- In a straight sale of goods, ownership (and generally the risk of loss) transfers to the buyer at an agreed point — often on delivery or payment — and the seller is simply owed the…
- Because the consignor retains ownership throughout, consigned goods are not supposed to be treated as part of the consignee's own assets.
- A consignment agreement should say explicitly who bears the risk if goods are damaged, lost, or stolen while in the consignee's possession, and who is responsible for insuring them.
A retailer agrees to display a supplier's furniture, art, or specialty inventory in its store, and only pays the supplier once — and if — a piece actually sells. That arrangement is a consignment agreement, and it works very differently from an ordinary sale of goods, both in who owns the goods along the way and in what happens if something goes wrong before a sale ever happens.
This article explains what makes consignment distinct, the legal wrinkle that catches many small businesses by surprise, and what a consignment agreement should specify.
What Consignment Actually Means
In a straight sale of goods, ownership (and generally the risk of loss) transfers to the buyer at an agreed point — often on delivery or payment — and the seller is simply owed the purchase price. In a consignment, the supplier (the "consignor") retains ownership of the goods while they sit with the retailer or agent (the "consignee"). The consignee doesn't buy the goods outright; it holds them for sale on the consignor's behalf and only becomes obligated to pay once a sale to an actual end customer happens.
This distinction matters enormously if the consignee goes out of business, is sued by one of its own creditors, or simply mishandles the goods before they sell.
Who Owns the Goods Until They Sell
Because the consignor retains ownership throughout, consigned goods are not supposed to be treated as part of the consignee's own assets. In principle, that means the consignor's goods should be protected from the consignee's creditors if the consignee becomes insolvent — but this protection is not automatic in practice, and depends on the arrangement being properly documented and, in some cases, formally registered.
The PPSA wrinkle
In many cases, a commercial consignment arrangement is legally treated as a type of secured transaction under Ontario's Personal Property Security Act (PPSA), rather than simply a bailment. If that applies to your arrangement, the consignor may need to register its interest in the consigned goods to protect its ownership claim ahead of the consignee's other creditors, banks, or a trustee in bankruptcy. Getting this registration step wrong — or skipping it because the arrangement felt informal — can mean a consignor's goods end up treated as available to satisfy the consignee's debts, defeating the entire point of consigning rather than selling outright. This is a technical area where specific legal advice matters, not a step to assume your way through.
Risk of Loss and Insurance
A consignment agreement should say explicitly who bears the risk if goods are damaged, lost, or stolen while in the consignee's possession, and who is responsible for insuring them. Because the consignor still owns the goods, it is easy to assume the consignor also bears all the risk by default — but many consignment agreements shift responsibility for loss while the goods are on the consignee's premises to the consignee, since it is the party actually in physical control of them. Silence on this point leaves both sides guessing exactly when it matters most.
What a Consignment Agreement Should Specify
- [ ] That title to the goods remains with the consignor until an actual sale to a third party
- [ ] The consignee's commission or margin, and when payment to the consignor is due after a sale
- [ ] Who bears risk of loss and insurance responsibility while goods are on consignment
- [ ] How long unsold goods may remain before the consignor can require their return
- [ ] The condition goods must be returned in, and who bears the cost of returning them
- [ ] Whether — and how — the consignor's interest will be registered to protect it against the consignee's creditors
- [ ] What happens to consigned goods if the consignee becomes insolvent or simply closes
How Consignment Differs From a Straight Sale, in Practice
| Straight Sale | Consignment | |
|---|---|---|
| Ownership before resale | Transfers to buyer immediately | Stays with consignor |
| Payment obligation | Fixed, due regardless of resale | Only arises if and when goods resell |
| Risk if goods don't sell | Buyer's problem | Typically returns to consignor |
| Protection against consignee's creditors | Not applicable | Depends on proper documentation, and often PPSA registration |
Frequently asked questions
If a store selling my goods on consignment goes bankrupt, are my goods safe?
Not automatically. Whether your goods are protected from the store's other creditors generally depends on whether the consignment was properly documented and, where the law treats the arrangement as a secured transaction, whether your interest was correctly registered under the PPSA. This is worth confirming with a lawyer rather than assuming.
Who pays if consigned goods are stolen from the retailer's store?
It depends entirely on what the consignment agreement says about risk of loss and insurance. Because this isn't always intuitive — the consignor still owns the goods, but the consignee has physical control — it needs to be addressed explicitly rather than left to assumption.
Can I take my unsold goods back at any time?
Only if the agreement gives you that right, and on the terms it specifies. Without a clear provision, disputes can arise over how much notice is required and the condition the goods must be returned in.
Is a consignment arrangement the same as the retailer buying my inventory at a discount?
No. In a discounted wholesale purchase, the retailer owns the goods outright and pays regardless of whether they ultimately sell. In consignment, ownership and payment both stay tied to an actual resale, which is the core difference between the two structures.
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