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This entry was published on 2014-12-26
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SECTION 7-504
Rights Acquired in Absence of Due Negotiation; Effect of Diversion; Stoppage of Delivery
Uniform Commercial Code (UCC) CHAPTER 38, ARTICLE 7, PART 5
Section 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 Section 2--402 or 2-A--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.

(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 Section 2--705 or a lessor under
Section 2-A--526, 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.