Specific features of signing consignment agreement:

• Consignment agreements are concluded only for selling of goods;

• Consignment agreements are concluded for selling relatively large batches of goods;

• Consignment agreements are concluded for a certain period of time;

• Payments for goods sold are transferred by the consignee to consignor after receiving the revenue from customers in fixed periods of time.

When signing the contract, parties usually negotiate that consignee will transfer received revenue to consignor excluding his commission fee once in a quarter, for example. At the same time, consignor, when defying the size of commission fee, should bear in mind that indicated periodicity of accounts means additional financing of consignee approximately for the cost of credit of one third of the total cost of consignment goods.

Consignee reward

The basic part of reward usually includes payments for main duties of consignees:

• Keep warehouse

• Find customers

• Conclude agreements with them

• Make shipments of goods

• Carry out current advertising activity

1. The least effective way of consignee reward is the difference between minimum price fixed by consignor and real market price.

2. The more progressive way is to charge the percentage to price of realization on market. In this case consignor has to include in agreement several consignee’s duties. Not following these duties can lead to a situation where consignee will take not only the percentage, but also the price difference.

3. In case consignor’s duties include conducting marketing research on new products at the market, target advertising campaigns, pre-sales works and after-sales service, concluding separate agreements on these works (“cost + reward”) can be recommended.

Russian Civil Code Regulations

In Russian Civil Code there are two kinds of agreements that are very close to consignment:

• Commission agreement

• Contract of guarantee

Статья 971. Договор поручения

1. По договору поручения одна сторона (поверенный) обязуется совершить от имени и за счет другой стороны (доверителя) определенные юридические действия. Права и обязанности по сделке, совершенной поверенным, возникают непосредственно у доверителя.

2. Договор поручения может быть заключен с указанием срока, в течение которого поверенный вправе действовать от имени доверителя, или без такого указания.

Статья 990. Договор комиссии

1. По договору комиссии одна сторона (комиссионер) обязуется по поручению другой стороны (комитента) за вознаграждение совершить одну или несколько сделок от своего имени, но за счет комитента. По сделке, совершенной комиссионером с третьим лицом, приобретает права и становится обязанным комиссионер, хотя бы комитент и был назван в сделке или вступил с третьим лицом в непосредственные отношения по исполнению сделки.

2. Договор комиссии может быть заключен на определенный срок или без указания срока его действия, с указанием или без указания территории его исполнения, с обязательством комитента не предоставлять третьим лицам право совершать в его интересах и за его счет сделки, совершение которых поручено комиссионеру, или без такого обязательства, с условиями или без условий относительно ассортимента товаров, являющихся предметом комиссии.

3. Законом и иными правовыми актами могут быть предусмотрены особенности отдельных видов договора комиссии.

So, the difference between these two types of agreement is:

Contract of guarantee implies that attorney acts on behalf of principal while contract of commission doesn’t initiate the relationships of direct representation and the agent acts on behalf of himself and that excludes the possibility of representation relationships appearance. An attorney doesn’t acquire any rights and obligations as he doesn’t become a party of legal relationships between the principal and the third party. Unlike the attorney the agent becomes a party in an agreement with third party and acquires agreement rights and obligations. A third party is a participant of commission relationships at the stage of an execution of a contract as it acquires the rights of committent concerning the property.

So, as long as there is no definition of a consignment agreement in Russian Civil Code we decided to compare consignment agreement with two kinds of agreements, considered above. Our analysis of commission and guarantee agreements revealed that consignment agreement is closer to commission agreement, while the last is just a broader definition that includes not only goods, but also services and financial operations.

Consignment agreement initially evolved to evaluate the exporting risks during the international operations. So, it is more likely to use consignment mode of agreement when dealing with goods of fluctuating or uncertain demand. A good example here could be consignment of artwork (the sample of this you can find below).