The sale of goods often
involves the commercial movement of goods by carrier and sometimes the
subsequent storage of those goods.
Article 7 of the UCC- Documents of Title- governs the shipment of storage
of goods under the Uniform Commercial Code.
At the outset, it must be pointed out that shipments of interstate
transactions are governed by the Federal Bill of Lading Act 49 U.S.C.801 et.
seq., and the storage of agricultural commodities may be governed by the United
States Warehouse Act 7 U.S.C. 241.
A major distinction between
these two acts is that the FBLA is a mandatory act, governing shipments in
interstate commerce, while the USWA is a voluntary licensing statute in which a
warehouse can apply for approval by the Secretary of Agriculture.
The purpose of the posts
relating to the movement and storage of goods will be confined the Uniform
Commercial Code; however, given the statistic provided by the Farm Bureau
Agency that 47% of all warehouse space in the United States falls within its
purview, anyone involved in matters involving the storage of commodities should
definitely investigate the applicability of the USWA to a particular
transaction. With respect to other goods
which may be stored, Article 7 will control.
The following is an excerpt
from The Uniform Commercial Code Made
Easy and is designed as a general introduction to bills of lading
including the delivery of goods under a bill of lading. Special emphasis is given to the concept of a
‘shipment under reservation’ which is governed by Section 2-505.
V.
DELIVERY OF GOODS
(A) Bill
of Lading
(B) Person
Entitled to Take Possession of Goods;
Person Entitled Under the Document.
(A) Bill of Lading[1]
When the
carrier receives the boats it will issue
a document known as a bill of
lading. This document will acknowledge the carrier’s
possession of the boats, and in addition will contain a contract for delivery
of the boats. In such a situation, the carrier is called a bailee.[2] The person from whom the carrier receives the goods is called the consignor,[3]
here, Royal. Since the
contract calls for delivery to the order of Royal, Royal would also be the consignee.[4]
Form of
Document of Title
A document of
title can take one of two forms. It
can be negotiable or non
negotiable. Section
7-104 specifies
when a document is negotiable or non-negotiable:
- (a) Except as otherwise provided in subsection (c) a document of title is negotiable if by its terms the goods are to be delivered to bearer or to the order of a named person;
(b) A document of title other than one described in subsection (a)
is non-negotiable.
(c) A document of title is non-negotiable if, at
the time it is issued, the document has a conspicuous legend, however expressed, that it is
non-negotiable.
In the instant
situation, the goods are to be delivered to the order of a named person, Royal.
Thus, the form of the bill of lading falls squarely within Section
7-104(a). As is obvious from the quoted definition,
whether or not a bill of lading [or any document of title] is negotiable
or non-negotiable is simply a matter of form. To
the extent that the bill of lading does not have the proper form, it is
non-negotiable.[5]
The distinction between negotiable and non-negotiable documents pervades all of
Article 7. In fact, the last sentence to the first paragraph of the comments to
Section 7-104 states as
follows:
The distinction between negotiable and
non-negotiable documents in this section makes the most important
sub-classification employed in this article....
There are many
reasons under Article 7 as to why this is so; it is, however, beyond the scope
of this memorandum to discuss all of these. In the instant situation, the
question for our purposes is: how does procurement of a negotiable bill of
lading to the order of Royal reserve
a security interest in Royal? That is, how does Royal’s procurement of a
negotiable bill of lading to its order secure
payment or performance of an obligation, per Section 1-201(b)(35). The simple straightforward
answer is that the carrier would be required to deliver the boats only to
Royal, inasmuch as Royal would be the holder of the negotiable document (bill of lading), and delivery to anyone else would be unlawful.
Again, some further analysis is required to illustrate how this works under
Article 7.
(B) Person Entitled to Possession of the Goods; Person Entitled under
the Document
The first
relevant section in dealing with this question is Section 7-403(a) which reads
in pertinent part as follows:
The bailee shall deliver the goods to a
person entitled under the document of title if the person complies with
subsections (b) [dealing
with bailee’s lien] and (c) [surrender or notation of
deliveries on document of title]....
As previously
noted, the bailee in the instant situation would be the carrier, who, per
Section 7-403(a) noted above, must deliver to a
“person entitled under a document,”
which is defined under Section 7-102(a)(9) ) as follows:
Person entitled under the
document means the holder, in the case of a negotiable document of
title, or the person to which delivery of the goods is to be made by the terms
of, or pursuant to written instructions in a record under, a nonnegotiable document
of title.
As indicated,
since a negotiable bill would be used here, the “person entitled under the
document” would be the holder of that document. Holder is defined under Section
1-201(b)(21)(B) as ‘the
person in possession of a negotiable tangible document of title if the goods are deliverable to bearer or
to the order of the person in possession’. Thus, as long as Royal maintains
possession of the negotiable document of title issued to its order, Royal is
the person entitled under the document as the holder of the negotiable document.
Should the carrier deliver to anyone other than the holder, it would be an
improper delivery for which the carrier would be liable. The carrier knows this and will only deliver
to Royal or the subsequent holder of the document. Royal doesn’t want the
boats; it simply wants to maintain possession of the bill of lading until it gets paid.
The next series of posts
will roughly track the statutory provisions discussed in the memorandum above
as it relates to bills of lading.
Warehouse receipts will be covered thereafter.
[1]
“Bill of Lading” means a document evidencing
the receipt of goods for shipment issued by a person engaged in the business of
transporting or forwarding goods.... Section 1-201(b)(6).
A bill of lading is a document of title under Section
1-201(b)(16). That section states as
follows:
“Document of title” includes dock warrant, dock
receipt, warehouse receipt or order for the delivery of goods, and also any
other document which in the regular course of business or financing is treated
as adequately evidencing that the person or possession of it is entitled to
receive, hold and dispose of the document and the goods it covers. To be a
document of title a document must purport to be issued by or addressed to a
bailee and purport to cover goods in the bailee’s possession which are either
identified or are fungible portions of an identified mass.
The use of documents in commercial transactions is extremely
important and will be discussed in some detail in this book. For now it should
simply be borne in mind that in many situations the document is treated as the
equivalent of the goods it covers and that transfer of the document or rights
thereunder will generally be equivalent to a transfer of the goods so covered.
[2] “Bailee” means the person who by … bill of lading or
other document of title acknowledges possession of goods and contracts to
deliver them. Section 7-102(a)(1).
[3] “Consignor” means the person named in a bill
as the person from whom the goods have been received for shipment. Section
7-102(a)(4).
[4] “Consignee” means the person named in a bill
to whom or to whose order the bill promises delivery. Section 7-102(a)(3).
[5] Section
7-104(c) previously quoted, states as follows:
(c) A document of title is nonnegotiable if, at the
time it is issued, the document has a conspicuous legend, however expressed,
that it is nonnegotiable.
This provision is contained in the newest amendments to
Article 7 and is absent under Section 7-104. The amendment is logical
insofar as it indicates a clear intent of the issuer, and presumably the
consignor, that the document be treated as nonnegotiable. The importance of
negotiability will be seen shortly in Doug’s memorandum.
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