A factor, or commission merchant is an agent, who receives goods from the owners thereof to sell for a commission. Where he sells upon a guaranty of payment of debts arising in the course of the agency he is called a del credere factor. He has the possession of the goods that he sells, and usually sells them in his own name.
A factor, or a commission merchant, is one who for the various owners who choose to employ him, takes possession of their goods and sells them upon a compensation known as commission.100 He differs from a broker in that he has the possession of the goods and has broader powers. A broker brings buyer and seller together, does not have possession of the goods, and usually does not act in his own name. We have defined, heretofore, a del credere agent. The factor, more than other agents, sells upon a del credere commission.
The term "factor" is also frequently used to describe agents who are in possession of goods to be sold, though not in that business generally, but in its more correct sense, it describes the professional agent.
100. Turner v. Crumpton, 21 N. Dak. 294.
A factor is held to the exercise of reasonable care in the custody and sale of the goods and must follow instructions.
(a) Duty in respect to care of goods. A factor must use that degree of care for the safety of the goods which a reasonable man would use in the care of another's goods.
Example 26. A commission merchant to whom cotton was consigned allowed it to be stored in a non-fireproof warehouse to which it had been sent by mistake instead of a fireproof warehouse owned by him and to which he could have removed it. The warehouse burned down and the cotton was consumed. Held, the factor was responsible for the loss.101
(b) Duty to insure. The factor need not insure the goods unless (1) he is so instructed, or (2) there is a custom in that mart to do so.102
(c) Duty to obey instructions. The factor must obey his principal's instructions.
Example 27. A factor is instructed to "sell on arrival." He delays doing so and loss ensues owing to a drop in prices. Held, the factor is liable for the loss.103
But he is entitled to disobey such instructions if the protection of the principal requires it where it is to be assumed that the principal is acting under a mistake as to conditions.
101. Vincent v. Rather, 31 Tex. 77, 99 Am. Dec. 517.
102. Sturtevant Co. v. Dugan, 106 Md. 587; Schoenfeld v. Fleischer, 73 111. 404.
103. Evans v. Root, 7 N. Y. 186, 57 Am. Dec. 512.
(d) Duty to sell for best obtainable price. A factor must use reasonable care to get the fair or market price for the goods sold by him in the absence of contrary instructions.104 For duty in respect to extending credit, see next section.
(e) Duty of good faith generally. The factor is under the same duty as any other agent to use the highest good faith as exemplified in the duties not to represent two adversary masters, not to sell to himself, etc., as has been generally discussed elsewhere.
The factor's implied authority is discussed under the several headings below.
The inferences that a factor may fairly make from his appointment depend upon the nature of his relationship and customary practices.
(a) Implied authority to barter or exchange. A factor has no implied authority to barter the goods for other goods or for anything other than cash or proper credit.105
(b) Implied authority to sell on credit. A factor may sell on credit unless instructed to the contrary,106 but has no authority to extend credit beyond the usual term, and cannot grant an extension of the original credit.107 And in extending credit must use due diligence to ascertain the solvency of the party to whom he sells.108 If there is a usage to sell only for cash, he must not sell on credit unless so directed.109
104. Bigelow v. Walker, 24 Vt. 149, 58 Am. Dec. 156.
105. Potter v. Dennison, 10 111. 390.
106. Brown v. Funck, 89 Kas. 601.
107. Killy v. Logan, 2 Mart. (N. S.) 196.
108. Brown v. Funck, supra,
109. Harbert v. Neill, 49 Tex. 143.
(c) Implied authority to deal in his own name. A factor may act in his own name and need not disclose the name of his principal. This is one of the characteristics of a factor whereby he is distinguished from a broker.
(a) Title of purchaser or lienor who relies on factor's apparent ownership. A factor has possession of the goods and therefore may accomplish their sale as goods belonging to him, contrary to the advices of the principal, or may borrow money upon them. Has the purchaser or lienor a superior right to the unknown owner?
It is a general principle of the law of personal property that he who deals with respect thereto does so at his own peril in that one with a superior title may claim them. The Uniform Sales Act provides that only the true owner may convey title. True, he may be estopped by his conduct from asserting his title, but it is everywhere considered that merely placing the possession of property with another does not estop him. If he sends them to a factor with a general power of sale, or if the factor complies with a limited power of sale, the purchaser of course gets title, as the actual authority has been followed. But if the authority has been ignored, the general rule permits the true owner to disregard the sale, unless some exception based upon factorage exists. The sounder rule seems to be that no distinction exists in the absence of legislation to that effect.110
If, however, there is in addition to the possession of the goods, a clothing of the factor with documentary indicia of ownership (or permitting him to so clothe himself), as with bills of lading, warehouse receipts and the like, the principal is estopped to deny the factor's title as against innocent purchasers for value, no matter how widely the factor may have departed from his instructions. (See Sales in this series.)
110. Kaufman v. Beasly, 54 Tex. 563.
Legislation (factor's acts and the like) has in some jurisdictions been directed toward giving pledgees and purchasers the right to rely on mere possession by a factor where such factor acts in his own name, and the true state of the title or of the authority is unknown.
(b) Apparent authority of factor to warrant. A factor has apparent power to make the usual warranties.111
(c) Apparent authority of factor to give credit, to receive the price, to receive commercial paper in payment, etc.
The factor may sell on usual terms of credit, receive the purchaser's commercial paper as evidence of the liability, and may receive payment where he sells in his own name, or sells for cash.
For his advances and expenditures a factor has a lien by the common law and under the statutes. He may sell enough goods to satisfy this lien. He loses his lien by voluntarily parting with the goods. The lien does not exist unless he has possession of the goods.112
111. See SEC. 56, supra.
112. Straholm v. Union Stock Yards Co., 43 111. 424.