The consignment process involves giving your works to a store, which will sell them to customers. The store does not become the owner of the works, and it will pay the artist only if the works sell. The store will receive a percentage of the proceeds from the sale, but the artist avoids the cost of operating a store to sell their works. Certain risks may arise in these situations, especially when a store goes out of business and files for bankruptcy. An artist should be aware that they have legal rights under the Uniform Commercial Code, state laws, and consignment agreements. However, the process of enforcing your rights can be more complicated than you may expect.
The UCC provides protections to artists if a store damages their works through its negligence. The store must compensate the artist for this type of damage. The store also may need to compensate the artist for damage that occurs while the works are at the store, even if the store was not responsible for the damage. This will depend on case law in your state.
If a store goes out of business, an artist may be in the unfortunate position of losing their works to creditors of the store. They have a lower priority than other creditors under bankruptcy rules, and they may or may not receive compensation from the bankruptcy judge for works that are sold to pay off creditors. The UCC allows an artist to avoid this risk if they meet one of three requirements.
First, you can try to prove that the creditor knew that the store sold works under consignment. This can be challenging, but you may be able to meet this requirement by sending a copy of the consignment agreement to creditors if it is in writing. Alternatively, you can file a UCC Financing Statement at the time of the consignment. This must be filed in the county where the store is located. The Financing Statement gives you priority over other creditors in bankruptcy proceedings. (If the store does not file for bankruptcy and eventually sells your work, you will need to remove the lien for the sale to go through.) Finally, artists in some states can ask the store owner to post a sign on their property to indicate that the works are consigned. You can incorporate this requirement in a consignment agreement.
Over half of the states have introduced specific consignment laws related to artworks. These explicitly protect artists from losing their works when a store goes bankrupt. You may need to hire a lawyer and get involved in the store’s bankruptcy proceeding to enforce your rights under this law. Before making this effort, you may want to determine whether the costs would be greater than the value of the works that you would lose.
Some states impose limits on these protections. You may need to have a written consignment agreement to enforce your rights. Or you may need to prove that your work qualifies as “fine art.” This may include paintings, sculptures, and drawings but not textiles, glass, and other craft products. Consignment Agreements
Putting a consignment agreement in writing can be critical. This can define the rights and obligations of the artist and the store, while laying a foundation to enforce the artist’s rights under state consignment laws. The agreement can include an inventory of the works, the prices of the works, responsibility for promotions, responsibility for shipping costs, and responsibility for costs resulting from damage to the works. It also can include the sign discussed in the UCC requirements above.
The agreement can cover the manner in which disputes between the artist and the store will be resolved. This often will involve arbitration, rather than formal litigation. You can ask to include a provision in the agreement that requires the losing party in a dispute to pay the attorney fees of the winning party. A store may be more inclined to reach a prompt settlement if this type of provision applies.