the negotiation, or by the fact that the owner of the document was induced by fraud, mistake or duress to entrust the possession or custody thereof to such person, if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor, without notice of the breach of duty, or fraud, mistake or duress.

In the present section our problem is to ascertain the rights of an indorsee of a negotiable document of title arising out of his ownership of such document. We have already noted the circumstances under which a party in possession of a document of title will be deemed to be the owner of the same. The instrument must have been negotiated to him in one of the ways allowed by law. Granted, then, that a person is owner of the document; what rights against all other people does he acquire thereby? This general problem involves three subordinate inquiries: (1) Under what circumstances will an indorsee be an innocent purchaser for value? (2) Under what circumstances will claims of ownership and all. other kinds of claims with respect to the goods, asserted by other persons, be cut off by the negotiation of the document to an innocent purchaser? (3) What rights does an innocent indorsee acquire against the carrier or warehouseman who issued the document?

The first question, as to the circumstances under which an indorsee will be deemed to be an innocent purchaser, need engage our attention but briefly, because such a person must be substantially in the same position that a person must occupy in order to be a holder in due course of a negotiable instrument payable in money. (a) That is, he must take in good faith and without notice of the claim of the third party. The element of good faith, or conversely, what constitutes bad faith, was sufficiently treated in the law of negotiable instruments. (b) He must be a purchaser, not a donee. But just as we found to be true in negotiable instruments, a person will be a purchaser when he has parted with value, and value is defined in section 76 of the Sales Act as "any consideration sufficient to support a simple contract. An antecedent or pre-existing claim, whether for money or not, constitutes value where goods or documents of title are taken either in satisfaction thereof or as security therefore." A donee, or a transferee with notice from an innocent purchaser, would be an innocent purchaser unless he participated in the fraud.

The second question, as to the circumstances under which the claims of others with respect to the goods will be cut off, opens up a broad field of possibilities. At the start, one matter should be noted by way of comparison with the rights of a holder in due course of negotiable instruments payable in money. We there found that in the hands of a holder in due course two very different kinds of rights possessed by third parties were cut off; i. e., equities of defense and equities of ownership. Equities of defense were, from a practical standpoint, more important than equities

of ownership. That is, we found that usually, when the holder in due course was suing the maker or acceptor, the defendant was attempting to set up a defense which undoubtedly would have been available to him, had he been sued by the party with whom he dealt, but that such defenses, usually lack of consideration, fraud in the inducement, payment or breach of contract, etc., were shut out when he was sued by a holder in due course. Occasionally some person will assert against the holder in due course an equity of ownership, and we found that these equities were likewise shut out in the hands of the holder in due course. The point worthy of observation here is that equities of defense more commonly arise in connection with negotiable instruments payable in money than do claims of ownership. Just the converse is true in connection with negotiable documents of title. Equities of defense are seldom asserted, but claims of ownership continually arise. So in looking at our second question we are concerned largely with claims of ownership in the goods asserted by other parties. When 'will these claims be cut off?

When the bailor actually obtained a negotiable document, and did not deposit any goods, obviously the innocent indorsee will obtain no goods. This situation arises in this way: A person may intend to deliver the goods to a carrier, and upon making this representation will induce the agent to issue the bill of lading. Later events may make it impossible to deliver, or the bailor may have acted fraudulently. It is clear that the indorsee of the document can acquire no title to the goods. But may he hold the carrier liable? May the defense which the carrier clearly has against the procurer of the document be asserted against the innocent indorsee? Generally not. The carrier will be liable to the holder of the bill. This defense is not available as against the innocent holder-it being a personal defense. At common law there was a conflict of authority on this point. Those courts which held that the carrier could set up the defense of non-receipt of the goods against the innocent holder allowed it upon the theory that the defense was a real defense; the execution and delivery of the document by the carrier's agent being regarded as entirely an unauthorized act, tantamount to a forgery of the carrier's name. The Uniform Bills of Lading Act now throws the loss upon the carrier. This section is as follows:

Section 23. If a bill of lading has been issued by a carrier or on his behalf by an agent or employee the scope of whose actual or apparent authority includes the issuing of bills of lading, the carrier shall be liable to the consignee found in a non-negotiable bill or the holder of a negotiable bill.

Notice that this section is limited to cases where the bill was issued by an agent whose actual or apparent authority included the issuance of bills of lading. If the bill were issued by a switchman, the indorsee would acquire no rights against the carrier. A warehouseman would be under a liability of similar scope. This

section would throw the liability on the carrier in a case where some of the goods were received, but not as many as were called for by this bill of lading. This situation may easily arise. A shipper of grain may declare that there were 500 bushels, when in reality there were but 400. The carriers may, however, avoid this liability by inserting in the bill of lading the words "shipper's load and count." This statement relieves the carrier from liability for damages caused by improper loading or by non-receipt of the goods. Section 23 of the Uniform Bills of Lading Act authorizes this stipulation to be made and prescribes its effect.

Assuming, now, that goods were in fact delivered over to the carrier or warehouseman, and a negotiable document issued for them; are there any circumstances under which the holder of the document will have a claim inferior to that of third parties? Obviously there are such cases. If the bailor had stolen the goods, he could not by the simple device of depositing them and procuring a negotiable receipt obtain the power to cut off the claims of the true owner. The indorsee will lose in this case. The case of theft will not be common, but we know that there are a great many situations where a person may have possession of goods, but will not have the power to transfer a good title to a purchaser. In this connection we should recall the subject-matter of Chapter III. We there found that in some cases a person, although not the owner of goods, did possess the power to transfer title to an innocent purchaser. This power is not nearly so extensive as is the power to transfer title to money and negotiable instruments payable to bearer. In fact, the presumption is all against the existence of such power. Still, if the seller had a voidable title, or was in possession of goods already sold, or where there was some element of estoppel against the true owner, a party, though not the owner, will have power to pass title to an innocent person. It is then to be noticed that the introduction of the negotiable document of title does not change this general situation in the slightest degree. Section 33, above quoted, states that the title acquired by the indorsee will be (1) the title which the person negotiating the document had or (2) had ability to convey. A person will have ability to convey title in cases where he is not owner, only in those situations which were discussed in Chapter III.

Complications of great difficulty arise at this point. The problem of ascertaining the respective rights of the holder of the document and of some other claimant is not always easy of solution. In the first case presented, Commercial Bank v. J. K. Armsby Co., a pledgee bank was protected. In the two cases following Commercial Bank v. J. K. Armsby Co. a type of business transaction is presented which is of considerable importance, particularly in connection with the import and export trade. All manner of difficulty may arise therefrom, depending upon the nature of the "accident" which has plunged the parties into litigation. These two cases by no means exhaust the possibilities, but they are in

serted here, first, because of the commercial importance of the transaction involved; and, second, because they vividly reveal the inherent difficulty in balancing the rights of the various parties who may become concerned therein.

The situation may be called generally "the trust receipt transaction." An importer desires to import a cargo of goods. His capital is limited. He does have credit. He arranges with a bank either to accept bills of exchange drawn by the foreign exporter, and the bank will issue a letter of credit, or in some way will bind itself to pay the price to the foreign exporter. The cargo is shipped, usually under negotiable documents of title, and finally the bill of lading, accompanied by the bill of exchange, will be presented to the bank which has undertaken to finance the transaction for the importer. The bank pays the exporter, and the banks. which represented him drop out. The other bank holds the importer's note and the bill of lading. So far this bank is the only party who has parted with any money in connection with the transaction. The bank does not expect to sell these imported goods, but eventually it expects to transfer the possession to the importer, who is chiefly interested in the shipment. The bank is interested in the deal only to the extent that it desires reimbursement of the funds advanced and a legitimate profit. But the importer has no funds, and cannot pay until he sells the goods which were imported. So the business problem which confronts the bank is how to enable the importer to dispose of the goods, and at the same time retain a sufficient hold upon the goods, and upon the proceeds arising therefrom, to protect the loan to the importer.

There are various possibilities open. The bank may surrender the bill of lading unconditionally, trusting to the importer's general credit. Here, of course, there is no special protection whatever, except that which any general creditor has. Second, the bank could transfer the bill of lading and require a mortgage back. But this solution may be hedged with difficulty. Obviously the mortgage must carry a power of sale to the importer; otherwise he could not sell the goods. The mortgage would be of no value to the bank as soon as the goods were sold, unless the mortgage covered the proceeds arising from the sale. Furthermore, many banks will not have power to take a chattel mortgage, and, even if they did, the mortgage would not create an effective hold upon the money derived from the sale, for money may be disposed of to other creditors of the importer, in which case the bank's protection is gone, except in so far as such payments operate as recoverable preferences in bankruptcy.

Perhaps there are other possibilities, but the policy usually adopted by the bank is to deliver the bill of lading to the importer in exchange for what is known as a "trust receipt" executed by the importer. This trust receipt may be executed for various purposes. In the first place the importer may desire to obtain the bill of lading merely for a temporary purpose, such as getting the

goods through the custom house, leaving for a later transaction the arrangements under which a final sale by the importer may be made. Or the trust receipt may permit a sale only to a particular person. Whatever the reason for the delivery of the bill of lading to the importer may be, if there be restrictions imposed upon the importer's use of the bill of lading, we have a case where the holder of the bill has intrusted the possession of the same to a person who has but a limited legal right thereto; but he has a legal power to dispose of the bill which is considerably broader than his legal right so to do.

COMMERCIAL BANK v. J. K. ARMSBY CO.

(Supreme Court of Georgia, 1904. 120 Ga. 74, 47 S. E. 589, 65 L. R. A. 443.) Action by the J. K. Armsby Company against the Commercial Bank. Judgment for plaintiff, and defendant brings error.

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CANDLER, J. The J. K. Armsby Company, an Illinois corporation, shipped to Walton & Carr, their brokers in Augusta, a quantity of salmon for distribution to different parties to whom the goods had been sold. Walton & Carr were merely agents of the Armsby Company, and had no right or title to the salmon. The goods were shipped from a point in Oregon, by parties from whom they had been ordered by the Armsby Company, on a through bill of lading to Augusta, and were consigned to the order of the consignor, with directions to notify Walton & Carr. The Armsby Company sent Walton & Carr a check for the amount of the freight, which was paid, and it also mailed them the original bill of lading, which was indorsed blank. Carr, a member of the firm of Walton & Carr, took the bill of lading to the Commercial Bank of Augusta, and hypothecated it for a loan of money. Shortly thereafter Walton & Carr failed, and the bank converted the salmon for the payment of its debt, whereupon the Armsby Company brought against it the present suit, which was an action of trover. The case was tried before the judge of the city court of Richmond county, without a jury. * It was admitted that neither the bank nor any of its officials knew or had reason to suspect that Carr had no right to convey the salmon, and that, in the event the bank should be held liable, the proper amount to be recovered was $700. The judge found in favor of the plaintiff, and rendered judgment in its favor for the amount mentioned. The defendant excepted. * * The sole question for our determination, then, is, does a bill of lading of the character of the one involved in this suit constitute such an external indicium of the right of disposing of the property for which it was issued as to bring the case within the operation of the rule laid down in the Code. As a general rule, the transferee of a bill of lading can obtain no better title to the goods which it covers than that which was in the person by whom it was transferred. Indeed, it is a self-evident proposition that no man can convey that which he does not possess. But the true owner of property may, by placing it in the power of another to defraud innocent purchasers by an apparently valid transfer of the property, cut himself off from claiming it, and thereby divest the title from himself. In 4 Am. & Eng. Enc. L. (2d Ed.) 551, it is said that an important exception to the general rule

B.& B.BUS.LAW-68

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