What's the Difference Between a "Consignment" and a "Sale or Return"?(legal aspects of conditional sales)(Brief Article)

Understanding the Legal Differences in Conditional Sales

A wholesaler of goods may, at times, wish to accomplish a conditional sale of its goods to a retailer. The retailer may wish to obtain certain levels of inventory that it could not otherwise finance, and the vendor may be able to obtain certain sales that it would not otherwise have by agreeing to take some level of the delay and risk associated with the resale of its goods. Sometimes, however, vendors can become confused or not even recognize the legal distinction between the two types of legal structures involved in a conditional sale: the consignment or the "sale or return."

Consignments

Perhaps the most familiar of these two legal forms is the transfer of goods by a vendor on "consignment" or on "memorandum." A consignment is not a "sale" in the true technical sense of the word since it does not consist of the "passing of title from the seller to the buyer for a price" (UCC Section 2-106[l]). Rather than constituting an actual sale, in the consignment, the "buyer" is actually an agent for the vendor with an option to take title to the goods in the event the goods are sold to a third party. Thus, technically, the goods remain the property of the vendor (consignor) until they are sold by the consignee to some third party. Until such a sale occurs, and in the absence of an agreement otherwise, the consignor has the right to terminate the consignment and retake its goods. In legal jargon, a true consignment is really an "agency coupled with a bailment" and basically governed by the law of agency and service contracts.

Sale or Return

By comparison, a "sale or return" is a much different legal animal. It is in fact a true sale, with the passage of title from a seller to a buyer for a price (UCC section 2-106[1]). The buyer in this type of transaction is therefore a true purchaser, unlike a mere consignee. However, the sales transaction differs from the traditional sale in that (1) it is made in contemplation of resale, and (2) it accords the buyer a right of return should the property fail to resell, For example, a book publisher might sell a number of best-sellers to a bookstore at a certain price for resale, with the bookstore free to return all unsold items for the same or a lower price at a subsequent date and time. In legal jargon, if the goods subject to the contract can be returned by the buyer, even though otherwise conforming to the contract, then the transaction is a sale or return if the goods are sold for resale (UCC Section 2-326[1]).

Buyer's Rights to Return Goods to Vendor