Law Dictionary of Legal Terminology

FACTOR

FACTOR, contracts. An agent employed to sell goods or merchandise consigned or delivered to him by, or for his principal, for a compensation commonly called factorage or commission. Paley on Ag. 13; 1 Liverin. on Ag. 68; Story on Ag. §33; Com. Dig. Merchant, B; Mal. Lex Merc. 81; Beawes, Lex Merc. 44; 3 Chit. Com. Law, 193; 2 Kent, Com. 622, note d, 3d. ed.; 1 Bell's Com. 385, §408, 409 2 B. & Ald. 143. He is also called a commission merchaut, or consignee.

2. When he resides in the same state or country with his principal, he is called a home factor; and a foreign factor when he resides in a different state or country. 3 Chit. Com. Law, 193; 1 T. R. 112; 4 M. & S. 576; 1 Bell's Com. 289, §313.

3. When the agent accompanies the ship, taking a cargo aboard, and it is consigned to him for sale, and he is to purchase a return cargo out of the proceeds, such agent is properly called a factor; he is, however, usually known by the name of a supercargo. Beawes, Lex More. 44, 47; Liverm. on Ag. 69, 70; 1 Domat, b. 1, t. 16, §3, art. 2.

4. A factor differs. from a broker, in some important particulars, namely; he may buy and sell for his principal in his own name, as well as in the name of his principal; on the contrary, a broker acting as such should buy and sell in the name of his principal. 3 Chit. Com. Law, 193, 2101 541; 2 B. & Ald. 143, 148; 8 Kent, Com. 622, note d, 3d. ed. Again, a factor is entrusted with the possession, management, disposal, and control of the goods to be bought and sold, and has a special property and a lien on them; the broker, on the contrary, has usually no such possession, management, control, or disposal of the goods, nor any such special property nor lien. Paley on Ag. 13, Lloyd's ed; 1 Bell's Com. 385.

5. Before proceeding further it will be proper to consider the difference which exists in the liability of a home or domestic factor and a foreign factor.

6 . By the usages of trade, or intendment of law, when domestic factors are employed in the ordinary business of buying and selling goods, it is presumed that a reciprocal credit between, the principal and the agent and third persons has been given. When a purchase has been made by such a factor, he, as well as his principal, is deemed liable for the debt; and in case of a sale, the buyer is responsible both to the factor and principal for the purchase money; but this presumption may be rebutted by proof of exclusive credit. Story, Ag. §§267, 291, 293; Paley, Ag. 243, 371; 9 B. & C. 78; 15 East, R. 62.

7. Foreign factors, or those acting for principals residing in a foreign country, are held personally liable upon all contracts made by them for their employers, whether they describe themselves in the contract as agents or not. In such cases, the presumption is, that the credit is given exclusively to the factor. But this presumption may be rebutted by a proof of a contrary agreement. Story, Ag. §268; Paley, Ag. 248, 373; Bull. N. P. 130; Smith, Merc. Law, 66; 2 Liverm. Ag. 249; 1 B. & P. 398; 15 East, R. 62; 9 B. & C. 78.

8. A factor is liable to duties, which will be first considered; and, afterwards, a statement of his rights will be made.

9. - 1. His duties. He is required to use reasonable skill and ordinary diligence in his vocation; in general, he has a right to sell the goods, but he cannot pawn them. The latter, branch of this rule, however, is altered by statute in some of the states. See Act of Penna. April 14, 1834, §3, 4, 6, postea, 20. He is bound to obey his instructions, but when he has none, he may and ought to act according to the general usages of trade sell for cash, when that is usual, or give credit on sales, when that is customary. He is bound to render a just account to his principal, and to pay him the moneys he may receive for him.

10. - 2. His rights. He has the right to sell the goods in his own name; and, when untrammeled by instructions, he may sell them at such times and for such prices, as, in the exercise of a just discretion, he may think best for his employer. 3 Man. Gran. & Scott, 380. He is, for many purposes, between himself and third persons, to be considered as the owner of the goods. He may, therefore, recover the price of goods sold by him, in his own name, and, consequently, he may receive payment and give receipts, and discharge the debtgor, unless, indeed, notice has been given by the principal to the debtor not to pay. He has a lien on the goods for advances made by him, and for his commissions.

11. Mr. Bell, in his Commentaries, vol. 1, page 265, 5th ed., lays down the following rules with regard to the rights of the principal, in those cases in which the goods in the factor's hands have been changed in the course of his transactions.

12. - 1. When the factor has sold the goods of his principal, and failed before the price of the goods has been paid, the principal is the creditor, and. entitled to a preference over the creditors of the factor. Cook's B. L. 4th ed. p. 400.

13. - 2. When bills have been taken for the price, and are still it the factor's hands, undiscounted at his failure; or where goods have been taken in return for those sold; the principal is entitled to them, as forming no part of the divisible fund. Willes, R. 400.

14. - 3. When the price has been paid in money, coin, bank notes, &c., it remains the property of the principal, if kept distinct as his. 5 T. la. 277; 2 Burr. 1369 5 Ves. Jr. 169; 2 Mont. B. L. 233, notes.

15. - 4. When a bill received for goods, or placed with the factor, has been discounted, or when money coming into his hands has been paid away, the endorsee of the bill, or the person receiving the money, will be free from all claim at the instance of the principal. Vide 1 B. & P. 539, 648.

16. - 5. When the factor sinks the name of the principal entirely; as, where he is employed to sell goods, and receives a del credere commission, for which he engages to guarantee the payment to the principal, it is not the practice to communicate the names of the purchasers to the principal, except where the factor fails. Under these circumstances, the following points have the principal is the creditor of the buyer, and has a direct action against him for the price. Cook's B. L. 400; and vide Bull. N. P. 42 2 Stra. 1 1 82. But persons contracting with the factor in his own name, and bona fide, are entitled to set off the factor's debt to them. 7 T. R. 360. 2. Where the factor is entrusted with the money or property of his principal to buy stock, bills, and the like, and misapplies it, the produce will be the principal's, if clearly distinguishable. 8 M. & S. 562.

17. - 6. When the factor purchases goods for the behalf of his principal, but on his own general, current account, without mention of the principal, the goods vest in the factor, and the principal has only an obligation against the factor's estate. But when the factor, after purchasing the goods, writes to his principal that he has bought such a quantity of goods in consequence of his order, and that they are lying in his warehouse, or elsewhere, the property would seem to be vested in the principal.

18. It may therefore be laid down as a general rule, that when the property remitted by the principal, or acquired for him by his order, is found distinguishable in the hands of the factor, capable of being traced by a clear and connected chain of identity, in no one link of it degenerating from a specific trust into a general debt, the creditors of the factor, who has become bankrupt, have no right to the specific property. Much discrimination is requisite in the application of this doctrine, as may be seen by the case of Ex parte Sayers, 5 Ves. Jr. 169.

19. A factor has no right to barter the goods of his principal, nor to pledge them for the purpose of raising money for himself, or to secure a debt he may owe. See ante, 9-1. But he may pledge them for advances made to his principal, or for the purpose of raising money for him, or in order to reimburse himself to the amount of his own lien. 2 Kent, Com. 3d. ed:, 625 to 628; 4 John. R., 103; Story on Bailm. §325, 326, 327. Another exception to the general rule that a factor cannot pledge the goods of his principal, is, that he may raise money b pledging the goods, for the payment of 'duties, or any other charge or purpose allowed or justified by the usages of trade. 2 Gall. 13; 6 Serg. & Rawle, 386; Paley on Ag. 217; 3 Esp. R. 182.

20. The legislature of Pennsylvania, by an act entitled " An act for the amendment of the law relating to factors passed April 14, 1834, have made the following provisions. This act was prepared by the persons appointed to revise the civil code of that state, and was adopted without alteration by the legislature. It is here inserted, with a belief that it will be found useful to the commercial lawyer of the other states.

21. - §1. Whenever any person entrusted with merchandise, and having authority to sell or consign the same, shall ship, or otherwise transmit tile same to any other person, such other person shall have a lien thereon.

22. - I. For any money advanced, or negotiable security given by him on the faith of such consignment, to or for the use of the person in whose name such merchandise was shipped or transmitted.

23. - II. For any money or negotiable security, received for the use of such consignee, by the person, in whose name such merchandise was shipped or transmitted.

24.- §2. But such lien shall not exist for any of the purposes aforesaid, if such consignee shall have notice by the bill of lading, or otherwise,bef ore the time of such advance or receipt, that the person in whose name such merchandise was shipped or transmitted, is not the actual owner thereof.

25. - §3. Whenever any consignee or factor, having possession of merchandise, with authority to sell the same, or having possession of any bill of lading, permit, certificate, receipt, or order, for the delivery of merchandise, with the like authority, shall deposit or pledge such merchandise, or any part thereof, with any other person, as a security for any money advanced, or negotiable instrument given by him on the faith thereof; such other person shall acquire, by virtue of such contract, the same interest in, and authority over, the said merchandise, as, he would have acquired thereby if such consignee or factor had been the actual owner thereof. Provided, That such person shall not have notice by such document or otherwise, before the time of such advance or receipt, that the holder of such merchandise or document is not the actual owner of such merchandise.

26. - §4. If any person shall accept or take such merchandise or document from any such consignee or factor, in deposit or pledge for any debt or demand previously due by, or existing against, such consignee or factor, and without notice as aforesaid, and if any person shall accept or take such merchandise or document from any such consignee or factor, in deposit or pledge, without notice or knowledge that the person making such deposit or pledge, is a consignee or factor only, in every such case the person accepting or taking such. merchandise or document in deposit or pledge, shall acquire the same right and interest in such merchandise as was possessed, or could have been enforced, by such consignee or factor against his principal at the time of making such deposit or pledge, and further or other right or interest.

27. - §5. Nothing in this act contained shall be construed or taken: I. To affect any lien which a. consignee or factor may possess at law, for the expenses and charges attending the shipment, or transmission and care of merchandise consigned, or otherwise intrusted to him.

28. - II. Nor to prevent the actual owner of merchandise from recovering the same from such consignee or factor, before the same shall have been deposited or pledged as aforesaid, or from the assignees or trustees of such consignee or factor, in the event of his insolvency.

29. - III. Nor to prevent such owner from recovering any merchandise, so as aforesaid deposited or pledged, upon tender of the money, or of restoration of any negotiable instrument so advanced, or given to such consignee or factor, and upon tender of such further sum of money, or of restoration of such other negotiable instrument, if any, as may have been advanced or given by such consignee or factor to such owner, or on tender of a sum of money equal to the amount of such instrument.

30. - IV. Nor to prevent such owner from recovering, from the person accepting or taking such merchandise in deposit or pledge, any balance or sum. of money remaining in his hands as the produce of the sale of such merchandise, after deducting the amount of money or the negotiable instrument so advanced or given upon the security thereof as aforesaid.

31. - §6. If any consignee or factor shall deposite or pledge any merchandise or document as aforesaid, consigned or intrusted to him as a security for any money borrowed, or negotiable instrument received by such consignee or factor, and shall apply and dispose of the same to his own use, in violation of good faith, and with intent to defraud the owner of such merchandise, and if any consignee or factor shall, with the like fraudulent intent, apply or dispose of, to his own use, any money or negotiable instrument, raised or acquired by the sale or other disposition of such merchandise, such consignee or factor shall, in every such case, be deemed guilty of a misdemeanor, and shall be punished by a fine, not exceeding two thousand dollars, and by imprisonment, for a term not exceeding five years.