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The consignment agreement is a popular contract in Italy, but what happens if the deadline for returning goods is not met? The Supreme Court, in Order No. 5987 of Feb. 28, 2023, provided some clarification on the nature of the return.
The consignment agreement, governed by Articles 1556 et seq. of the Italian Civil Code, is an instrument used in commercial relations between suppliers and retailers to limit the economic risk associated with unsold goods.
Under this type of contract, the supplier delivers a supply of goods to the retailer, who is obligated to pay the price only in the event of actual sale to the public. Otherwise, the retailer will return the goods to the supplier without charge.
The consignment agreement finds application in many industries, including the trade in newspapers, books, clothing items, and valuables. Very often the consignment agreement is used in association with franchising.
The advantage for the retailer is that it does not have to bear implicit or financial costs of inventory, being able to have more assortment without immobilizing capital. For the supplier, on the other hand, the consignment agreement ensures widespread distribution and greater sales of its products.
The consignment agreement is a real contract, it is finalized with the delivery of the goods, and the buyer is solely responsible for the management and storage of the goods. The administrative management of the contract may be complex in the case of multiple active consignment contracts with different suppliers and high transaction volumes, but it is still a useful tool for securing a certain loyalty of the business partner.
According to the Italian Supreme Court’s Order No. 5987 of Feb. 28, 2023, The deadline for the return of goods is a fundamental element of the consignment agreement, as it determines the deadline by which the accipiens can exercise the right to return the goods as an alternative to paying the price.
However, if the parties have agreed on a deadline for the return of the goods, it becomes essential, and failure to meet the deadline results in the forfeiture of the right of return, with the accipiens’ consequent obligation to pay the price. This was reiterated by the Supreme Court, which ruled that a judgment on the merits that had erroneously considered the term as nonessential for the purposes of restitution was unlawful.
The principle of law affirmed by the Supreme Court is very clear: the time limit for the return of goods is not an essential element of the consignment agreement, but if the parties have established it, it becomes essential for the exercise of the right of return and must be complied with under penalty of forfeiture of the same.
In the specific case, the court of first instance had rejected the opposition to the injunction issued in favor of A. s.r.l., finding that the time limit established for the exercise of the right of return was nonessential, but the Florence Court of Appeals had upheld the opposition and the counterclaim, condemning A. s.r.l. to pay the sum of 10,441.92 euros plus interest.
The Supreme Court upheld A. s.r.l.’s appeal and affirmed that the time limit stipulated by the parties is essential for the exercise of the right of return and, therefore, must be respected.
In the absence of conventional or customary determination, it is up to the court to determine the restitution term under Article 1183 of the Italian Civil Code.
The operative part of Article 1183 Italian Civil Code provides that: “if the time in which performance is to be made is not determined, the creditor may demand it immediately. If, however, by virtue of custom or by the nature of the performance or by the manner or place of performance, a time limit is necessary, it shall, in the absence of agreement of the parties, be determined by the court 1185. If the term for performance is left to the will of the debtor, it is equally for the court to fix it according to the circumstances; if it is left to the will of the creditor, the term may be fixed at the instance of the debtor who intends to discharge himself.”
The court thus has the power to fix the missed deadline in the absence of contractual determination or custom. In the event that the deadline is missed, the consignee remains obligated to pay the price. In addition, the Supreme Court reiterated that the court has the power to set the term in the absence of contractual determination or usage.Ultimately, the principle of law enunciated by the Supreme Court in the above order states: “Although it is not an essential element of the consignment agreement to fix a term for the right to return the movable property delivered, where such a term is established by the parties it has the nature of an essential term for the exercise of the said right, such a term having instead to be established by the judge in the absence of contractual determination or custom.”
Here is an operational checklist for attorneys and companies dealing with consignment agreements following the Supreme Court’s order of Feb. 28, 2023: