Printable Format84-7-504. Rights acquired in absence of due negotiation; effect of diversion; stoppage of delivery. (a) 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.
(b) 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 K.S.A. 84-2-404 or 84-2a-308, and amendments thereto;
(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.
(c) 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.
(d) Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under K.S.A. 84-2-705, and amendments thereto, or a lessor under K.S.A. 84-2a-526, and amendments thereto, subject to the requirements of due notification in those 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.
History: L. 2007, ch. 90, § 33; July 1, 2008.
KANSAS COMMENT, 1996
This section deals with the rights of a transferee of a document in the absence of due negotiation under 84-7-501. This section will cover all transfers of nonnegotiable documents of title, since they cannot be negotiated, and transfers of negotiable documents by means other than due negotiation. Subsection (1) is an application of the shelter principle. It states the general rule that a transferee under these circumstances acquires the title and rights which his transferor had or had actual authority to convey. Principles of estoppel and apparent authority do not apply. This provision corresponds to former K.S.A. 82-141 and 82-142. Compare, however, K.S.A. 34-282, which states the rights of a transferee of a warehouse receipt in somewhat different terms.
Subsection (2) deals with events which may defeat the rights of the transferee of nonnegotiable documents if they occur before notification of the bailee. The rights of a transferee may be defeated by the persons listed in paragraphs (a), (b) and (c) until the bailee receives notification. In effect, the transferor is treated as the owner of the goods in each of these situations. See, for example, 84-2-503(4)(b). Under K.S.A. 34-282, any creditor of the transferor can levy on the goods and defeat the transferee's rights, which goes beyond the rule stated in paragraph (2)(a) of this section.
Subsection (3) protects a buyer in ordinary course to whom the goods are diverted or reconsigned by the original seller. This policy corresponds with the general policy of the Code protecting buyers in ordinary course. See 84-2-403 and 84-9-307. This provision also protects the bailee when the bailee honors a diversionary order from the original consignor. See 84-7-303 and 84-7-403(1)(e).
Subsection (4) preserves the seller's right of stoppage under 84-2-705 by stating the carrier's obligation upon receipt of a proper stop order. The carrier is protected in these cases by the right to indemnification from the seller. This rule corresponds to the rule of 84-2-705(3)(b), making the seller liable to the carrier for any ensuing charges or damages.
Revisor's Note:
Former section 84-7-504 repealed by L. 2007, ch. 90, § 78 and the number reassigned to the current text.