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 nonnegotiable document of title, until but not after the bailee receives notification of the transfer, the rights of the transferee may be defeated:

(1) by those creditors of the transferor who could treat the sale as void under Section 2-402 or 2A-308 of this title;

(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 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 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 pursuant to a nonnegotiable document of title may be stopped by a seller under Section 2-705 of this title or a lessor under Section 2A-526 of this title, subject to the requirement 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.

Added by Laws 1961, p. 150, § 7-504. Amended by Laws 2005, c. 140, § 31, eff. Jan. 1, 2006.