84-7-503. Document of title to goods defeated in certain cases. (a) A document of title confers no right in goods against a person that before issuance of the document had a legal interest or a perfected security interest in the goods and that did not:
(1) Deliver or entrust the goods or any document of title covering the goods to the bailor or the bailor's nominee with:
(A) Actual or apparent authority to ship, store, or sell;
(B) power to obtain delivery under K.S.A. 2024 Supp. 84-7-403, and amendments thereto; or
(C) power of disposition under K.S.A. 84-2-403, 84-2a-304(2), 84-2a-305(2), 84-9-320 or 84-9-321(c), and amendments thereto, or other statute or rule of law; or
(2) acquiesce in the procurement by the bailor or its nominee of any document.
(b) Title to goods based upon an unaccepted delivery order is subject to the rights of any person to which a negotiable warehouse receipt or bill of lading covering the goods has been duly negotiated. That title may be defeated under K.S.A. 2024 Supp. 84-7-504, and amendments thereto, to the same extent as the rights of the issuer or a transferee from the issuer.
(c) Title to goods based upon a bill of lading issued to a freight forwarder is subject to the rights of any person to which a bill issued by the freight forwarder is duly negotiated. However, delivery by the carrier in accordance with part 4 of this article pursuant to its own bill of lading discharges the carrier's obligation to deliver.
History: L. 2007, ch. 90, § 32; July 1, 2008.
KANSAS COMMENT, 1996
This section states exceptions to the rule of 84-7-502, and lists three situations in which rights acquired by due negotiation may be defeated.
Subsection (1) adopts a doctrine similar to that of "paramount title" and protects persons with prior interests in the goods who neither entrusted them to the bailor with apparent authority to engage in the bailment nor acquiesced in the bailment. This provision in effect extends the rule of 84-2-403, which protects buyers in ordinary course of business against claims of prior parties who entrusted the goods to merchants who deal in goods of that kind, to bailment situations. However, under this section, as under 84-2-403(2), entrustment alone is not enough to cut off the prior owner's rights. The entrustment has to be to one with apparent or actual authority to ship or sell. See Disch v. Raven Transfer & Storage Co., 17 Wash. App. 73, 561 P.2d 1097 (1977). 84-9-307(1) applies the same principal of protecting the buyer in the ordinary course of business from security interests, if they are created by the seller. See Aircraft Trading and Services, Inc. v. Braniff, Inc., 819 F.2d 1227 (2d Cir., 1987).
Under this section, a prior, perfected secured party who neither entrusts the goods nor acquiesces in their storage within the meaning of subsection (1) has rights superior to a holder who takes by due negotiation. This rule, however, conflicts with 84-9-309, under which the rights of a prior secured party are expressly subordinated to a holder who takes a document of title by due negotiation. The proper resolution of this conflict is not clear. In Philadelphia Nat'l Bank v. Irving R. Boody Co., Inc., 1 U.C.C. Rep. Serv. 560 (Arbitrator, 1963), it was stated in a dictum that Article 9 controlled and the subsequent holder, who took the document for security, defeated the prior secured party. This dictum is questionable, however. Even if Article 9 controlled, the matter could be resolved by applying 84-9-312(5) and holding for the prior secured party since it was first perfected. The proper approach apparently is to recognize 84-7-503 as an exception to 84-7-502 so that 84-9-309 does not apply, and resolve the matter under this section (84-7-503) rather than under Article 9. Thus, the prior perfected secured party who neither entrusted nor acquiesced would defeat the subsequent holder. See also United States v. Hext, 444 F.2d 804 (5 th Cir. 1971).
Subsection (2) is new. A bailee should not accept a delivery order for goods which are covered by an outstanding negotiable document of title. This provision gives the holder of the document of title a claim superior to that of a person claiming under an unaccepted delivery order. When partial deliveries under a negotiable document of title are made, the bailee must note the partial delivery on the document or risk liability to the holder. See 84-7-403(3).
Subsection (3) is new and covers bills of lading issued by and to freight forwarders. For a discussion of this practice, see the decisions of the United States Supreme Court in Chicago, M., St. P. & Pac. R. Co. v. Acme Fast Freight, Inc., 336 U.S. 465, 69 S. Ct. 692, 93 L.Ed. 817 (1949), and United States v. Chicago Heights Trucking Co., 310 U.S. 344, 60 S. Ct. 931, 84 L.Ed. 1243 (1940). See also Bills of Lading of Freight Forwarders, 259 I.C.C. 277 (1944).
Revisor's Note:
Former section 84-7-503 repealed by L. 2007, ch. 90, § 78 and the number reassigned to the current text.
Law Review and Bar Journal References:
"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 471, 487 (1986).
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