FACTOR, strictly "one who makes;" thus in ordinary par lance, anything which goes to the composition of anything else is termed one of its "factors," and in mathematics the term is used of those quantities which, when multiplied together, produce a given product. In a special sense, however—and that to which this article is devoted—"factor" is the name given to a mercantile agent (of the class known as "general agents") employed to buy or sell goods for a commission. When employed to sell, the pos session of the goods is entrusted to him by his principal, and when employed to buy it is his duty to obtain possession of the goods and to consign them to his principal. In this he differs from a broker (q.v.), who has not such possession, and it is this dis tinguishing characteristic which gave rise in England to the series of statutes known as the Factors Acts. By these acts, consolidated and extended by the act of 1889, third parties buying or taking pledges from factors are protected as if the factor were in reality owner; but these enactments have in no way affected the con tractual relations between the factor and his employer, and it will be convenient to define them before discussing the position of third parties as affected by the act.
A factor may be appointed or he may be dismissed in the same way as any other agent. He may be employed for a single transaction or to transact all his principal's business of a certain class during a limited period or till such time as his authority may be determined. It does not matter that a factor carries on a separate business on his own account, either of the same kind as that in which he is employed as factor, or of some other kind. A factor's duty is to sell or buy as directed; to carry out with care, skill and good faith any instructions he may receive ; to receive or make payment ; to keep accounts and to render them to his principal regularly, or when requested to do so, and to hand over to his principal the balance standing to his principal's credit, without any deduction save for commission and expenses. A factor is bound to account for any moneys he receives for his principal, and if between receiving it and paying it over, the money is lost (as for instance if the factor deposited it with a banker who became insolvent), the loss must be borne by the factor. All express instructions he must carry out to the full, and generally speaking literally, provided they do not in volve fraud or illegality, but under circumstances of emergency he may deviate from his instructions (as for instance when goods are perishing) and if in so doing he exercises reasonable and proper skill and care he will not be liable for any loss there may ensue. Where he is not given any express instructions, or on any point not covered by these, he must act bona fide and to the best of his skill and judgment, and he is bound to follow the usual practice of his particular business and any usages of the trade which may exist, if not inconsistent with his instructions or his position as factor, or unless, to a man of ordinary prudence, it would be manifestly disadvantageous to his employer's in terests to do so. Many usages of businesses in which factors are employed have been proved in court, and may now be regarded as legally established. For instance, he may, unless otherwise directed, sell in his own name, and (apart from any express limit) at such price as to the best of his judgment he thinks proper, give warranties as to goods sold by him, sell by sample (in most businesses), give such credit as is usual in his business, receive payment in cash or as customary, and give receipts in full dis charge, sell by indorsement of bills of lading, and insure the goods. He is not bound to insure goods unless to do so is according to the course of business with his principal. If he does effect an insurance he must see that all necessary risks are covered, satisfy himself as to the solvency of the underwriters, and disclose to them all material facts relating to the risk to be undertaken by them. It is his duty to clear the goods at the customs, take charge of them and keep them as safely as reasonable care and diligence will permit ; give such notices to his principal and others as may be required, and in particular give punctual notice to his principal of all matters by which the rights or interests of the principal may be affected, as for instance the insolvency of a customer, or failure to effect an insurance, and if necessary take legal proceed ings for the protection of the goods. On the other hand, he has not authority to delegate his employment, unless by usage of the trade or by express permission, or to barter, or to accept or negotiate bills of exchange except by authority of his principal and as between himself and his principal he has no right to pledge the goods, although as between the principal and the pledgee, an unauthorized pledge made by the factor may by virtue of the Factors Act 1889 be binding upon the principal. In the same way a factor has of course no right as between himself and his principal to sell goods in contravention of his principal's instructions, although as between his principal and the purchaser the sale may be binding upon the principal. It is, moreover, inconsistent with the factor's employment as agent that he should buy or sell on his own account from or to his principal.
On the due performance of his duties the factor is entitled to his commission, which is usually a percentage on the value of the goods sold or bought by him on account of his principal, regulated in amount by the usages of each business or by express agreement. Failing that, or any usage in the trade, the factor is entitled to a "reasonable" sum as commission. Sometimes the factor makes himself personally responsible for the solvency of the persons with whom he deals, in order that his principal may avoid the risk entailed by the usual trade credit. In such a case the factor is said to be employed on del credere terms, and is entitled to a higher rate of commission, usually 2W0 extra. Such an arrange ment is not a contract of guarantee within the Statute of Frauds, and therefore need not be in writing. Besides his remuneration, the factor is entitled to be reimbursed by his principal for any expenses, and to be indemnified against any liabilities which he may have properly incurred in the execution of his principal's instructions. He cannot as a rule recover for any expenditure which is not expressly or impliedly covered by his instructions but he may do so in case of emergency if it is reasonable and in his employer's interests. For the purpose of enforcing his rights a factor has, without legal proceedings, two remedies. First, by virtue of his general lien (q.v.) he may hold any of his prin cipal's goods which come lawfully to his hands in the course of his agency as security for the payment to him of any commission, out-of-pocket expenses, or even general balance of account in his favour, and in virtue of his particular lien he may hold any par ticular chattel in respect of which he has incurred expense. He may not sell the goods unless they have been entrusted to him for sale, in which case he may sell and claim a lien on the price. He can pledge the goods to the extent of his lien but no further, and exercise a lien on the money so raised, and by virtue of the Factors Acts the principal will not be able to recover the goods from the pawnbroker except by discharging the advance made by him. The lien is lost if the goods are improperly sold or pledged, or the possession of them is parted with, or the factor takes se curity from his principal for the debt, or enters into any special arrangement with him, such as to give him credit. Secondly, when by contracting in his own name he has rendered himself personally liable to pay for goods he has bought for his principal, and where he has consigned goods to his principal but not been paid, he may "stop in transit" subject to the same rules of law as an ordinary vendor; that is to say, he must exercise his right before the transit ends; and his right may be defeated by his principal transferring the document of title to the goods to some third person, who takes it in good faith and for valuable con sideration (Factors Act 1889, and Sale of Goods Act S. 47). If the factor does not carry out his principal's instructions, or carries them out so negligently or unskilfully that his principal gets no benefit thereby, the factor loses his commission and his right to reimbursement and indemnity. If by such failure or negligence the principal suffers any loss, the latter may recover it as damages. So too if the factor fails to render proper accounts his principal may by proper legal proceedings obtain an account and payment of what is found due ; and threatened breaches of duty may be summarily stopped by an injunction. "An action will of course lie against a del credere agent for the price of goods sold to a purchaser who has failed to make payment." Criminal acts by the factor in relation to his principal's goods are dealt with by ss. 20 and 22 of the Larceny Act 1916.
The rights of a third party as regards the power of a factor to bind his principal have been well-established at common law and amplified in the provisions of a special act.
(a) At Common Law.—The actual authority of a factor is defined by the same limits as his duty, the nature of which has been described ; i.e., firstly, by his principal's express instructions; secondly, by the rules of law and usages of trade, in view of which those instructions were expressed. But his power to bind his principal as regards third parties i3 often wider than his actual authority; for it would not be reasonable that third parties should be prejudiced by secret instructions, given in derogation of the authority ordinarily conferred by the custom of trade ; and, as regards them, the factor is said to have "apparent" or "ostensible" authority, or to be held out as having authority to do what is customary, even though he may in fact have been expressly forbidden so to do by his principal. But this rule is subject to the proviso that if the third party have notice of the factor's actual instructions, the "apparent" authority will not be greater than the actual. "The general principle of law," said Lord Blackburn in the case of Cole v. North-Western Bank, 1875, L.R. Jo, C.P. 363, "is that when the true owner has clothed any one with apparent authority to act as his agent, he is bound to those who deal with the agent on the assumption that he really is an agent with that authority, to the same extent as if the apparent authority were real." Under such circumstances the principal is for reasons of common fairness precluded, or, in legal phraseology, estopped, from denying his agent's authority. On the same principle of estoppel, but not by reason of any trade usages, a course of dealing which has been followed between a factor and a third party with the assent of the principal will give the factor apparent authority to continue dealing on the same terms even after the principal's assent has been withdrawn ; pro vided that the third party has no notice of the withdrawal.
Such apparent authority binds the principal both as to acts done in excess of the actual authority and also when the actual authority has entirely ceased. For instance, A. B. receives goods from C. D. with instructions not to sell below is. per lb.; A. B. sells at iozd., the market price; the buyer is entitled to the goods at io3d., because A. B. had apparent authority, although he exceeded his actual authority. On the same principle the buyer would get a good title by buying from A. B. goods entrusted to him by C. D., even though at the time of the sale C. D. had revoked A. B.'s authority and instructed him not to sell at all. In either case the factor is held out as having authority to sell, and the principal cannot afterwards turn round and say that his factor had no such authority. As in the course of his business the factor must necessarily make representations preliminary to the contracts into which he enters, so the principal will be bound by any such representations as may be within the factor's actual or apparent authority to the same degree as by the factor's contracts.
(b) Under the Factors Act, r889. The main object of the Factors Acts, in so far as they relate to transactions carried out by factors, has been to add to the number of cases in which third parties honestly buying or lending money on the security of goods may get a good title from persons in whose possession the goods are with the consent, actual or apparent, of the real owners, thus calling in aid the principle of French law that "possession vaut titre" as against the doctrine of the English common law that "nemo dat quod non habet." As regards sales by factors and the title which purchasers thereby acquire against the principal, the Factors Acts are mainly declaratory of the common law as stated above, but with this difference, that whereas at common law it was always an open of fact to be determined by the court whether the principal had in truth held out his agent as having authority to effect the sale, the effect of the Factors Acts is that the principal is deemed to have authorized the agent by the fact of entrusting him with the goods. Under the act of 1 889 it can be put even higher, and the agent is deemed to have author ity by the mere fact of having the goods in his possession with the owner's consent, although there is no evidence of the owner having actually `entrusted' them to him; the owner's `consent' being presumed in the absence of evidence to the contrary. (Oppenheimer v. Attenborough, 19o8, i K.B. 221, C.A.; Oppen heimer v. Frazer and Wyatt, 1907, 2 K.B. 5o, C.A.) The chief change, however, in the law relating specially to factors has been to put pledges by factors on the same footing as sales, so as to bind a principal to third parties by his factor's pledge as by his factor's sale. The Factors Act 1889 in part re-enacts and in part extends the provisions of the earlier acts of 1823, 1825, 1842 and 1877. Its most important provisions concerning sales, pledges and other dispositions by factors are as follows : Section II., s.s. i. Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents or title to goods, any sale, pledge or other disposition of the goods made by him when acting in the ordinary course of business of a mercantile agent shall, subject to the provisions of this act, be as valid as if he were expressly authorized by the owner of the goods to make the same ; provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not authority to make the same.
With regard to these provisions the following points should be noticed : (i.) the term `notice' is stated by Chalmers (Sale of Goods Act, loth ed. p. 166) to mean probably `actual though not formal notice : that is to say, either knowledge of the facts or a suspicion of something wrong, combined with a wilful disregard of the means of knowledge.' The onus of proving good faith and want of notice is on the purchaser of the goods. (ii.) The `con sent' of the owner to the factor's possession of the goods is to be presumed in the absence of evidence to the contrary (s. 2, s.s. 4 of the Factors Act 1889). (iii.) Although the Factors Act may operate to make an unauthorized sale or pledge by a factor good as between principal and third party, nothing in the act makes such a sale or pledge good as between principal and factor, or operates to exempt the factor from civil or criminal liability (s. 12, S.S. I of the Factors Act 1889) . (iv.) In order that s. 2, S.S. I and 2 of the Factors Act 1889 (quoted above) may apply, and a sale pledge or other disposition by the factor be good as between principal and third party, it is necessary that the goods should have been in the possession of the factor in his capacity as such, and not in some other capacity. If, for instance, a factor also carries on business as a warehouseman, and goods are en trusted to him not in his capacity as factor, but in his capacity as warehouseman, and solely to be warehoused, any disposition of the goods by him will not be covered by the Factors Act.
2. Where a factor makes a contract for the principal without disclosing his principal's name, the third party may, on discovering the principal, elect whether he will treat the factor or his principal as the party to the contract ; provided that if the factor contract expressly as factor, so as to exclude the idea that he is personally responsible, he will not be liable. The principal may sue upon the contract, so also may the factor, unless the principal first intervene.
3. Where a factor makes a contract in his own name without disclosing the existence of his principal, the third party may, on discovering the existence of the principal, elect whether he will sue the factor or the principal. Either principal or factor may sue the third party upon the contract. But if the factor has been permitted by the principal to hold himself out as the principal, and the person dealing with the factor has believed that the factor was the principal and has acted on that belief before ascer taining his mistake, then in an action by the principal the third party may set up any defences he would have had against the factor if the factor had brought the action on his own account as principal.
4. Where a factor has a lien upon the goods and their proceeds for advances made to the principal it will be no defence to an action by him for the third party to plead that he has paid the principal, unless the factor by his conduct led the third party to believe that he agreed to a settlement being made with his principal.
5. The factor who acts for a foreign principal will always be personally liable unless it is clear that the third party has agreed to look only to the principal, and equally the factor may always sue on the contract.
6. If a factor contract by deed under seal, or draws, accepts, or indorses a bill of exchange or promissory note, he alone can sue or be sued upon the contract. (L. Sc.) See J. Story, Commentaries on the Law of Agency (Boston, 1882) ; H. F. Boyd and A. B. Pearson, The Factors Acts 1823 to 1877 (1884) ; P. T. Blackwell, The Law relating to Factors (1897) ; also Mechem, Agency (2d ed., 1914) ; Williston, Sales (2d. ed., 1924) ; Weld, Marketing of Farm Products • United States.—In only a few particulars does the American law differ from the English as set forth above, notably in regard to the Factors Act 1889. About eight American States—chiefly on the seaboard have Factors Acts, and those Acts are hardly so far-reaching in their effects as the English, so that in general it is not law in the United States that a factor can effectively pledge his principal's goods—beyond the extent of his own interest by virtue of advances made to his principal—to secure his own debts. There is, however, an important qualification of the rule, derived from the widespread adoption of the uniform commercial Acts. Under the Sales Act (27 States) and in some additional States, without that Act, the factor (or any other person to whom an owner has entrusted a bill of lading running to order, and prop erly endorsed) can effectively pledge or sell the document, and so the goods represented by the document, although he does so in breach of duty ; and under the Federal Bills of Lading Act the rule holds as well for all order bills of lading arising out of inter-State shipments. Moreover, under the Warehouse Receipts Act (45 States), the same holds as to goods covered by warehouse receipts running to order. This is not true of documents which lack the word "order" or "negotiable," nor as to transactions involving goods in specie; but since most (not all) such attempted pledges involve such order documents, the old rule has been very sub stantially impaired.
The factor appears in the United States chiefly under the com mercial designation "commission man"; goods sent to a factor, large or small, are commonly said to be shipped "on consignment," as distinguished from shipment pursuant to a contract for sale. In the main, such a commission man is a feature of a central mar ket, to which sellers, especially of raw materials, are shipping : so especially agricultural produce such as fruits and vegetables, or cotton, coffee, live stock, etc. Factorage here serves as an alterna tive to the middle man who goes about among growers buying up their produce in advance. Both ways of dealing presuppose a seller who is relatively weak financially; hence the importance of factors' advances to their principals, and of factors' liens.
It should be noted that wherever the factor attains great finan cial power—as, in the United States, particularly in some phases of importing and in the merchandising of textiles—he tends to develop into a peculiar and specialized type of commercial (and even investment) banker, whose loans are limited to the one specific field in which he is skilled ; whose earnings include com missions on his own selling of the merchandise delivered to him as security; and whose banking assets are not recruited by deposits, so as to subject him to State control.
Along another line the factor, being located in a central market and becoming skilled in its operations, tends to branch out into independent trading—as do similarly situated brokers. Hence at times a conflict of interest between himself and his principals, as to whose goods shall get sold on a falling or fluctuating market ; hence also some of those financial involvements which raise the question of how far the factor has power to pledge away his prin cipal's goods ; hence, finally, occasional legislation aimed at control of the commission man's business in the interest of his principals.
(K. N. L.)