Rights Acquired in the Absence of Due Negotiation; Effect of Diversion; Stoppage of Delivery

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Warehouse Receipts, Bills of Lading, and Other Documents of Title
  5. Warehouse Receipts and Bills of Lading: Negotiation and Transfer
  6. Rights Acquired in the Absence of Due Negotiation; Effect of Diversion; Stoppage of Delivery

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  1. A transferee of a document of title, whether negotiable or nonnegotiable, to which the document has been delivered but not duly negotiated, acquires the title and rights that its transferor had or had actual authority to convey.
  2. In the case of a transfer of a nonnegotiable document of title, until but not after the bailee receives notice of the transfer, the rights of the transferee may be defeated:
    1. By those creditors of the transferor which could treat the transfer as void under Code Section 11-2-402 or 11-2A-308;
    2. By a buyer from the transferor in ordinary course of business if the bailee has delivered the goods to the buyer or received notification of the buyer's rights;
    3. By a lessee from the transferor in ordinary course of business if the bailee has delivered the goods to the lessee or received notification of the lessee's rights; or
    4. As against the bailee, by good-faith dealings of the bailee with the transferor.
  3. A diversion or other change of shipping instructions by the consignor in a nonnegotiable bill of lading which causes the bailee not to deliver the goods to the consignee defeats the consignee's title to the goods if the goods have been delivered to a buyer in ordinary course of business or a lessee in ordinary course of business and, in any event, defeats the consignee's rights against the bailee.
  4. Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under Code Section 11-2-705 or a lessor under Code Section 11-2A-526, subject to the requirements of due notification in those Code sections. A bailee that honors the seller's or lessor's instructions is entitled to be indemnified by the seller or lessor against any resulting loss or expense.

(Code 1933, § 109A-7 - 504, enacted by Ga. L. 1962, p. 156, § 1; Ga. L. 2010, p. 481, § 1-1/HB 451.)

The 2010 amendment, effective May 27, 2010, rewrote this Code section. See the Editor's notes for applicability.

Editor's notes.

- Ga. L. 2010, p. 481, § 3-1, not codified by the General Assembly, provides that: "This Act applies to a document of title that is issued or a bailment that arises on or after the effective date of this Act. This Act does not apply to a document of title that is issued or a bailment that arises before the effective date of this Act even if the document of title or bailment would be subject to this Act if the document of title had been issued or bailment had arisen on or after the effective date of this Act. This Act does not apply to a right of action that has accrued before the effective date of this Act." This Act became effective May 27, 2010.

Ga. L. 2010, p. 481, § 3-2, not codified by the General Assembly, provides that: "A document of title issued or a bailment that arises before the effective date of this Act and the rights, documents, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this Act as if such amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule." This Act became effective May 27, 2010.

JUDICIAL DECISIONS

Due negotiation is key to title to document and title to goods; but only a negotiable document of title can be negotiated or duly negotiated. Citizens Bank & Trust Co. v. SLT Whse. Co., 368 F. Supp. 1042 (M.D. Ga. 1974), aff'd, 515 F.2d 1382 (5th Cir. 1975).

Extent of rights conveyed by transferor.

- In absence of due negotiation transferor cannot convey greater rights than the transferor personally has, even when negotiation is formally perfect. Citizens Bank & Trust Co. v. SLT Whse. Co., 368 F. Supp. 1042 (M.D. Ga. 1974), aff'd, 515 F.2d 1382 (5th Cir. 1975).

Defenses to which lender against nonnegotiable receipts takes subject.

- Where lender lends against nonnegotiable receipts, the security is precarious, as a transferee of such receipts takes subject to all possible title infirmities and defenses to which pledgee of negotiable documents is subject, and also incurs risk of infirmities in the lender's own transferor's title. Citizens Bank & Trust Co. v. SLT Whse. Co., 368 F. Supp. 1042 (M.D. Ga. 1974), aff'd, 515 F.2d 1382 (5th Cir. 1975).

Risks incurred by field warehouse lender in acquiring nonnegotiable receipts.

- Field warehouse lender who acquires nonnegotiable receipts incurs all risks that lender against negotiable documents incurs, as well as the additional title risks that party acquiring nonnegotiable documents incurs. Generally, so far as debtor's title is defective, so too is lender's title defective. Citizens Bank & Trust Co. v. SLT Whse. Co., 368 F. Supp. 1042 (M.D. Ga. 1974), aff'd, 515 F.2d 1382 (5th Cir. 1975).

RESEARCH REFERENCES

Am. Jur. 2d.

- 15A Am. Jur. 2d, Commercial Code, §§ 57, 64, 65. 78 Am. Jur. 2d, Warehouses, §§ 65, 69, 81, 108.

C.J.S.

- 13 C.J.S., Carriers, § 194. 80 C.J.S., Shipping, § 257 et seq. 93 C.J.S., Warehousemen and Safe Depositaries, § 32 et seq.

U.L.A.

- Uniform Commercial Code (U.L.A.) § 7-504.

ALR.

- Right of surety on warehouseman's bond to be subrogated to rights of owner of property stored as against third person, 4 A.L.R. 518.


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