Consignment sales come with plenty of risks. Consider the artists left holding the bag when a Minneapolis gallery filed for bankruptcy owing artists $97,000. Said one artist at the time, "We're the canaries down the coal mine. When the gas comes we're the first to die."
So what's an artist to do?
There are three types of legal protection for consignors: the Uniform Commercial Code, state consignment laws, and written consignment agreements. You may, however, find some of the laws difficult to comprehend, inconsistent, and expensive to enforce.
The Uniform Commercial Code
Every state has adopted a version of the Uniform Commercial Code (UCC), a set of uniform business laws that protect consignments. For instance, under the UCC, if damage to your artwork results from the gallery's negligence, the gallery must pay for the loss. If the damage is not the fault of the gallery -- for example, there's flooding or a fire -- the gallery may or may not be liable, depending on how the courts in that state interpret the UCC.
The UCC is not always so helpful, however. Under the UCC, if a gallery files for bankruptcy, the gallery's creditors can seize your consigned goods as payment for the gallery's debts! In other words, anyone owed money by the gallery can take your crafts as payment. You must stand in line behind the other creditors in bankruptcy court and hope that the judge awards you some compensation for your consigned goods.
You can avoid this unhappy outcome by fulfilling one of following three requirements under the UCC:
- File a UCC-1 Form (known as UCC Form 1) at the time of the consignment in the county where gallery is located.
- Have the gallery owner post a sign telling the public that the goods are consigned (this option is not available in all states).
- Prove that creditors were aware that the gallery sold consigned goods.
Although crafts people rarely use these cumbersome UCC requirements, you may find it worthwhile -- in the case of high-ticket, one-of-a-kind crafts items -- to file the UCC form. The filing creates a lien (a legal claim over property) elevating you to the level of a "secured creditor" and putting you at the head of the line in bankruptcy court. If you do file the form and obtain the lien, you must remove the lien at the time of any sale.
Having the store or gallery post a sign -- the second UCC requirement -- may seem like an awkward request, but more and more stores and galleries are complying with such requests. Include a requirement in your consignment agreement that the gallery post a notice such as "Crafts at this gallery are sold under the terms of consignment agreements." As noted above, this may not be effective in all states.
Most crafts workers will find the third requirement difficult to accomplish since it requires proof that creditors of the gallery were aware of the consignment. Some consignors (the artists or crafts workers) have accomplished this requirement by sending the creditors a copy of the consignment agreement. As you can imagine, the average crafts worker -- who does not know who the creditors are and who may not have a written consignment agreement -- would find this impractical.
State Consignment Laws
Because the UCC has proven to be frightening for crafts people, many states have passed special consignment laws to protect artists from gallery abuses and bankruptcy. So far, 31 states have passed art consignment laws -- Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.
Most of these state laws provide a shield from a consignee's bankruptcy by eliminating the ability of creditors to seize consigned goods. (In reality, enforcing these laws usually requires hiring a lawyer and filing claims in bankruptcy court.) Half of the state laws require a written consignment agreement as a condition for enforcing the law.
Determining whether your artwork qualifies as "art" under state laws can be confusing. Many state consignment laws apply only to "fine art." Fine art is traditionally defined as a painting, sculpture, drawing of graphic art, or print, but not multiples. Other states -- for example, Arizona and Ohio -- specifically include crafts under consignment laws (defining them as any work made from clay, textile, fiber, wood, metal, plastic, or glass).
Traditionally, most artists have used oral agreements to establish consignments. Today, you should really use a written consignment contract, since it can provide benefits for you, obligations for the gallery, and, most importantly, is required under many state's consignment laws.
Your consignment agreement should include:
- the store or gallery's responsibility for damages to the goods
- the retail prices for the goods
- the inventory being consigned
- the store or gallery's fees for consigned goods
- who pays for shipping
- promotional responsibilities, if any, and
- a requirement that the store or gallery post a sign regarding consignment (a condition that may protect you in the event of the consignee's bankruptcy).
Also, if possible, include an attorney fee provision (the loser in a lawsuit pays the winner's attorney fees) and an arbitration provision (requiring settlement by a private arbitrator, not a judge). These provisions create incentives for rapid settlement of all (non-bankruptcy-related) disputes.
A written agreement provides practical benefits, but using common sense and your business radar provides the best protection. Ask other artists about their experiences with specific stores and galleries. Avoid large orders until you have built a level of trust with an unknown shop. Ask the store for references from other artists. If you've got a funny feeling about a shop, trust your intuition and just don't do it.
Take care of the legal and business side of things now, so you can focus on creating your crafts. Get The Craft Artist's Legal Guide by Rich Stim (Nolo). And for help sorting out the legal issues involved in the ownership, protection and transfer of visual artworks, get Nolo's eFormKit Protect Your Artwork, by Richard Stim (Nolo).