§ 7504. Rights acquired in absence of due negotiation; effect

of diversion; stoppage of delivery.

(a) Transferee.--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) Third parties.--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 that could treat the transfer as void under section 2402 (relating to rights of creditors of seller against sold goods) or 2A308

(relating to special rights of creditors);

(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) Diversion or change by consignor.--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:

(1) 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

(2) in any event defeats the consignee's rights against the bailee.

(d) Stopping delivery.--Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under section 2705 (relating to stoppage by seller of delivery in transit or otherwise) or a lessor under section 2A526 (relating to lessor's stoppage of delivery in transit or otherwise), subject to the requirements of due notification in those sections. A bailee honoring the seller's or lessor's instructions is entitled to be indemnified by the seller or lessor against any resulting loss or expense.

Cross References. Section 7504 is referred to in section 7503 of this title.