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Commission Merchants

( Originally Published 1918 )



A Commission Merchant is one to whom goods are sent for sale, and who charges a certain per cent on the price of the goods sold for his service, which is called commission.

Farmers and manufacturers who have large quantities of goods to sell send them to the cities to the commission merchant, who sells them for them.

Commission merchants are, therefore, agents to sell, and the owners of the goods are their principals. These duties and responsibilities are in general like those of other agents.

Duties.—The whole business is one of contract for personal services. The merchant's chief aim is to sell the goods for the best price he can get, and pay over the money when collected, after he has deducted his commission. He must obey the orders of his principal, conduct the business skillfully and carefully, and render true accounts when called upon. He must not make his own interests adverse to those of his principal.

Authority.—This is as conferred upon him by special agreement, but often the commission merchant is left to conduct the business according to his own judgment and in the way such business is usually conducted.

Responsibility to Principal: If he violates in any way the agreement, disobeys instructions, or is negligent, then he is responsible to his principal for any loss that may result from it.

When left to exercise his own judgment, he is not responsible for any loss that may result from making a mistake.

If he be given authority to sell on credit, and the Buyer fails to pay, the owner must lose, not the commission merchant.

The Commission.—To this he is entitled when he has performed his service. When selling on credit, he is entitled to his commission when the sale is effected, whether the principal gets his pay or not.

But if in any way he breaks his contract, he loses his claim to any commission on that trans-action.

Guaranty Commission.—Sometimes the commission is, by agreement, made to guarantee payment by the party to whom the goods are sold. In such cases he is responsible to the owner if the buyer does not pay.

Advances.—Frequently the commission merchant advances to the owner, before he has made any sales, some portion of what he thinks the goods are worth.

When the sale is made he deducts this amount, with his commission, from what he realizes from the sale.

Lien Upon Goods.—His principal can revoke his authority and take his goods away at any time, but if the merchant has in the meantime incurred any expense he can hold the goods until his expenses or outlays are made good.

The rule in law is : A commission merchant has a right to keep any goods of his principal's which are in his hand until he has been paid all commission, advances and expenses due him from the owner.

By this general lien he can keep any goods, whether the debt arose in connection with them or with others.

Relation to the Buyer.—If the owner of the goods is made known to the buyer, then the commission merchant assumes in general no responsibility himself, but if he says nothing about who owns the goods, or sells them as his own, acting as principal, he assumes all the responsibility of the principal.

Selling by Sample.—Recent years have witnessed the growth of a type of commission merchants who do not carry. their principals' goods in stock, but who sell entirely by sample. These are the larger commission houses representing a large number of different manufacturers, and obviously, no commission house, irrespective of its size, would have facilities for carrying such an extended array of stock.

Carry Own Accounts.—Like the commission merchant who guarantees payment by the purchaser, these houses carry their own accounts, thus assuming themselves all risk of bad debts.

Sell in Own Name.—They do not sell in the name of the manufacturer, but in their own, and bill all merchandise sold and collect for the same, just as though they were the owners of the goods.

Direct Factory Shipments.—The orders they take are sent to the factories making the goods sold, from which shipments are made direct to the customers of the commission houses, and usually in the name of the commission house as shipper.

Manufacturer Fixes Selling Prices.—Unlike the commission merchant to whom goods are consigned for sale upon the best terms the market affords, these houses sell only at the sale prices fixed by the manufacturers. In this respect the commission houses are in reality sales organizations for a group of manufacturers, selling on commission at fixed prices, only they carry their own accounts.

Paying the Manufacturer.—Under the sales agreement between the manufacturer and the commission house, it is usually provided that the manufacturer shall bill the commission house for all goods shipped on its order at the respective selling prices less the agreed commissions for making the sales, and that the commission house shall pay the manufacturer for all such goods so shipped at such net price, less such discount for cash as may be agreed upon within a specified time, usually ten days from date of the invoice to the commission house.

Credits.—In dealing with this class of commission houses, the manufacturer is not concerned with the credit rating of the customers to whom the commission house sells his goods. He looks solely to the commission house for his payment. Hence it is of vital importance to the manufacturer that the commission house is sufficiently strong financially to promptly meet all invoices of the manufacturer for the sold goods, as the manufacturer has no claim or recourse against the customers of the commission house in case the goods are not paid for by the commission house itself.

Contracting for Output: Sometimes the commission house will contract to sell the entire out-put of the manufacturer, or up to a fixed amount, in which latter event the manufacturer may either sell the balance himself or arrange with some other commission house to undertake its sale.

Advantages to Manufacturer.—Where the manufacturer is able to dispose of his products in this manner, assuming that the commission house is sufficiently strong financially, he is relieved of all detail and expense of maintaining his own selling force and the carrying of a large number of individual accounts, with the attendant risk of bad debts, and at the same time assured of the continual presentation of his goods to the buyers in all parts of the country.

Abridged Form of Sales Agreement

AGREEMENT, made this .... day of ----1921, between Johnson Manufacturing Company, a corporation of Illinois, of Chicago, in said State, hereinafter called the Company, and William H. Duval & Co., a corporation of New York, of the City, County and State of New York, hereinafter called the Distributor, witnesseth:

WHEREAS, the Company is the manufacturer of the Matchless line of (here state class of goods manufactured), for which the Distributor desires to act as selling agents upon the terms and conditions hereinafter set forth.

NOW THEREFORE, This Agreement further witnesseth that the parties hereto, in consideration of the premises, do mutually covenant and agree to and with each other as follows:

(1) That the Company agrees to manufacture in quantities sufficient to fill any and all orders secured by the Distributor therefor, the following numbers, as constituting its said Matchless line of (name products).

(2) That the Distributor agrees to act as sales agents for the sale of the said numbers to the jobbing and department store trade, and to sell the same at the respective following list prices and subject only to the respective following discounts, all sales to be f. o. b. Chicago, Ill.:

(Here list items in the line with retail prices and discounts to the trade.)

(3) That the various goods shall until further notice be packed in the following manner:

(Here insert method of packing.)

(4) That the Distributor shall pass upon all questions of credits and terms.

(5) That the Company shall make all shipments of orders sold by the Distributor direct to the Distributor's customers as above provided.

(6) That the Company shall bill the Distributor for all goods shipped at prices, agreed upon. (Continue to write out the different points agreed upon. Your agreement should be specific and comprehensive.)

IN WITNESS WHEREOF, the respective parties to this agreement have hereunto set their hands and seals the day and year first above written.

Sealed and delivered in the presence of : JOHNSON MANUFACTURING COMPANY, By

WILLIAM H. DUVAL & CO. By



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