriate, in such jurisdictions as Consignor may deem
appropriate as a consignor in order to perfect its interest in the Consigned Goods and proceeds thereof, and
Consignor is authorized to take such other steps as may be necessary to secure Consignor’s rights in and to the

Consigned Goods.

(c) shall further assist Consignor in fulfilling any and all notice requirements for the purpose of maintaining its
priority ownership interest in and to the Consigned Goods.

Drafting Note: Consignor’s Security Interest in the Consigned Goods
Grant of Purchase-Money Security Interest
Section 4 is essential to the consignor because it helps avoid subjecting the consigned goods to the claims of the
consignee’s creditors or a bankruptcy trustee. Section 4.1(a) explicitly grants the consignor a purchase-money security
interest (PMSI) in the consigned goods. While the UCC automatically grants the consignor a security interest in the
consigned goods if the transaction meets the definition of consignment in Article 9 (see Practice Note, Consignment:
Article 9 Definition of Consignment), Section 4.1(a) is commonly included in consignment agreements to protect the
consignor if a court deems that the transaction does not meet this definition.
Perfecting the Consignor’s Purchase-Money Security Interest
Having a PMSI in the consigned goods is not sufficient to defeat the claims of creditors or a bankruptcy trustee. To do
so, the consignor must perfect its security interest by:
• Filing a UCC financing statement (see Section 4.1(b)).
• Notifying the consignee’s creditors of the consignor’s security interest (see Section 4.1(c)).
For more information on perfecting the consignor’s security interest in the consigned goods, see Practice Note,
Consignment: Consignor Must Perfect its Security Interest to Defeat Consignee’s Creditors.
END DRAFTING NOTE


5. Liens, Encumbrances and Indemnity.

5.1 Liens and Encumbrances. [Except for the security interests of the creditors listed on Exhibit A,] Consignee shall
maintain the Consigned Goods free and clear of and from and against all liens and encumbrances of any nature
whatsoever.

5.2 Indemnity. Consignee shall indemnify and hold harmless Consignor from and against any loss or damage caused
by acts of Consignee[, whether or not authorized by this Agreement,] which result in any such liens or encumbrances
being placed upon any Consigned Goods, including all costs, fees and expenses incurred by Consignor in commencing
or participating in such proceedings as are necessary for Consignor to defend its ownership interest in the Consigned
Goods.

Drafting Note: Liens, Encumbrances, and Indemnity
Section 5 seeks to minimize the risk that the consigned goods are subject to claims of the consignee’s creditors or a
bankruptcy trustee. It is a standard provision in consignment arrangements and most consignors insist on its inclusion.
However, the consignor should:
• Not rely on Section 5 alone.
• Perfect its PMSI in the consigned goods (see Section 4 and Drafting Note, Perfecting the Consignor’s Purchase-Money
Security Interest).
Section 5.1 provides the consignor with a potential breach of contract claim. Section 5.2 provides the consignor with
an indemnity. While these are valuable rights, they are unlikely to be effective against the holder of a perfected
security interest in the consignee’s inventory or a bankruptcy trustee. Therefore, the consignor should always file a
financing statement and perfect its security interest in the consigned goods (see Section 4 and its accompanying
Drafting Note and Practice Note, Consignment: Consignor Must Perfect its Security Interest to Defeat Consignee’s
Creditors).
The consignee should consider whether it can provide the covenant in Section 5.1. For example, if the consignee has
granted its lender a security interest in its inventory, then it should carve out this preexisting lien to avoid a breach of
Section 5.1 because:
• The consigned goods may be deemed to be part of the consignee’s inventory.

• A security interest in inventory usually extends to all inventory, including inventory acquired after the grant.
END DRAFTING NOTE

6. Price. Consignee shall purchase the Consigned Goods from Consignor at the prices set forth in Consignor’s price list in
effect at the time that Consignor issues the related Sales Confirmation [or as otherwise agreed in writing between Consignor
and Consignee].

Drafting Note: Price
In this pro-consignor agreement, the consignee purchases the consigned goods based on the consignor’s then-current
price list. Subject to its duty to deal in good faith, the consignor can unilaterally increase its prices from time to time
by changing its price list. The optional bracketed language provides the parties with flexibility to agree to a price that
is different from consignor’s price list without the need to amend the agreement. For more information on drafting
and negotiating pro-seller (pro-consignor) pricing terms, see Standard Clauses, General Contract Clauses: Pricing
Terms (Sale of Goods, Pro-Seller).
The consignee can increase its control over pricing by negotiating:

• A set price for the consigned goods (see Standard Clauses, General Contract Clauses: Pricing Terms (Sale of Goods, Pro-
Buyer): Section 1.1 and its accompanying Drafting Note).
• An objective price adjustment mechanism (see Standard Clauses, General Contract Clauses: Pricing Terms (Sale of
Goods, Pro-Buyer): Section 1.4 and its accompanying Drafting Note).
• A clause that makes any price increase subject to the consignee’s prior written consent (see Standard Clauses, General
Contract Clauses: Pricing Terms (Sale of Goods, Pro-Buyer): Section 1.4).
• The right to terminate the agreement if it does not agree with a unilaterally imposed price increase by the consignor (see
Standard Clauses, General Contract Clauses: Pricing Terms (Sale of Goods, Pro-Buyer): Section 1.4 and its accompanying Drafting
Note).
END DRAFTING NOTE


7. Payment.

Drafting Note: Payment
As in other transactions involving the sale of goods, the consignor generally prefers to receive payment as quickly as
possible, while the consignee prefers the opposite. Payment terms in a consignment agreement should also be drafted
to accommodate the fact that:
• The consignee’s payment obligation does not arise until it resells the consigned goods to a customer (see Drafting Note,
Title Retained by Consignor).
• Parties do not know if or when the consigned goods will be sold by the consignee to a customer.
Section 7.1 therefore provides for a sales report to be drafted by the consignee on a regular basis, which triggers the
consignor’s obligation to draft an invoice in Section 7.2.
The parties negotiate the frequency of the sales report in Section 7.1 and the time period for payments in Section 7.3
depending on:
• The parties’ negotiating power.
• Industry norms.
• Nature of the transaction.
END DRAFTING NOTE

7.1 [Monthly/Weekly] Sales Reports. Consignee shall prepare a [monthly/weekly] Consigned Goods sales report

(each a “Sales Report”), and shall send such Sales Report to Consignor. Sales Reports shall set forth a list of all
Consigned Goods resold to Customers during the immediately preceding [month/week] .

7.2 Invoice. On receipt of a Sales Report from Consignee, Consignor shall prepare an invoice (”Invoice”) for all of
the Consigned Goods appearing on such Sales Report and shall send such Invoice to Consignee.

7.3 Payment Terms. No later than [thirty (30)/sixty (60)] days after the date of each Invoice, Consignee shall pay to
Consignor the amount appearing on the Invoice by wire transfer of immediately available funds to an account
designated by Consignor.

7.4 Credit Risk on Resale to Customers. Consignee is responsible for all credit risks regarding, and for collecting
payment for, all Consigned Goods resold by Consignee to each Customer, whether or not Consignee receives full
payment from the Customer. The inability of Consignee to collect the purchase price from any Customer for any
Consigned Goods resold by Consignee to such Customer shall not affect Consignee’s obligation to pay Consignor for
any Consigned Goods resold by Consignee.

Drafting Note: Credit Risk on Resale to Customers
Because the consignee takes title to any consigned goods resold to a customer immediately before the resale (see
Section 2.1), Section 7.4 further clarifies that the consignor has no responsibility for the credit risks associated with
resales of the consigned goods to customers.
END DRAFTING NOTE

8. Consignee’s Responsibilities.


Drafting Note: Consignee’s Responsibilities
Section 8 is a standard section in most consignment agreements that stems from the consignor’s concern to protect the
consigned goods from the claims of the consignee’s creditors. Consigned goods can easily be confused with the
consignee’s inventory, which is routinely offered as collateral by the consignee to its creditors. Therefore, as part of its
efforts to secure its ownership rights in the consigned goods, the consignor generally wants to physically separate as
much as possible the consigned goods from the consignee’s inventory. For more information on how a consignor can
protect the consigned goods from the claims of the consignee’s creditors or a bankruptcy trustee, see Practice Note,
Consignment: Security Interests in Consigned Goods.
END DRAFTING NOTE

8.1 Consignee shall:

(a) clearly and conspicuously label the Consigned Goods as property of Consignor;

(b) segregate all Consigned Goods from other goods; and

(c) secure and protect the Consigned Goods stored in the Facility from loss or damage using the same degree of
care that Consignor uses to protect its own products and stock, but in no event less than a commercially reasonable
degree of care.

8.2 Records. Consignee shall keep a true record of all Consigned Goods in its possession and shall give
representatives of Consignor access to such records during business hours. Consignee shall permit such representatives,
during business hours, to make inventories of the Consigned Goods in the possession of Consignee.

Drafting Note: Records
Section 8.2 enhances the consignor’s ability to:

• Keep apprised of the business relationship’s health.
• Quickly react to solve problems in the distribution channel.
Recordkeeping is generally more important to the consignor when the agreement:

• Is with an important consignee.
• Is exclusive.
• Has minimum purchase or sales requirements.
The consignee can seek to narrow the consignor’s rights by requiring reasonable prior notice from the consignor.
END DRAFTING NOTE

9. Return of the Consigned Goods. The Consigned Goods shall at all times be subject to the direction and control of
Consignor, and on Consignor’s demand for the return of any Consigned Goods delivered under this Agreement and not
theretofore purchased by Consignee, Consignee shall promptly return such goods in accordance with Consignor’s reasonable
instructions. In addition, Consignee may [with the prior written consent of Consignor,] return any Consigned Goods that it is
unable to resell to Customers. Consignee shall bear the risk of loss and the expense of returning any Consigned Goods.

Drafting Note: Return of the Consigned Goods
The first sentence of Section 9 provides the consignor with a mechanism to protect against the consigned goods
remaining unsold indefinitely at the consignee facility.
The second sentence does not govern the return of defective or non-conforming goods, which is covered in Section

1.4(b). For more information on and a sample clause on returning defective goods, see Standard Document, General
Terms and Conditions for the Sale of Goods (Pro-Seller): Section 8.
The second sentence in Section 9 restates the consignee’s right to return any consigned goods it cannot resell. The
bracketed language therefore is drafted in the consignor’s favor because it seeks to impose a consent requirement. The
consignee can:
• Argue against including the bracketed language by stating that its right to return the goods is not subject to notice.
• Negotiate a short notice period.
• Seek to delete the entire second sentence, by arguing that the consignee has the right to return the consigned goods as a
matter of law and it is therefore unnecessary to restate it.
The last sentence delineates which party bears the risk of loss when the consignee returns any of the consigned goods
because it cannot resell them. At common law, the risk of loss does not pass to the consignee until the consignee
resells the consigned goods to its customers. Therefore, the consignor generally bears the risk of loss and the expense
of returning the goods. However, most consignors with the requisite negotiating power place the risk of loss on the
consignee during the return process.
END DRAFTING NOTE

10. No Authority To Act For Consignor. Consignee shall conduct all of its business relating to the processing of the
Consigned Goods in Consignee’s name and at Consignee’s cost and expense, and nothing herein shall authorize or empower
Consignee to assume or create any obligation or responsibility whatsoever, express or implied, on behalf or in the name of
Consignor, or to bind Consignor in any manner, or to make any representation, warranty, or commitment on behalf of
Consignor, this Agreement being limited solely to the consignment of the Goods herein specified.

Drafting Note: No Authority To Act For Consignor
Section 10 minimizes the risk for the consignor of creating an unwanted business relationship between the parties.

Creating a relationship other than one between independent contractors may:

• Have undesirable tax consequences.
• Result in the consignor being bound by the consignee in relation to customers or other third parties.
• Render the consignor liable for the acts and omissions of the consignee.
• Create fiduciary duties to each other, if the parties are deemed to be partners.
While Section 10 is often reciprocal, the consignor can argue that in the context of a consignment agreement, a
unilateral clause is appropriate because the consignor is more likely to be bound by the consignee’s actions (for
example, regarding a warranty given by the consignee to a customer).
END DRAFTING NOTE

11. Term; Termination.

11.1 Term. Unless earlier terminated pursuant to Section 11.2, this Agreement shall have an initial term of one (1)
year commencing on [DATE] and shall automatically renew for successive one year periods, unless either Party has
given the other Party written notice of its intention not to renew this Agreement at least sixty (60) days prior to the end
of the initial or any subsequent renewal period.

Drafting Note: Term
Section 11.1 provides for an initial term of one year and automatic renewal for additional consecutive periods
with an option to cancel (also known as semi-automatic renewal). For more information on semi-automatic
renewal, its benefits and drafting and negotiating tips for both parties, see Standard Document, Sale of Goods
Agreement (Pro-Seller): Section 11.02 and its accompanying Drafting Note.
END DRAFTING NOTE


11.2 Termination. Consignor may (i) terminate this Agreement [without prior/upon written] notice to Consignee or
(ii) delay or cancel any shipment under this Agreement if:

Drafting Note: Termination
The termination rights in Section 11.2 protect the consignor against increasing losses if the consignee either:
• Breaches the contract (which common law principles may not permit unless there is an ongoing material breach).
• Becomes an economic risk.
Termination for Convenience
As drafted, this pro-consignor form does not have a termination for convenience clause (which is typically
negotiated and preferred by the consignee). If the consignee has the requisite bargaining power, it can negotiate
the addition of the following termination for convenience clause:
”Notwithstanding anything herein to the contrary, this Agreement may be terminated by

either party, for any reason or no reason, at any time upon at least thirty (30) days written
notice to the other party.”
However, the consignee can expect the consignor to resist including a termination for convenience clause because
it dilutes:
• The certainty and therefore value of the contract to the consignor, especially if the consigned goods are not off-the-shelf
goods.
• The consignor’s rights to terminate the agreement for cause.
If unsuccessful in adding a termination for convenience clause, the consignee should insist on either:
• The semi-automatic renewal provision (see Section 11.1), which provides the option not to renew the agreement.
• A definite term without a renewal clause.
For more information on termination provisions, see Standard Clauses, General Contract Clauses: Term and

Termination.
END DRAFTING NOTE

(a) Consignee breaches any provision of this Agreement (including its payment obligations under Section 7) [and
such breach is not cured by Consignee within [NUMBER] days after Consignee’s receipt of written notice of such
breach][;/; or]

Drafting Note: Termination for Breach
The consignee’s uncured breach of the agreement gives the consignor the right to:
• Suspend or cancel any shipments of consigned goods.
• Terminate the agreement under this Section 11.2.
• Seek remedies for breach of contract.
To mitigate the consignor’s termination rights, the consignee can:

• Insist on the right to cure a breach by adding the bracketed language in Section 11.2(a) as a condition to the consignor’s
right to terminate.
• Negotiate to include materiality qualifications in this provision. For more information on materiality and other qualifiers,
see Practice Note, Representations, Warranties, Covenants, Rights, and Conditions: Limiting the Scope and Effect of Covenants and
Rights.
END DRAFTING NOTE

(b) if Consignee (i) becomes insolvent or is generally unable to pay its debts as they become due, (ii) files or has
filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or
involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (iii) makes or seeks
to make a general assignment for the benefit of its creditors, or (iv) applies for or has appointed a receiver, trustee,
custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any
material portion of its property or business[./; or]

Drafting Note: Termination for Insolvency or Bankruptcy
Section 11.2(b) (often referred to as an ipso facto clause) gives the consignor the right to terminate the
agreement due to the consignee’s bankruptcy, insolvency or financial distress. While a clause allowing a
party to terminate an agreement due to the other party’s bankruptcy is generally unenforceable against a
debtor during bankruptcy, this clause should still be included because it can be triggered by events outside of
bankruptcy (such as the inability to pay debts as they become due). This clause is also enforceable again
once the bankruptcy case is closed and the debtor then commits a new act described in the clause.
END DRAFTING NOTE

(c) [if (i) Consignee sells, leases or exchanges a material portion of Consignee’s assets, or Consignee merges or
consolidates with or into another entity, or a change in control of Consignee occurs, in any case, without
Consignor’s prior written consent or (ii) any of Consignee’s key personnel become incapacitated or die[, unless in
the case of a merger or consolidation of Consignee with another entity, Consignee is the surviving entity and has a
net worth greater than or equal to its net worth immediately prior to the merger or consolidation].]

Drafting Note: Termination for Transfer of the Consignee’s Assets, Change in Control, or Change in
Key Personnel

Optional Section 11.2(c) allows the consignor to terminate the agreement if:
• The consignee transfers a material portion of its assets.
• A change in control occurs.
• Key personnel of the consignee become incapacitated or die.
This provision is often used by consignors when the consignee is a closely held business and the consignor
has a relationship with particular members of its owner-management team or is concerned about any
business combination involving the consignee and a competitor of the consignor.
The consignee should consider qualifying the consignor’s right to terminate the agreement if the consignee
merges into or consolidates with another entity and the resulting entity has a net worth greater than or equal
to the consignee’s net worth before the merger or consolidation by adding the bracketed language.
END DRAFTING NOTE

11.3 Effect of Termination. In the event of any such termination under Section 11.2 or on the expiration of this
Agreement pursuant to Section 11.1 hereof:

(a) all unsold Consigned Goods shall be returned by Consignee at its own cost to Consignor during the
[10/[NUMBER]] day period immediately following the effective date of such termination;

(b) any Consigned Goods not returned to Consignor within such [10/[NUMBER]] day period after such effective
date of such termination shall be deemed to have been sold to Consignee and shall be subject to the payment
requirement set forth in Section 7 hereof (except that payment shall be due on or before the [fifth/[NUMBER]] day
after such [10/[NUMBER]] day period); and

(c) [Consignee/Each Party] shall promptly:

(i) [return to [Consignor/the other Party]/destroy] all documents and tangible materials (and any copies)
containing, reflecting, incorporating or based on [Consignor’s/the other Party’s] Confidential Information;
(ii) permanently erase all of [Consignor’s/the other Party’s] Confidential Information from its computer
systems[, except for copies that are maintained as archive copies on its disaster recovery or information
technology backup systems. [Consignee/Each Party] shall destroy any copies on the normal expiration of its
backup files]; and

(iii) certify in writing to [Consignor/the other Party] that it has complied with the requirements of this Section
11.3(c).

Drafting Note: Effect of Termination
Returning or Destroying Confidential Information on Termination
While the confidentiality section (Section 12) in this agreement can be drafted to be either unilateral or mutual,
Section 11.3(c)(iii) favors the consignor and requires only the consignee to return or destroy confidential information
on termination or earlier expiration of the agreement. The consignor typically discloses more confidential information
than the consignee. Therefore, an uneven provision like Section 11.3(c)(iii) may be appropriate.
However, depending on the type of confidential information the consignee is disclosing under this agreement (if any)
and its negotiating leverage, the consignee may want to negotiate this provision to be reciprocal. For more information
on returning or destroying confidential information, see Standard Clauses, General Contract Clauses: Confidentiality
(Long Form): Drafting Note: Return or Destruction of Confidential Information (Optional Provision).
END DRAFTING NOTE

12. Confidentiality.


12.1 Scope of Confidential Information. From time to time during the term of this Agreement,
[Consignor/Consignee/either Party] (as the “Disclosing Party”) may disclose or make available to
[Consignee/Consignor/the other Party] (as the “Receiving Party”) information about its business affairs, goods and
services, forecasts, confidential information and materials comprising or relating to intellectual property rights, trade
secrets, third-party confidential information and other sensitive or proprietary information. Such information, [as well as
the terms of this Agreement,] whether orally or in written, electronic or other form or media, and whether or not
marked, designated or otherwise identified as “confidential” constitutes “Confidential Information” hereunder.
Notwithstanding the foregoing, Confidential Information does not include information that, at the time of disclosure
[and as established by documentary evidence]:

(a) is or becomes generally available to and known by the public other than resulting from, directly or indirectly,
any breach of this Section 12 by the Receiving Party or any of its representatives;

(b) is or becomes available to the Receiving Party on a non-confidential basis from a third-party source, provided
that the third party is not and was not prohibited from disclosing the Confidential Information;

(c) was known by or in the possession of the Receiving Party or its representatives before being disclosed by or on
behalf of the Disclosing Party;

(d) was or is independently developed by the Receiving Party without reference to or use of, in whole or in part,
any of the Disclosing Party’s Confidential Information; or

(e) must be disclosed under applicable law.

12.2 Protection of Confidential Information. The Receiving Party shall[, for [NUMBER] [years/months]] from
[receipt/disclosure] of the Confidential Information:

(a) protect and safeguard the confidentiality of the Disclosing Party’s Confidential Information with at least the
same degree of care as the Receiving Party would protect its own Confidential Information, but in no event with
less than a commercially reasonable degree of care;


(b) not use the Disclosing Party’s Confidential Information, or permit it to be accessed or used, for any purpose
other than to exercise its rights or perform its obligations under this Agreement; and

(c) not disclose any the Confidential Information to any Person, except to the Receiving Party’s representatives
who must know the Confidential Information to assist the Receiving Party, or act on its behalf, to exercise its rights
or perform its obligations under this Agreement.

The Receiving Party shall be responsible for any breach of this Section 12 caused by any of its representatives. [[On the
expiration or earlier termination of this Agreement/At any time during or after the Term, at the Disclosing Party’s written
request], the Receiving Party and its representatives shall, pursuant to Section 11.3(c), promptly [return/destroy] all
Confidential Information (including copies) and all documents and tangible materials that contain, reflect, incorporate or are
based on Confidential Information received under this Agreement.]

Drafting Note: Confidentiality
This confidentiality provision allows for confidentiality obligations to apply to one or both parties. The definition of
“Confidential Information” is party-neutral and relatively broad in scope. If the consignor is sensitive to disclosure of
competitive prices and pricing terms, it should include the optional bracketed language in Section 12.1 that deems
confidential the terms of the agreement. This provision can be revised to reflect the particular circumstances of the
transaction, as well as the parties’ respective negotiation positions. For more information about drafting and
negotiating confidentiality provisions, see Standard Clauses, General Contract Clauses: Confidentiality (Long Form).
END DRAFTING NOTE

13. Representations and Warranties.

13.1 Consignee’s Representations and Warranties. Consignee represents and warrants to Consignor that:


(a) it is a [corporation/limited liability company/[TYPE OF ENTITY]] duly organized, validly existing and in good
standing in the jurisdiction of its [incorporation/organization/formation];

(b) it is duly qualified to do business and is in good standing in every jurisdiction in which such qualification is
required [for purposes of this Agreement][, except where the failure to be so qualified, in the aggregate,
[would/could] not reasonably be expected to adversely affect its ability to perform its obligations under this
Agreement];

(c) it has the full right, [corporate] power and authority to enter into this Agreement, to grant the rights and
licenses granted under this Agreement and to perform its obligations under this Agreement;

(d) the execution of this Agreement by its representative whose signature is set forth at the end hereof has been
duly authorized by all necessary corporate action of the Consignee;

(e) when executed and delivered by both Parties, this Agreement will constitute the legal, valid and binding
obligation of Consignee, enforceable against Consignee in accordance with its terms[, except as may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws and equitable principles related
to or affecting creditors’ rights generally or the effect of general principles of equity];

(f) it is in [material] compliance with all applicable laws relating to this Agreement, the Consigned Goods and the
operation of its business;

(g) it is not insolvent and is paying all of its debts as they become due;

(h) all financial information that it has provided to Consignor is true and accurate and fairly represents Consignee’s
financial condition; and

(i) the names and addresses of all creditors of Consignee holding a security interest under the UCC in the inventory
of Consignee as of the date hereof are completely and accurately listed on Exhibit A, attached hereto.


Drafting Note: Consignee’s Representations and Warranties
Most commercial contracts include standard representations and warranties that relate to:
• The parties themselves.
• The contract’s validity and enforceability.
• The transaction’s subject matter.
In addition to these standard representations and warranties, this Standard Document also includes
representations and warranties commonly found in consignment agreements about the consignee’s:
• Creditworthiness (see Section 13.1(g)).
• Financial condition (see Section 13.1(h)).
• Secured creditors holding a security interest in the consignee’s inventory (see Section 13.1(i)), which enables the
consignor to satisfy its notice requirements for perfecting its security interest in the consigned goods (see Section 4.1).
Depending on the specifics of the transaction and their respective bargaining power, the parties may want to:
• Delete inapplicable or undesirable representations and warranties.
• Add additional representations and warranties.
• Make the existing representations and warranties more comprehensive to address its specific concerns.
For more information on standard representations and warranties in a sale of goods or services agreement,
see Standard Clauses, General Contract Clauses: Representations and Warranties. For more information on
representations and warranties generally, see Practice Note, Representations, Warranties, Covenants, Rights,
and Conditions. For more information on the relationship between representations and warranties and other
provisions in the agreement, see Practice Note, Relationship Between Representations, Warranties,
Covenants, Rights, and Conditions.
Consignor
When drafting Section 13.1, the consignor should:

• Customize the bracketed references in Section 13.1(a) to reflect the consignee’s form of legal entity.
• Decide whether to include any of the bracketed materiality or other qualifiers (for example, in Section 13.1(b)),
considering that the consignee may request reciprocal representations and warranties from the consignor.

Consignee
This agreement is drafted in the consignor’s favor and therefore includes only consignee representations
and warranties. However, depending on the transaction’s nature and the parties’ respective negotiating
power, the consignee should:
• Request similar representations and warranties from the consignor.
• Seek to limit the scope of its representations and warranties in Section 13.1 (see Practice Note, Representations,
Warranties, Covenants, Rights, and Conditions: Limiting the Scope and Effect of Representations and Warranties).
END DRAFTING NOTE

13.2 Limited Product Warranty. Subject to the provisions of Section 13.3, Section 13.4 [,/and] Section 13.5 [and
Section 13.6] and only for a period of [NUMBER] [month[s]/years[s]] from the date of resale by Consignee of the
Consigned Goods to a Customer (the “Warranty Period”), Consignor makes certain limited warranties regarding the
Consigned Goods (”Limited Warranties”), solely to and for the benefit of Customers, which will either be:

(a) included a written warranty statement with the Consigned Good; or

(b) Consignor’s standard limited warranty in force when the Consigned Good is delivered by Consignee to a
Customer[, as set out in the written warranty statement on Consignor’s website: [URL]].

For avoidance of doubt, no warranty is extended to Consignee under this Agreement. Consignee shall not provide
any warranty regarding any Consigned Goods other than the Limited Warranties described in this Section 13.2.

Drafting Note: Limited Product Warranty

Section 13.2 includes a customary product warranty disclaimer, where the consignor:
• Disclaims any warranty to consignee.
• States that the warranty is given directly for the customer’s benefit.
The consignor can argue that while the consignee is not given a product warranty, it is protected from product
defects under Section 1.4(b) which provides for the return of nonconforming goods.
The parties should select the bracketed reference to Section 13.6 if they include that optional section in this
agreement.
END DRAFTING NOTE

13.3 Warranty Limitations. The Limited Warranties do not apply where the Consigned Goods have been:

(a) subjected to abuse, misuse, neglect, negligence, accident, improper testing, improper installation, improper
storage, improper handling, abnormal physical stress, abnormal environmental conditions or use contrary to any
instructions issued by Consignor;

(b) reconstructed, repaired or altered by anyone other than Consignor or its authorized representative; or

(c) used with any [third-party products/Third-Party Products (as defined in Section 13.6 below)] hardware or
product that has not been previously approved in writing by Consignor.

Drafting Note: Warranty Limitations

Section 13.3 includes a standard list of circumstances that invalidate the limited product warranty in Section
13.2. The parties should include the bracketed defined term “Third-Party Products” in Section 11.3(c) if the
parties include optional Section 13.6.
END DRAFTING NOTE

13.4 Extent of Liability. During the Warranty Period, regarding any Consigned Goods that do not conform to the
Limited Warranties in Section 13.2 (including, for the avoidance of doubt, any Nonconforming Goods) accepted by the
Consignee (”Defective Goods”):

(a) notwithstanding anything in this Agreement to the contrary, Consignor’s liability under any Limited Warranty
is discharged, in Consignor’s sole discretion and at its expense, by:

(i) repairing or replacing such Defective Goods; or

(ii) crediting or refunding the Price of such Defective Goods, less any applicable discounts, rebates or credits.

(b) Consignee or Customer is responsible for all costs and risk of loss associated with the delivery of Defective
Goods to [Consignor’s facility located at] [LOCATION] for warranty repair or replacement to Consignor or
Consignor’s designated agent for such purpose;

(c) Consignor is responsible for all costs and risk of loss associated with the delivery of repaired or replaced
Consigned Goods to [the Facility/a location identified by the Customer located at [LOCATION]]; and

(d) Consignee is responsible for all costs and risk of loss associated with the delivery and return of the repaired or
replaced Consigned Goods to Customer.


All claims for breach of a Limited Warranty must be received by Consignor no later than [NUMBER] days after
expiration of the Warranty Period.

SECTION 13.2, SECTION 13.4 AND SECTION 14 SET FORTH CONSIGNEE’S SOLE REMEDY AND
CONSIGNOR’S ENTIRE LIABILITY FOR ANY BREACH OF ANY WARRANTY RELATING TO THE
CONSIGNED GOODS.

Except as explicitly authorized in this Agreement or in a separate written agreement with Consignor, Consignee
shall not service, repair, modify, alter, replace, reverse engineer or otherwise change the Consigned Goods it sells to
Customers.

Drafting Note: Extent of Liability
Section 13.4:
• Describes the extent of the consignor’s liability to the customer regarding the limited warranty in Section 13.2 by
clarifying that the consignor must, at its own cost and option:
• make repairs;
• provide replacements;
• offer credit; or
• make refunds.
• Defines the return procedures, including the responsibilities for return costs and risk of loss. While the written warranty
provided to the customer likely includes similar procedures, Section 13.4 clarifies the responsibilities between the consignor and
consignee and helps avoid potential conflict. The consignor should ensure that any return procedures in the written warranty are
consistent with Section 13.4.
END DRAFTING NOTE

13.5 Warranties Disclaimer; Non-reliance. EXCEPT FOR THE LIMITED EXPRESS WARRANTIES DESCRIBED
IN SECTION 13.2, (A) NEITHER CONSIGNOR NOR ANY PERSON ON CONSIGNOR’S BEHALF HAS MADE
OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, INCLUDING
ANY WARRANTIES OF (I) MERCHANTABILITY[;/; OR] (II) FITNESS FOR A PARTICULAR PURPOSE[;/; OR]

[(III) TITLE] [;/; OR] [[(III)/(IV)] NON-INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF A THIRD
PARTY], WHETHER ARISING BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF
TRADE OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (B) CONSIGNEE
ACKNOWLEDGES THAT IT HAS NOT RELIED ON ANY REPRESENTATION OR WARRANTY MADE BY
CONSIGNOR, OR ANY OTHER PERSON ON CONSIGNOR’S BEHALF, EXCEPT AS SPECIFICALLY
DESCRIBED IN SECTION 13.2 OF THIS AGREEMENT.

Drafting Note: Warranties Disclaimer; Non-Reliance
The UCC permits the disclaimer of both express and implied warranties (UCC § 2-316). For more information on
the disclaimer of express and implied warranties, see Practice Notes, UCC Article 2 Implied Warranties and UCC
Article 2 Express Warranties: Pro-Seller Considerations: Limitation and Disclaimer of Express Warranties Under
UCC Article 2.
Section 13.5 limits the consignor’s potential liability by:

• Limiting its express product warranties to those referenced in Section 13.2.
• Excluding or disclaiming all implied warranties.
• Excluding all other representations and warranties of any type, however made.
Section 13.5 also includes the consignee’s acknowledgment that it has not relied on any representations or
warranties made by the consignor or any person on the consignor’s behalf except for the representations and
warranties expressly stated in Section 13.2. If the consignee negotiates successfully to include consignor
representations and warranties in Section 13, the consignee should reference those representations and warranties
in the introductory sentence of Section 13.5.
The consignee should try to make Section 13.5 mutual to limit its representations and warranties to those
contained in Section 13. For more information about product warranty disclaimers, see Standard Clause, General
Contract Clauses: Product Warranty and Disclaimers.
END DRAFTING NOTE

13.6 [Third-Party Products. Consignee acknowledges and agrees that the Consigned Goods purchased by Consignee
under this Agreement may contain, be contained in, incorporated into, attached to or packaged together with the

products manufactured by a third party (”Third-Party Products”). Third-Party Products are not covered by the Limited
Warranty. For the avoidance of doubt, Consignor makes no representations or warranties regarding any Third-Party
Products.]

Drafting Note: Third-Party Products
Optional Section 13.6 clarifies that the consignor does not make any representations or warranties concerning any
third-party products. The consignor should include it if the consigned goods contain, are contained in, are incorporated
into, attached to or packaged together with, products manufactured by a third party.
END DRAFTING NOTE

14. Indemnification.

14.1 Consignee General Indemnification. Subject to the terms and conditions set out in Section 14.3, Consignee (as
“[Consignee] Indemnifying Party”) shall indemnify, hold harmless, and defend Consignor and its parent, officers,
directors, partners, members, shareholders, employees, agents, affiliates, successors and permitted assigns (collectively,
“[Consignor] Indemnified Party”) against any and all losses, damages, liabilities, deficiencies, claims, actions,
judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including [reasonable]
attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement and the cost of
pursuing any insurance providers (collectively, “Losses”), [incurred by [Consignor] Indemnified Party/awarded against
[Consignor] Indemnified Party [in a final [non-appealable] judgment]], arising out of or [relating to/resulting from] any
claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation,
citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or other, whether
at law, in equity or otherwise (collectively, “Claim”) of a third party:


Drafting Note: Consignee General Indemnification
The obligation in Section 14.1 applies only to third-party claims, not direct claims. For more information on
direct versus third-party claims, see Practice Note, Indemnification Clauses in Commercial Contracts: Direct
Versus Third-Party Claims. If the consignee successfully negotiates the inclusion of a general indemnification by
the consignor in optional Section 14.2, the parties should include the bracketed language to modify the defined
terms above.
Consignor
The indemnified party generally wants the indemnity to be as broad as possible. Therefore, the consignor should
try to:
• Define “Losses” broadly to include all losses incurred by the consignor and not be limited to:
• judicial awards generally; or
• final, non-appealable judgments.
• Use the broader “relating to” nexus phrase (for more on nexus phrases, see Practice Note, Indemnification Clauses in
Commercial Contracts: Choosing the Right Nexus Phrase).
Because Section 14 identifies indemnified parties who are not parties to the contract, it may be inconsistent with
an unqualified no third-party beneficiaries clause. Therefore, if the consignor wants to ensure that all indemnified
parties who are intended to be third-party beneficiaries can seek remedies under Section 14, it should carve out
the related indemnified parties from the no third-party beneficiaries provision in Section 17.14.
When negotiating for broad indemnity rights under Section 14.1, the consignor should keep in mind that, if the
consignee is successful in negotiating the inclusion of Section 14.2, it is likely to seek some if not all of the same
broad rights in return.
Consignee
The indemnifying party generally wants the indemnity to be as limited as possible. Therefore, the consignee
should try to:
• Qualify certain provisions, for example, by using reasonableness to qualify attorneys’ fees.
• Define “Losses” narrowly by including the bracketed language limiting payment to losses that are finally adjudicated.
• Use the narrower “resulting from” nexus phrase (for more on nexus phrases, see Practice Note, Indemnification Clauses
in Commercial Contracts: Choosing the Right Nexus Phrase).

For more indemnification drafting and negotiating tips, see Standard Clauses, General Contract Clauses:
Indemnification.
END DRAFTING NOTE

(a) relating to a [material] breach or non-fulfillment of any [material] [representation, warranty or covenant

under/representation or warranty set out in Section[s] [NUMBER] of/covenant set out in Section[s] [NUMBER]
of/representation or warranty set out in Section[s] [NUMBER] or covenant set out in Section[s] [NUMBER] of]
this Agreement by [Consignee] Indemnifying Party or [Consignee] Indemnifying Party’s personnel;

Drafting Note: Indemnification for Breach of the Agreement
Materiality Qualifiers
The consignee generally wants to qualify its obligation to indemnify for breach of the agreement with
materiality. The parties should consider the consequences of qualifying the indemnification provision with
materiality because this qualification introduces:
• A second layer of materiality if the underlying representation is already qualified by materiality. This is sometimes known
as double materiality. To address double materiality concerns, the consignor may want to include a provision stripping out
materiality from the representations and warranties for indemnification purposes (sometimes known as a materiality scrape) (see
Standard Document, Asset Purchase Agreement (Pro-Buyer Long Form): Section 8.04(c)).
• A new layer of materiality to representations that the consignee may have negotiated without qualification. This is
sometimes known as back-door materiality. The consignee may already have negotiated protective qualifiers like indemnification
baskets, which act as a kind of materiality qualifier (see Standard Clauses, General Contract Clauses: Indemnification: Section 2.2
and its accompanying Drafting Note).
END DRAFTING NOTE


(b) alleging or relating to any [[grossly] negligent or more culpable] act or omission of [Consignee] Indemnifying
Party or its personnel (including any recklessness or willful misconduct) in connection with the performance of its
obligations under this Agreement;

(c) alleging or relating to any bodily injury, death of any person or damage to real or tangible personal property
caused by the [willful or [grossly] negligent] acts or omissions of [Consignee] Indemnifying Party or its personnel;
[or]

Drafting Note: Qualifying Indemnification With Negligence and Gross Negligence
Under Section 14.1(b) and Section 14.1(c):

• The consignor should try to maximize its rights and therefore exclude:
• any qualification of the consignee’s acts and omissions; or
• if acts and omissions are qualified, the term “grossly.”
• The consignee should try to minimize its obligations and therefore qualify its acts and omissions to the greatest extent
possible, for example, by including the full text of the bracketed language that contains the word “grossly.”
END DRAFTING NOTE

(d) relating to a purchase of a Consigned Good by any person or entity purchasing directly or indirectly through
[Consignee] Indemnifying Party and not directly relating to a claim of Limited Warranty breach[./; or]

(e) [relating to any failure by [Consignee] Indemnifying Party or its personnel to [materially] comply with any
applicable laws.]

Drafting Note: Indemnification for Failure to Comply with Law
The consignor should include the indemnity in Section 14.1(e) to protect itself against third-party claims
based on the consignee’s breach of applicable law.
END DRAFTING NOTE

14.2 [Consignor General Indemnification. Subject to the terms and conditions set out in Section 14.3, Consignor (as
“Consignor Indemnifying Party”) shall indemnify, hold harmless and defend Consignee and its officers, directors,
employees, agents, affiliates, successors and permitted assigns (collectively, “Consignee Indemnified Party”) against
any and all Losses [incurred by Consignee Indemnified Party/awarded against Consignee Indemnified Party [in a final
[non-appealable] judgment]], arising out of or [relating to/resulting from] any Claim of a third party alleging or relating
to:

(a) a [material] breach or non-fulfillment of any [material] [representation, warranty or covenant

under/representation or warranty set out in Section[s] [NUMBER] of/covenant set out in Section[s] [NUMBER]
of/representation or warranty set out in Section[s] [NUMBER] or covenant set out in Section[s] [NUMBER] of]
this Agreement by Consignor Indemnifying Party or Consignor Indemnifying Party’s personnel;

(b) any [[grossly] negligent or more culpable] act or omission of Consignor Indemnifying Party or its personnel
(including any recklessness or willful misconduct) in connection with the performance of its obligations under this
Agreement; [or]

(c) any bodily injury, death of any Person or damage to real or tangible personal property caused by the [willful or
[grossly] negligent] acts or omissions of Consignor Indemnifying Party or its personnel[./; or]

(d) [any failure by Consignor Indemnifying Party or its personnel to [materially] comply with any applicable
laws.]


Notwithstanding anything to the contrary in this Agreement, this Section 14.2 does not apply to [any claim covered
under Section 14.4 or] any claim for which a sole or exclusive remedy is provided for under another section of this
Agreement, including Section 13.4.]

Drafting Note: Consignor General Indemnification
In this pro-consignor agreement, the consignor general indemnification provision is optional. The consignor
must decide, as a matter of negotiating strategy, whether to include a consignor general indemnification.
Consignors sometimes include a consignor contractual indemnity to:
• Provide more predictability and certainty of recourse.
• Preempt the consignee’s demand for indemnification.
• Show a court the parties’ intent regarding risk allocation.
• Increase the odds of settlement based on the parties’ intent.
For more drafting and negotiating tips on indemnification, see Standard Clauses, General Contract Clauses:
Indemnification.
Consignee
The consignee may be subject to suits by customers, even though the consignee did not conceive, design,
manufacture, package or alter the consigned goods. To avoid or mitigate the impact of any third-party suits, the
consignee should:
• Negotiate the inclusion of Section 14.2.
• Protect itself from customer claims by:
• including indemnification obligations in its agreements with customers that are substantially similar to or at least not
materially greater than those it receives from the consignor;
• if it does not receive an indemnification from the consignor, passing along the consignor protections to customers without
granting its own protections; and
• disclaiming any warranties and indemnification obligations in its customer agreements. For information on ensuring the
effectiveness of warranty disclaimers, see Practice Notes, UCC Article 2 Express Warranties: Pro-Seller Considerations: Limitation
and Disclaimer of Express Warranties Under UCC Article 2 and UCC Article 2 Implied Warranties.
• Ensure that the exceptions in Section 14.3 are not overly broad.
• Try to exclude Section 14.2 from the limitation of liability in Section 15.1.

Before reselling the consigned goods to customers, the consignee should also determine whether the transaction
risks are sufficiently outweighed by the benefits. For example, the consignee can review:
• The consignor’s quality control and safety procedures in its product manufacturing, testing, approval, packaging and
shipping processes.
• Product safety and potential for liability.
• The adequacy of the consignor’s product warnings and instructions.
END DRAFTING NOTE

14.3 [Exceptions and Limitations on General Indemnification. Notwithstanding anything to the contrary in this
Agreement, [no] Indemnifying Party is [not] obligated to indemnify or defend [an] Indemnified Party against any third-
party Claim if the third-party Claim or corresponding Losses arise out of or result from[, in whole or in part,] the
Indemnified Party’s or its personnel’s:

(a) [[gross] negligence or more culpable] act or omission (including recklessness or willful misconduct); or

(b) bad faith failure to [materially] comply with any of its [material] obligations set out in this Agreement.]

Drafting Note: Exceptions and Limitations on General Indemnification
Optional Section 14.3 includes two common exceptions to the obligation to indemnify to address
circumstances where the indemnified party’s own actions cause or contribute to the alleged harm triggering
indemnification. The clause can be adapted depending on whether Section 14.2 is included and each party
indemnifies the other. Depending on its bargaining power and the circumstances of the transaction, the
consignor may wish to exclude this section if it omits Section 14.2.

The indemnifying party may want to include the optional materiality and other qualifiers to limit the scope
of certain exceptions. These exceptions are examples only and should be tailored to reflect the specifics of
the transaction.
The parties should include either:

• The bracketed term “no” in the lead-in sentence, if they include Section 14.2 and Section 14.4.
• The bracketed term “not” and “an” in the lead-in sentence, if the parties exclude Section 14.2 and Section 14.4.
END DRAFTING NOTE

14.4 [Consignor Intellectual Property Indemnification. Subject to this Section 14 [and Section 15], [and without
limiting Consignor’s indemnification obligations under Section 14.2,] Consignor shall indemnify, defend and hold
harmless Consignee Indemnified Party from and against all Losses [awarded against any Consignee Indemnified Party
in a [final [non-appealable]] judgment] arising out of any third-party Claim alleging that any of the Consigned Goods or
any Customer’s receipt or use thereof infringes any intellectual property rights of a third party.

If a Consigned Good, or any part of a Consigned Good, becomes, or in Consignor’s opinion is likely to become,
subject to a third-party Claim that qualifies for intellectual property indemnification coverage under this Section 14.4,
Consignor shall notify Consignee in writing to cease using, reselling, marketing, advertising or promoting all or a part of
the Consigned Good, in which case Consignee shall immediately cease all use, resale, marketing, advertising and
promoting of the Consigned Good on receipt of Consignor’s notice.

Notwithstanding anything to the contrary in this Agreement, this Section 14.4 does not apply to [any claim covered
under Section 14.2 or] any claim for which a sole or exclusive remedy is provided for under another section of this
Agreement, including Section 13.4.]

Drafting Note: Consignor Intellectual Property Indemnification

In this pro-consignor agreement, consignor’s intellectual property indemnification is optional. Under Section
14.4 the consignor indemnifies the consignee for intellectual property infringement claims brought by third
parties arising out of:
• The consigned goods.
• The customer’s receipt or use of the consigned goods.
Typically the consignor only agrees to give this indemnification when:

• The consignor conceived, designed, manufactured or altered the product (in most cases, this does not include consignors
who are distributors).
• The consignee has not altered or modified the consigned goods without the consignor’s direction.
• The consignee has not combined, used or operated the consigned goods in a manner not recommended, directed or
sanctioned by the consignor.
The parties should define the term “Consignee Indemnified Parties” in Section 14.4 if they did not do so in
Section 14.2. The parties should be aware that if the consignor excludes Section 14.4 but agrees to include
representations and warranties that encompass legal compliance, the consignee may be able to bring a general
indemnification claim if any consigned goods violate the intellectual property rights of a third party.
Consignor
The consignor should try to either:

• Exclude Section 14.4. However, the consignor should be aware that, if it successfully excludes an intellectual property
indemnification, depending on the circumstances, applicable state law (most likely UCC Section 2-312(3)) may imply an
indemnification against infringement. Therefore, before negotiating to exclude Section 14.4, the consignor should review applicable
state law to determine whether indemnification is implied by law and if so, whether it would be favorable to address
indemnification in this agreement. For example, as compared to indemnity implied by law, a contractual indemnity may:
• provide more predictability and certainty of recourse;
• show a court the parties’ intent regarding risk allocation; or
• increase the odds of settlement based on the parties’ intent.
• Limit the scope of its indemnification obligations to:
• awards of damages resulting from final (non-appealable) judgments only; or
• claims arising under US law (or other specific jurisdictions for which the consignor is willing to indemnify the
consignee).
If the consignee is providing materials or equipment for use by the consignor in performing under this
agreement, the consignor should ask the consignee for a reciprocal infringement indemnity.

Consignee
Without this provision, the consignee may be subject to third-party intellectual property suits (including by non-
practicing entities (commonly called patent trolls)), even though the consignee did not conceive, design,
manufacture, package or alter the consigned goods. If the parties do not include Section 14.4, then the consignee
should:
• Pass along the consignor protections to its customers, without granting its own protections.
• Disclaim any indemnification obligations in its agreements with customers.
If the consignee successfully includes this provision, it can negotiate to expand its scope, for example, by:
• Resisting the limitation on costs and damages to those relating only to a final judgment which would exclude damages
awarded against the consignee at the trial level.
• If the agreement limits the application of the indemnification to a certain territory, ensuring that all territories in which
the consignee plans to receive and resell the consigned goods are covered.
• Covering claims for infringement of all intellectual property rights (for example, patents, copyrights, trade secrets and
trademark rights) relevant to the type of consigned goods sold under the agreement.
• Ensuring that the exceptions in Section 14.5 are not overly broad.
• Excluding Section 14.4 from the limitation of liability in Section 15.1.
Once it negotiates the consignor indemnification, the consignee should also protect itself from claims by ensuring
that the indemnification obligations it gives under the customer agreement (if any) are substantially similar to or
at least not materially greater than the obligations it receives from the consignor.
END DRAFTING NOTE

14.5 [Exceptions to Consignor’s Intellectual Property Indemnification. Notwithstanding anything to the contrary in

this Agreement, Consignor is not obligated to indemnify or defend Consignee Indemnified Parties against any third-
party Claim under Section 14 if the third-party Claim or corresponding Losses[, to the extent they] arise out of or result
from[, in whole or in part,]:

(a) the circumstances described in Section 14.3(a) and Section 14.3(b);


(b) Consignee’s marketing, advertising, promotion or sale of any Consigned Good purchased under this
Agreement in any manner not otherwise authorized under this Agreement;

(c) use of any Consigned Good purchased under this Agreement in combination with any products, materials or
equipment supplied to a Customer by a person other than Consignor, Consignee or either of their authorized
representatives, if the infringement would have been avoided by the use of the products not so combined; or

(d) any modifications or changes made to the product by or on behalf of any person other than Consignor or its
representatives, if the infringement would have been avoided without the modification or change.]

Drafting Note: Exceptions to Consignor’s Intellectual Property Indemnification
Section 14.5 lists exceptions to the consignor’s indemnity obligations in Section 14.4 for potential liabilities
that are not reasonably within the consignor’s control (for example, if the infringement arises out of
modifications to the consigned goods made by someone other than the consignor or its representatives).
The consignor should insist on including Section 14.5 if optional Section 14.4 is used.
Depending on its negotiating leverage or strategy, the consignor can include either:
• The more aggressive bracketed phrase “in whole or in part,” which shields the consignor from paying losses altogether if
any portion of those losses, however small, arise or result from the listed circumstances in Section 14.5.
• The more moderate bracketed phrase “to the extent they,” which limits the amount of losses the consignor must pay for to
only the losses that arise or result from the listed circumstances in Section 14.5. However, the consignor should be aware that this
latter approach is more likely to be the subject of conflicting interpretation and dispute.
END DRAFTING NOTE

14.6 Sole Remedy. SECTION 14 SETS FORTH THE ENTIRE LIABILITY AND OBLIGATION OF [THE/EACH]

INDEMNIFYING PARTY AND THE SOLE AND EXCLUSIVE REMEDY FOR [THE/EACH] INDEMNIFIED
PARTY FOR ANY LOSSES COVERED BY SECTION 14.

Drafting Note: Sole Remedy
This provision protects the indemnifying party from exposure to additional liability beyond the terms set out in the
indemnification provision, by clarifying that the remedies set out in Section 14 are the only remedies available to the
indemnified party under the agreement for any of the covered losses. For this reason, the indemnifying party should
resist any attempt by the other party to delete this provision.
The parties should carve-out the indemnity provision (Section 14) from the cumulative remedies clause (Section
17.10) to ensure that the cumulative remedies clause does not conflict with this Section 14.6 by providing the
aggrieved party an opportunity to seek damages or remedies beyond the scope of the indemnification provision.
Impact of Sole Remedy Provision on Indemnification for Direct Claims
The indemnified party should be aware that if the agreement contains both an indemnity for direct claims (in addition
to third-party claims) and a sole remedy provision, then the sole remedy provision cuts off any additional non-
indemnification related claims that the indemnified party might otherwise have against the indemnifying party. For
more information on sole remedy provisions, see Practice Note, Indemnification Clauses in Commercial Contracts:
Sole Remedy Provisions.
END DRAFTING NOTE

15. Limitation of Liability.

15.1 No Liability for Consequential or Indirect Damages. [EXCEPT FOR [OBLIGATIONS TO MAKE PAYMENT
UNDER THIS AGREEMENT,] [LIABILITY FOR INDEMNIFICATION,] LIABILITY FOR BREACH OF
CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL

PROPERTY RIGHTS, ] IN NO EVENT IS [CONSIGNOR/EITHER PARTY] OR [ITS/THEIR] REPRESENTATIVES
LIABLE FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR
ENHANCED DAMAGES[, LOST PROFITS OR REVENUES OR DIMINUTION IN VALUE], ARISING OUT OF
OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF (A) WHETHER THE DAMAGES
WERE FORESEEABLE, (B) WHETHER OR NOT [CONSIGNOR/THE BREACHING PARTY] WAS ADVISED OF
THE POSSIBILITY OF THE DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT
OR OTHERWISE) ON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE OF ANY
AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.

Drafting Note: No Liability for Consequential or Indirect Damages
In Section 15.1, the parties expressly exclude all consequential, incidental or special damages as well as any other
types of indirect damages, subject to the following optional exceptions:
• Payments under this agreement.
• Liability for indemnification.
• Liability for breach of confidentiality.
• Liability for infringement or misappropriation of intellectual property rights.
The parties must also negotiate whether this provision is reciprocal or unilateral.
Consignor
Depending on its negotiating leverage or strategy and the transaction’s nature, the consignor should try to make
this provision unilateral.
If the parties agree to make Section 15.1 reciprocal, of the two parties, the consignor is more likely to seek
damages against the consignee. Therefore, under both a unilateral and a reciprocal version of Section 15.1, the
consignor likely wants to include the maximum number of exceptions.
The consignor also likely wants this provision to cover:

• Lost profits.
• Lost revenues.
• Diminution in value.

(See Lost Profits or Revenues and Diminution in Value.)
Consignee
The consignee, depending on its negotiating leverage or strategy and the transaction’s nature, should try to make
this provision reciprocal. The consignee wants to limit its liability and therefore should consider resisting the
optional exceptions in Section 15.1. For more information on exceptions to the limitation of liability, see Standard
Clause, General Contract Clauses: Limitation of Liability: Drafting Note: Exceptions.
Lost Profits or Revenues and Diminution in Value
Lost profits or revenues and diminution in value can comprise either:

• Direct damages.
• Indirect damages.
• Incidental damages as defined by UCC Section 2-715.
Therefore, by including lost profits, lost revenues and diminution in value in Section 15, the parties may
inadvertently exclude some direct damages.
END DRAFTING NOTE

15.2 [Maximum Liability for Damages. [EXCEPT FOR [OBLIGATIONS TO MAKE PAYMENT UNDER THIS
AGREEMENT,] [LIABILITY FOR INDEMNIFICATION,] LIABILITY FOR BREACH OF CONFIDENTIALITY,
OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS,] IN
NO EVENT SHALL [CONSIGNOR’S/EITHER PARTY’S] [AGGREGATE] LIABILITY [FOR EACH CLAIM]
ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EXCEED [[NUMBER] TIMES]
THE TOTAL AMOUNT PAID [OR PAYABLE] TO CONSIGNOR UNDER THIS AGREEMENT [IN THE
[NUMBER] [YEAR/MONTH] PERIOD PRECEDING THE EVENT GIVING RISE TO THE CLAIM [OR $
[AMOUNT], WHICHEVER IS LESS]. THE FOREGOING LIMITATIONS APPLY EVEN IF THE
[CONSIGNOR’S/NON-BREACHING PARTY’S] REMEDIES UNDER THIS AGREEMENT FAIL OF THEIR
ESSENTIAL PURPOSE.]

Drafting Note: Maximum Liability
The parties must negotiate whether:

• To include optional Section 15.2. For more information on the benefits of a maximum liability provision, see Standard
Clauses, General Contract Clauses: Limitation of Liability: Drafting Note: Read This Before Using Document.
• The provision is reciprocal or unilateral, protecting only the consignor.
• To include any or all of the following optional exceptions from the liability cap:
• payments under this agreement;
• liability for indemnification;
• liability for breach of confidentiality; and
• liability for infringement or misappropriation of intellectual property rights.
• The amount of the liability cap is based on:
• a per-claim basis; or
• aggregate basis.
• To include a specific dollar amount as a fixed cap.
For more information on drafting and negotiating limitation on liability provisions, see Standard Clauses, General
Contract Clauses: Limitation of Liability. For additional information on structuring a contractual liability cap, see
Standard Clauses, General Contract Clauses: Indemnification: Drafting Note: Maximum Liability.
Capping the Consignor’s Indemnification Obligations
The consignor should expect the consignee to strongly resist a cap on the consignor’s indemnification obligations,
especially if the consignee:
• Has significant negotiating power.
• Did not conceive, design, manufacture, package or alter the product.
If the consignee cannot exclude a cap on the consignor’s indemnification obligations, then it should ensure that the cap
is negotiated in the context of:
• Market expectations.
• The parties’ bargaining power.
• Product risk, including intellectual property risk.

• Counterparty risk. For example, the consignee may demand a higher cap from a consignor that has many competitors or
deep pockets.
END DRAFTING NOTE

16. [[Consignee/Mutual] Insurance Obligations. During the Term [and for a period of [TIME PERIOD] thereafter],
[Consignee/each Party] shall, at its own expense, maintain and carry in full force and effect[, subject to appropriate levels of
self-insurance,] commercial general liability (including product liability) in a sum no less than $[AMOUNT] [OTHER
APPLICABLE INSURANCE COVERAGES AND RESPECTIVE AMOUNTS] with financially sound and reputable
insurers, and upon [Consignor’s/the other Party’s] [reasonable] request, shall provide [Consignor/the other Party] with a
certificate of insurance evidencing the insurance coverage specified in this Section 16. [The certificate of insurance shall
name [Consignor/the other Party] as an additional insured.] [Consignee/Each Party] shall provide [Consignor/the other Party]
with [NUMBER] days’ advance written notice in the event of a cancellation or material change in such insurance policy.]

Drafting Note: Insurance Obligations
Each party should determine the appropriate types of insurance coverage and policy limits for a particular transaction
in consultation with their respective risk management departments and insurance specialists. When drafting and
negotiating Section 16, the parties should consider each party’s respective transaction-based risks (see Drafting Note,
No Liability for Consequential or Indirect Damages).
The parties negotiate:

• Whether this provision is:
• mutual and equal;
• mutual but unequal and favoring one party over the other; or
• unilateral.
• How long each insuring party must maintain insurance coverage.
• Whether an insuring party may self-insure.
• The types of coverage in addition to commercial liability insurance.

• The coverage minimums.

• Whether the insuring party must provide evidence of insurance.
• Whether the insuring party must name the other party as an additional insured.
• Whether the insuring party must notify the other party in the event of a cancellation or material change in its insurance
policy, and if so, how much notice.
• Whether the insuring party must require its insurance company to waive its subrogation rights against the other party.
Consignor
Depending on its negotiating leverage, the consignor tries to avoid insurance obligations under Section 16.
The consignor may require the consignee to obtain insurance to cover for damages associated with:
• The consignee’s indemnification obligations under Section 14.1.
• Third-party claims resulting from the use of the goods or the incorporation of the goods into other products.
• The consignee’s advertising, marketing or promotional activities.
• Packaging or shipment of the goods from the consignee to its customers.
Consignee
The consignee may require the consignor to obtain insurance to cover for damages associated with:
• The consignor’s:
• general indemnification obligations, if optional Section 14.2 is included; and
• intellectual property indemnification, if optional Section 14.4 is included.
• Product liability claims, including withdrawals and recalls.
Depending on its negotiating leverage, the consignee can try to avoid unilateral insurance obligations in the
consignor’s favor by alternatively:
• Excluding Section 16 altogether.
• Making Section 16 mutual and equal.
• Making Section 16 mutual but favoring the consignor.
END DRAFTING NOTE


17. Miscellaneous.

17.1 Further Assurances. Upon [Consignor’s/a Party’s] [reasonable] request, [Consignee/the other Party] shall, at its
sole cost and expense, execute and deliver all such further documents and instruments, and take all such further acts, as
[reasonably] necessary to give full effect to this Agreement.

Drafting Note: Further Assurances
Section 17.1:
• Is designed to ensure that the consignee agrees to take any further actions necessary to carry out the transactions
contemplated by the agreement.
• Can be made reciprocal by choosing “a Party’s” and “the other Party” from the bracketed language.
• Is useful for dealing with miscellaneous issues that may arise during the term of the agreement.
However, if the parties are aware of any specific actions that must be taken, they should provide for them
specifically in a separate covenant (see, for example, Section 4.1).
For more information on drafting and negotiating further assurances provisions, see Standard Clause, General
Contract Clauses: Further Assurances.
END DRAFTING NOTE

17.2 Entire Agreement.

(a) Subject to Section 1.3, this Agreement, including all related exhibits[, schedules, attachments and appendices],
together with any applicable Sales Confirmation, constitutes the sole and entire agreement of the Parties regarding
the subject matter contained herein and therein, and supersedes all prior and contemporaneous understandings,
agreements, representations and warranties, both written and oral, regarding such subject matter.


(b) Without limitation of anything contained in Section 17.2(a), each Party acknowledges that except for the
representations and warranties contained in Section 1.5(b) and Section 13.1, neither Party has relied on any other
express or implied representation or warranty, either written or oral, on behalf of the other Party, including any
representation or warranty arising from statute or otherwise in law.

Drafting Note: Entire Agreement
This provision (also known as a merger or integration provision) is used to prevent the parties from being
liable for any understandings, agreements or representations and warranties other than those expressly set
out in the agreement. For more information on drafting and negotiating entire agreement provisions, see
Standard Clauses, General Contract Clauses: Entire Agreement.
This section references related Section 1.3, which:

• States that this agreement and any applicable consignment confirmation prevails over any terms and conditions of the
consignee contained in its consignment request.
• Is intended to avoid a battle of the forms (see Drafting Note, Terms of Agreement Prevail Over Consignee’s Consignment
Request).
END DRAFTING NOTE

17.3 Survival; Statute of Limitations. Subject to the limitations and other provisions of this Agreement: (a) the
representations and warranties of the Parties contained herein shall survive the expiration or earlier termination of this
Agreement for a period of [12/[NUMBER]] months after such expiration or termination; and (b) [SECTIONS] of this
Agreement, as well as any other provision that, in order to give proper effect to its intent, should survive such expiration
or termination, shall survive the expiration or earlier termination of this Agreement for the period specified therein, or if
nothing is specified for a period of [12/[NUMBER]] months after such expiration or termination. All other provisions of
this Agreement shall not survive the expiration or earlier termination of this Agreement. Notwithstanding any right
under any applicable statute of limitations to bring a claim, no action based on or arising in any way out of this
Agreement may be brought by either Party after the expiration of the applicable survival or other period set forth in this
Section 17.3 and the Parties waive the right to file any such Action after the expiration of the applicable survival or other
period; provided, however, that the foregoing waiver and limitation do not apply to the collection of any amounts due to
Consignor under this Agreement.

Drafting Note: Survival; Statute of Limitations
Parties generally use a survival clause to:

• Limit the time period during which an actionable breach may occur or be discovered.
• Serve as a contractual statute of limitations to shorten the amount of time one party has to file an action against the other
for breach of representation and warranty.
The survival clause in Section 17.3 is intended to function as a contractual statute of limitations. In this provision,
the parties negotiate:
• The surviving provisions.
• The term of survival.
For more information on survival clauses, see:

• Practice Note, Representations, Warranties, Covenants, Rights, and Conditions: Survival of Representations and
Warranties.
• Standard Clause, General Contract Clauses: Contractual Statute of Limitations.
END DRAFTING NOTE

17.4 Notices. All notices, requests, consents, claims, demands, waivers and other communications under this
Agreement (each, a “Notice”) must be in writing and addressed to the other Party at its address set forth below (or to
such other address that the receiving Party may designate from time to time in accordance with this Section 17.4). All
Notices must be delivered by personal delivery, nationally recognized overnight courier or certified or registered mail (in
each case, return receipt requested, postage prepaid). [Notwithstanding the foregoing, for the purposes of Section[s]
[NUMBER(S)], Notice given by facsimile or e-mail (with confirmation of transmission)[, and for the purposes of
Section[s] [NUMBER(S)], Notice given by posting to the receiving Party’s website below,] will satisfy the requirements
of this Section 17.4.] Except as otherwise provided in this Agreement, a Notice is effective only (a) on receipt by the
receiving Party, and (b) if the notifying Party has complied with the requirements of this Section 17.4.


Notice to Consignor: [CONSIGNOR ADDRESS]

Facsimile: [FAX NUMBER]

E-mail: [E-MAIL ADDRESS]

[Website: [WEBSITE ADDRESS]]

Attention: [TITLE OF OFFICER TO RECEIVE NOTICES]

Notice to Consignee: [CONSIGNEE ADDRESS]

Facsimile: [FAX NUMBER]

E-mail: [E-MAIL ADDRESS]

[Website: [WEBSITE ADDRESS]]

Attention: [TITLE OF OFFICER TO RECEIVE NOTICES]


Drafting Note: Notices
This provision governs:

• The manner in which any notice under the agreement must be given.
• The time at which the notice is deemed to be formally given.
Section 17.4 does not generally permit the delivery of formal notice by facsimile, e-mail or website posting. This
is intended to protect the receiving party from being bound by a notice that it does not actually see. However, the
bracketed language allows the parties to specify certain sections of the agreement under which formal notice
may be delivered by facsimile, e-mail or website posting. Section 17.4 can be revised if the parties agree to
accept facsimile, e-mail or website posting notices in all instances. For more information (and a sample short-
form notice provision), see Standard Clauses, Boilerplate Clauses: Section 5.
END DRAFTING NOTE

17.5 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” are deemed
to be followed by the words “without limitation”; (b) the word “or” is not exclusive; (c) the words “herein,” “hereof,”
“hereby,” “hereto” and “hereunder” refer to this Agreement as a whole; (d) words denoting the singular have a
comparable meaning when used in the plural, and vice-versa; and (e) words denoting any gender include all genders.
Unless the context otherwise requires, references in this Agreement: (x) to sections, exhibits, schedules, attachments
and appendices mean the sections of, and exhibits, schedules, attachments and appendices attached to, this Agreement;
(y) to an agreement, instrument or other document means such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute
means such statute as amended from time to time and includes any successor legislation thereto and any regulations
promulgated thereunder. The Parties drafted this Agreement without regard to any presumption or rule requiring
construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted. The
exhibits, schedules, attachments and appendices referred to herein are an integral part of this Agreement to the same
extent as if they were set forth verbatim herein.


Drafting Note: Interpretation
This provision is designed to reduce repetition in the agreement, making it shorter and easier to read. For more
information on drafting and negotiating interpretation clauses, see Standard Clauses, Boilerplate Clauses: Section
7.
END DRAFTING NOTE

17.6 Headings. The headings in this Agreement are for reference only and do not affect the interpretation of this
Agreement.

Drafting Note: Headings
For more information on headings, see Standard Clauses, Boilerplate Clauses: Section 8.
END DRAFTING NOTE

17.7 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate
or render unenforceable such term or provision in any other jurisdiction[; provided, however, that if any fundamental
term or provision of this Agreement (including [FUNDAMENTAL TERMS]), is invalid, illegal or unenforceable, the
remainder of this Agreement shall be unenforceable. [On a judicial determination that any term or provision is invalid,
illegal or unenforceable, [the Parties shall negotiate in good faith to/the court may] modify this Agreement to effect the
original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as

originally contemplated to the greatest extent possible]].

Drafting Note: Severability
The purpose of the severability clause is to clarify that, if one or more terms or provisions are held to be invalid,
illegal or unenforceable, the parties intend the agreement as a whole to survive by severing the offending
provisions from the agreement.
For more information on drafting and negotiating severability provisions, see Standard Clauses, General Contract
Clauses: Severability.
END DRAFTING NOTE

17.8 Amendment and Modification. No amendment to or modification of [or rescission, termination or discharge of]
this Agreement is effective unless it is in writing[, identified as an amendment to [or rescission, termination or
discharge of] this Agreement] and signed by [an authorized representative of] each Party.

Drafting Note: Amendment and Modification
For more information on amendment and modification, see Standard Clauses, General Contract Clauses:
Amendments.
END DRAFTING NOTE

17.9 Waiver.

(a) No waiver under this Agreement is effective unless it is in writing[, identified as a waiver to this Agreement]
and signed by [an authorized representative of] the Party waiving its right.

(b) Any waiver authorized on one occasion is effective only in that instance and only for the purpose stated, and
does not operate as a waiver on any future occasion.

(c) None of the following constitutes a waiver or estoppel of any right, remedy, power, privilege or condition
arising from this Agreement:

(i) any failure or delay in exercising any right, remedy, power or privilege or in enforcing any condition under
this Agreement; or

(ii) any act, omission or course of dealing between the Parties.

Drafting Note: Waiver
For more information on drafting and negotiating waiver provisions, see Standard Clause, General
Contract Clauses: Waivers.
END DRAFTING NOTE

17.10 Cumulative Remedies. All rights and remedies provided in this Agreement are cumulative and not exclusive,

and the exercise by either Party of any right or remedy does not preclude the exercise of any other rights or remedies
that may now or subsequently be available at law, in equity, by statute, in any other agreement between the Parties or
otherwise. Notwithstanding the previous sentence, the Parties intend that Consignee’s rights under Section 1.4, Section
13.2 [,/and] Section 13.4 [,/and Section 14.2] [and Section 14.4] are Consignee’s exclusive remedies for the events
specified therein.

Drafting Note: Cumulative Remedies
The consignor should ensure that the consignee cannot pursue cumulative remedies after the consignee receives
its exclusive remedies for:
• Non-conforming goods (see Section 1.4).
• Defective goods (see Section 13.2 and Section 13.4).
• Claims covered under the general indemnification provision, if optional Section 14.2 is included.
• Third-party intellectual property claims, if optional Section 14.4 is included.
The consignee should insist on making the exclusive remedies carve-out in Section 17.10 reciprocal to include
the consignor’s indemnification rights under Section 14.
If the consignee is unsuccessful in including reciprocal indemnification rights under Section 14.2 or intellectual
property indemnification rights under Section 14.4, the consignor should exclude the bracketed references to
these sections.
For more information on drafting and negotiating cumulative remedies provisions, see Standard Clauses, General
Contract Clauses: Cumulative Remedies (with Exclusive Remedies Carve-Out).
END DRAFTING NOTE

17.11 Equitable Remedies. [Consignee/Each Party] acknowledges and agrees that (a) a breach [or threatened breach]
by Consignee of any of its obligations under Section 12 [and Section[s] [NUMBER(S)]] would give rise to irreparable
harm to [Consignor/the other Party] for which monetary damages would not be an adequate remedy and (b) in the event
of a breach [or a threatened breach] by [Consignee/such Party] of any such obligations, [Consignor/the other Party]
shall[, in addition to any and all other rights and remedies that may be available to [Consignor/such Party] at law, equity
or otherwise in respect of such breach,] be entitled to equitable relief, including a temporary restraining order, an

injunction, specific performance and any other relief that may be available from a court of competent jurisdiction,
without any requirement to post a bond or other security, and without any requirement to prove actual damages or that
monetary damages will not afford an adequate remedy. [Consignee/Each Party] agrees that [Consignee/it] will not
oppose or otherwise challenge the appropriateness of equitable relief or the entry by a court of competent jurisdiction of
an order granting equitable relief, in either case, consistent with the terms of this Section 17.11.

Drafting Note: Equitable Remedies
In this agreement, the equitable remedies provision covers breach of the confidentiality obligations in Section
12. Section 17.11 can be adapted to:
• Apply to both parties.
• Cover any other types of breaches that the consignor (or consignee) considers appropriate for equitable relief.
• Be less expansive, by deleting the brackets that reference “threatened breach”.
For more information on drafting and negotiating equitable remedies, see Standard Clause, General Contract
Clauses: Equitable Remedies.
END DRAFTING NOTE

17.12 Assignment. Consignee shall not assign any of its rights or delegate any of its obligations under this
Agreement without the prior written consent of Consignor. Any purported assignment or delegation in violation of this
Section is null and void. No permitted assignment or delegation relieves Consignee of any of its obligations under this
Agreement. Consignor may assign any of its rights or delegate any of its obligations [to any affiliate or to any person
acquiring all or substantially all of Consignor’s assets] without the consent of Consignee.

Drafting Note: Assignment

In many cases, assignment or delegation by the consignee can be harmful to the consignor’s business. For
example, in a case where the consignee’s assignee:
• Is not as well positioned as the consignee to help the consignor resell the consigned goods.
• Is a competitor of the consignor.
Therefore, the consignor typically tries to limit the consignee’s rights to assign or delegate. In this pro-consignor
agreement, the consignee may not assign or delegate, unless it has the consignor’s prior written consent.
Depending on its negotiating power, the consignee may seek to include:

• Reciprocal and equal assignment rights.
• A requirement that the consignor cannot unreasonably withhold or delay its consent to assignment.
• The right to assign or delegate, without the consignor’s consent, to:
• an affiliate;
• a successor by way of consolidation, merger or operation of law; or
• a purchaser of all or substantially all of the consignee’s assets.
For more information on drafting and negotiating assignment provisions, see Standard Clause, General Contract
Clauses: Assignment and Delegation.
END DRAFTING NOTE

17.13 Successors and Assigns. This Agreement is binding on and inures to the benefit of the Parties to this
Agreement and their respective permitted successors and permitted assigns.

Drafting Note: Successors and Assigns
For more information on successors and assigns, see Standard Clauses, Boilerplate Clauses: Section 17.
END DRAFTING NOTE


17.14 No Third-Party Beneficiaries.

(a) [Except as set out in [Section 17.14(b)] [and] [Section 17.14(c)], ][T/t]his Agreement benefits solely the
Parties to this Agreement and their respective permitted successors and permitted assigns and nothing in this
Agreement, express or implied, confers on any other person or entity any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.

(b) [The Parties hereby designate the [Consignee’s/Consignor’s/Parties’] parent[s], officers, directors, partners,
members, shareholders, employees, agents, affiliates, successors and permitted assigns as third-party beneficiaries
of Section 14 of this Agreement [having the right to enforce Section 14][./ and]]

(c) [The Parties hereby designate [NAME/CLASS OF PERSON] as third-party beneficiaries of [SECTION] of this
Agreement [having the right to enforce [SECTION]].]

Drafting Note: No Third-Party Beneficiaries
Many agreements expressly state that third parties to the agreement do not have any rights under the
agreement. However, depending on the nature of the transaction and the consignor’s negotiating leverage
and strategy, the consignor may want to include certain third-party beneficiaries by excluding them from the
application of Section 14.
Third-party beneficiary issues arise in several common situations, including:

• Indemnification. The issue is whether specified non-parties can enforce the indemnification provisions of a contract (see
Drafting Note, Indemnified Parties as Third-Party Beneficiaries).
• Sale of goods. The issue is whether end-customers can enforce any product warranties provided by the consignor to the

consignee. This pro-consignor agreement expressly excludes any such warranties to avoid this eventuality (see Section 13.2).
• Third-party beneficiary rights under government contracts. The issue is whether third parties who benefit from the
provisions of government contracts can enforce the contractual, or in some cases, statutory benefits conferred by the contract or the
underlying statute.
Under Section 17.14, the parties have the option to give the following entities third-party beneficiary rights
under this agreement:
• Indemnified parties (see Section 17.14(b)).
• Other third parties (see Section 17.14(c)).
Indemnified Parties as Third-Party Beneficiaries
In Section 14 indemnified parties include persons who are not a party, for example, parents, officers,
directors, partners, members, shareholders, employees, agents, affiliates, successors and permitted assigns.
In most cases, these related persons do not sign the agreement, unless they have joint and several or their
own obligations under the agreement. Therefore, these related persons are third-party beneficiaries to the
agreement and the interested party must ensure that it carves out these related persons from the restriction
under Section 14. For more information on no third-party beneficiaries provisions, see Standard Clause,
General Contract Clauses: Third-Party Beneficiaries.
END DRAFTING NOTE

17.15 Choice of Law. This Agreement, including all exhibits, schedules, attachments and appendices attached hereto
and thereto[, and all matters arising out of or relating to this Agreement,] are governed by, and construed in accordance
with, the laws of the State of [STATE], US, without regard to the conflict of laws provisions thereof to the extent these
principles or rules would require or permit the application of the laws of any jurisdiction other than those of the State of
[STATE]. [The Parties agree that the United Nations Convention on Contracts for the International Sale of Consigned
Goods does not apply to this Agreement.]


Drafting Note: Choice of Law
In this Section 17.15 the parties negotiate whether to:

• Add the bracketed language “and all matters arising out of or relating to this Agreement” to try to capture tort, fraud,
statutory and other matters that arise from the contract but are not explicitly a matter of contract law.
• Counteract the application of the United Nations Convention on Contracts for the International Sale of Goods (for more
information, see Practice Note, UN Convention on Contracts for the International Sale of Goods (CISG)).
For more information on drafting and negotiating choice of law provisions, see Standard Clause, General
Contract Clauses: Choice of Law and Practice Note, Choice of Law and Choice of Forum: Key Issues.
END DRAFTING NOTE

17.16 Choice of Forum. Each Party irrevocably and unconditionally agrees that it will not commence any action,
litigation or proceeding of any kind whatsoever against the other Party in any way arising from or relating to this
Agreement and all contemplated transactions[, including contract, equity, tort, fraud and statutory claims], in any forum
other than [NAME OF US DISTRICT COURT] or[, if such court does not have subject matter jurisdiction,] the courts
of the State of [STATE] sitting in [POLITICAL SUBDIVISION], and any appellate court from any thereof. Each Party
irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees to bring any such action,
litigation or proceeding only in [NAME OF US DISTRICT COURT] or[, if such court does not have subject matter
jurisdiction,] the courts of the State of [STATE] sitting in [POLITICAL SUBDIVISION]. Each Party agrees that a final
judgment in any such action, litigation or proceeding is conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.

Drafting Note: Choice of Forum
In this provision, the parties confer personal jurisdiction on the courts of a selected state and agree that the
selected forum is the exclusive forum for bringing any claims under (and sometimes, more broadly relating to)

the agreement. For more information on drafting and negotiating choice of forum provisions, see Standard
Clauses, General Contract Clauses: Choice of Forum and Practice Note, Choice of Law and Choice of Forum:
Key Issues.
END DRAFTING NOTE

17.17 [Waiver of Jury Trial. Each Party acknowledges and agrees that any controversy that may arise under this
Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and
unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to
this Agreement or the transactions contemplated hereby. [Each Party certifies and acknowledges that (a) no
representative of the other Party has represented, expressly or otherwise, that such other Party would not seek to enforce
the foregoing waiver in the event of a legal action, (b) such Party has considered the implications of this waiver, (c) such
Party makes this waiver voluntarily, and (d) such Party has been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications in this Section.]]

Drafting Note: Waiver of Jury Trial
This optional provision is frequently included in complex agreements. Many sophisticated parties prefer that a
judge hear and decide any dispute arising out of a complex agreement rather than a jury who may not appreciate
or understand the potentially complex issues involved in the litigation. Each party should also consider whether
potential jurors from the forum selected in Section 17.16 are likely to be sympathetic to that party in an
agreement-related trial. For more information on drafting and negotiating waiver of jury trial clauses, see
Standard Clause, General Contract Clauses: Waiver of Jury Trial.
END DRAFTING NOTE

17.18 Counterparts. This Agreement may be executed in counterparts, each of which is deemed an original, but all of
which together are deemed to be one and the same agreement. [A signed copy of this Agreement delivered by
facsimile, e-mail or other means of electronic transmission is deemed to have the same legal effect as delivery of an
original signed copy of this Agreement[, if the party sending the facsimile, e-mail or other means of electronic
transmission has received express confirmation that the recipient party received the Agreement (not merely an
electronic facsimile confirmation or automatic e-mail reply)].]

Drafting Note: Counterparts
This provision permits the parties to execute separate copies of the agreement, which can expedite the
agreement’s full execution. Include the bracketed second sentence if there is any possibility that the parties may
not exchange signed original copies. The parties should include the bracketed language within that sentence
addressing confirmation of actual receipt if facsimile and e-mail are not accepted as means of sending notices
under Section 17.4. For more information on drafting the counterparts provision, see Standard Clauses,
Boilerplate Clauses: Section 22.
END DRAFTING NOTE

17.19 Force Majeure. No Party shall be liable or responsible to the other Party, nor be deemed to have defaulted
under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement
(except for any obligations to make payments to the other Party under this Agreement), when and to the extent the
failure or delay is caused by or results from acts beyond the impacted Party’s (” Impacted Party”) [reasonable] control,
including the following force majeure events (each a “Force Majeure Event”): (a) acts of God; (b) flood, fire,
earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot or
other civil unrest; (d) requirements of applicable law; (e) actions, embargoes or blockades in effect on or after the date of
this Agreement; (f) action by any governmental authority; (g) national or regional emergency[./;/; and] [(h) strikes,
labor stoppages or slowdowns or other industrial disturbances][./; and] [(i) shortage of adequate power or transportation
facilities].

The Impacted Party shall give Notice [within [NUMBER] days of the Force Majeure Event] to the other Party, stating

the period of time the occurrence is expected to continue. The Impacted Party shall use diligent efforts to end the failure
or delay and ensure the effects of the Force Majeure Event are minimized. The Impacted Party shall resume the
performance of its obligations as soon as reasonably practicable after the removal of the cause. In the event that the
Impacted Party’s failure or delay remains uncured for a period of [NUMBER] days following written Notice given by it
under this Section 17.19, [either Party/the other Party] may thereafter terminate this Agreement on [NUMBER] days’
written Notice.

Drafting Note: Force Majeure
A force majeure clause is designed to excuse a party from its performance obligations if performance is prevented
by extreme circumstances outside of that party’s control.
Section 17.19 is drafted as a mutual provision because force majeure protection in a consignment agreement is
likely significant for both parties. The parties negotiate:
• Whether a force majeure event is defined as something either beyond the impacted party’s:
• control; or
• reasonable control. In most cases, the parties include the bracketed language to be reasonable in open-ended force
majeure provisions like Section 17.19.
• Whether to include strikes, labor stoppages or slowdowns or other industrial disturbances and shortages of adequate
power or transportation facilities, which may not always be reasonably within the obligor’s control.
• The amount of time the impacted party must give notice of the force majeure event to the other party.
• Whether either or both parties can terminate the agreement if a failure or delay caused by the force majeure is uncured,
and if so:
• how long the failure or delay must remain uncured before the termination right arises; and
• how many days’ notice the terminating party must give to effectuate termination.
For more information on drafting and negotiating force majeure provisions, see Standard Clause, General
Contract Clauses: Force Majeure and Practice Note, Force Majeure Clauses: Key Issues.
END DRAFTING NOTE

17.20 No Public Announcements. [Consignee shall not/Neither Party shall] make any statement (whether oral or in
writing) in any press release, external advertising, marketing or promotion materials regarding [Consignor/the other

Party] or its business unless: (a) it has received the express written consent of [Consignor/the other Party]; or (b) it is
required to do so by law [or under the rules of any stock exchange to which it is subject]. When [Consignee/a Party]
determines that it is obligated by law [or the rules of a stock exchange] to make such a disclosure, it shall notify
[Consignor/the other Party] prior to such disclosure and the Parties shall cooperate to cause a mutually agreeable release
or announcement to be issued.

Drafting Note: No Public Announcements
Parties to a transaction are often concerned about controlling the dissemination of information about the transaction. In
this Section 17.20, the parties negotiate whether:
• The provision is reciprocal or unilateral in the consignor’s favor.
• To allow an exception in instances where disclosure is required by securities laws, which generally arises if the impacted
party is a public company.
For more information on drafting and negotiating a no public announcements clause, see Standard Clause, General
Contract Clauses: Public Announcements.
END DRAFTING NOTE

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

[CONSIGNOR NAME]

By:_____________________
Name:
Title:


[CONSIGNEE NAME]

By:_____________________
Name:
Title:
EXHIBIT A
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Consignment Agreement (Pro-Consignor)

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Consignment Agreement (Pro-Consignor), Practical Law Standard Document...

Consignment Agreement (Pro-Consignor)

Drafting Note: Read This Before Using Document

Scope of Standard Document

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 1

This Standard Document contemplates that periodically throughout the term:

Consignment Under Common Law

Typically under a consignment:

Consignment Under the UCC

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 2

Sale of Consigned Goods Under Article 2

Security Interests in Consigned Goods Under Article 9

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• Filing a UCC financing statement.

Article 9 Definition of Consignment

This Standard Document assumes that:

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 4

• Similarly, the consignee is not restricted from:

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 5

Drafting Note: The Parties

This Standard Document is a two-party consignment agreement between a:

Drafting Note: Recitals

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Drafting Note: Consignment of Goods

The initial section in many consignment agreements sets out:

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Drafting Note: Consignment for Resale

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Drafting Note: Consignment Requests and Consignment Confirmations

END DRAFTING NOTE

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 9

Drafting Note: Terms of Agreement Prevail Over Consignee’s Consignment Request

Battle of the Forms

Section 1.3 is drafted in favor of the consignor, specifying that:

END DRAFTING NOTE

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 10

Drafting Note: Inspection by Consignee

The consignee can negotiate a lengthier:

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 11

1.5 Storage of Consigned Goods at the Facility; Inspection by Consignor.

Drafting Note: Storage of Consigned Goods at the Facility

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END DRAFTING NOTE

Drafting Note: Consignee’s Representation and Warranty Regarding the Facility

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days’] prior notice.

Drafting Note: Inspection by Consignor

END DRAFTING NOTE

2. Title and Risk of Loss.

Drafting Note: Title Retained by Consignor

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2.2 Risk of Loss Passes Upon Delivery.

Drafting Note: Risk of Loss Passes Upon Delivery

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The consignee can resist this risk allocation by arguing that:

Drafting Note: True Consignment

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Even if successful in including Section 3, the consignor should:

4. Consignor’s Security Interest in the Consigned Goods.

© 2018 Thomson Reuters. No claim to original U.S. Government Works. 17