Music Trade Review

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THE
MUSIC TRADE
REVIEW
Stopping Goods En Route For Uupaid Bills
The Legal Phases of This Subject, So Important to Piano Manufacturers and Dealers, Discussed and
Analyzed by an Authority—The Action to be Taken in
Regard to Goods in Transit.
I
N a recent article which discussed the legal phases of a bill
of lading I announced that the subject of this one would be the
right of the seller of goods which were in transit—on their way
to the buyer—to order the railroad company not to deliver them.
This is called the right of stoppage in transitu and is one of the
most peculiar doctrines known to the law. It is totally at variance
with all fundamental principles, and is a subject that every busi-
ness man, large and small, should know something alxjut.
The right of stoppage in transitu is peculiar for this reason:
It is fundamental that when A sells goods to B, and delivers them
either to B or to B's agent, title passes to B, the goods are his, and
A cannot retake them. The right of stoppage in transitu admits
when A sells goods to B, and delivers them to the railroad company
for transportation to B, that that is legal delivery to B, but it still
gives A the right to seize the goods again at any time until they
get actually into B's hands or custody.
The way in which the legal principle often—in fact, almost al-
ways—arises' will be seen from a reference to a recent case that was
brought to me for an opinion. I have summarized the facts as
follows:
B & Co. are wholesale dealers doing business in Philadelphia.
A is a retail dealer doing business about ioo miles outside of Phila-
delphia. C, D and E are creditors of A, and the case was brought
to me by them in concert. A purchased about $800 worth of mer-
chandise of B & Co. and same was shipped over the Pennsylvania
Railroad. It was bought on ordinary commercial terms and was
therefore not paid for when the case reached its crisis. While the
goods were on the road it developed that A was going to fail. He
called a meeting of his creditors and presented a statement of as-
sets and liabilities, including among the assets the $800 worth of
goods bought from B & Co. The latter at once exercised the right
of stoppage in transitu and served notice on the railroad not to de-
liver the goods, but to return them. The question involved was,
Whose goods were they? If^title passed to A when the goods were
delivered to the railroad and B & Co. no longer had any right over
them, then they were properly a part of A's assets, and B & Co.
could simply recover their pro rata share. But if B & Co. had the
right of stoppage in transitu, in spite of the fact that title had passed
for ordinary purposes upon delivery to the railroad, then B & Co.
could seize the goods and they were not a part of A's assets.
The conclusion was reached without hesitation that B & Co. had
acted upon their undoubted right. That title did pass to A upon
delivery to the railroad, but in spite of that B & Co. could seize the
goods while en route.
The doctrine rests on the very fair principle that when the seller
is unpaid, and is likely to remain so, he has a better right to the
goods than the insolvent buyer. In other words, the seller's goods
should not go to pay the buyer's debts.
Before a seller can seize goods in this way three facts must
be present in the case:
First—The goods must be unpaid for.
Second—They must be en route to the buyer.
Third—The buyers must be insolvent.
Let me discuss these briefly in their order.
The requirement that the goods must be unpaid for explains
itself. This does not mean, however, that they are considered paid
for if notes should have been taken. There are a number of cases
on record to the effect that even if a seller has taken notes from the
buyer for the full amount of his claim, and discounted them, he can
still stop the goods in transit, and he doesn't need to first offer to
give the notes back.
The second requirement doesn't mean that the goods must nec-
essarily be on board the train or boat, moving toward their destina-
tion. They are considered en route any time after they have been
delivered to the railroad, or any time after they have been delivered
to a forwarding agent, or to a packer or a warehouseman with in-
structions to forward.
The goods can be stopped any time between the minute they
are given to the railroad and the time when they reach their des-
tination. Confusion often arises over what their destination is. The
destination is the place where both seller and buyer intended the
goods to end their journey. They can be seized even then if they
remain in the custody of the railroad, but if they are delivered im-
mediately to the buyer, or to any one representing him in any way,
all right of stoppage is gone.
A very important factor is the third—that the buyer must be
insolvent in order to allow the seller to stop the goods. Insolvency
doesn't mean that he should have committed any public act of in-
solvency, such as going into bankruptcy or making an assignment,
but simply that he should have shown inability to pay his debts in
the ordinary course of business. The insolvency can arise after
sale and before the arrival of the goods at their destination, or it
can have arisen before the sale, but then it must have been unknown
to the seller when he sold.
Inasmuch as the right of stoppage only arises in case of the
buyer's actual insolvency and will lead to suit for damages if
exercised against a buyer who turns out to be solvent, the question
of insolvency becomes exceedingly important. There are cases
which hold that a seller is justified in assuming that the buyer is in-
solvent if he has stopped paying his debts. The buyer's mere failure
to pay for these particular goods, however, or the fact that an at-
tachment has been issued against him, is not considered sufficient
evidence of insolvency, and even the fact that he has absconded is
not, unless he has converted his property into money or made away
with it.
If there is clear evidence of insolvency, such as making an as-
signment or filing a petition in bankruptcy, the seller can stop the
goods no matter what has been done. His right is good even
though the buyer's creditors attach these very goods or seize them
under execution.
As I have said, the exercise of the right to stop the goods will
prove a boomerang against the seller if the buyer turns out to be
solvent, for in that case the buyer cannot only compel the seller to
deliver, but he can recover damages for the failure to deliver. The
buyer can also sue the railroad for non-delivery, and if compelled
to pay damages the railroad can recover them in a suit of its own
against the seller.
The way to stop the goods is merely to give notice to the rail-
road not to deliver. The notice can be in any form whatever if its
provisions are clear.
There are two ways in which the seller's right to stop the
goods is completely destroyed—by transfer of the bill of lading
and by resale of the goods before shipment. To explain: A buys
goods of B ; they are delivered by B to the railroad for shipment;
the railroad issues a bill of lading, which gets to A before the goods
do. A at once transfers the bill of lading to C, thereby passing
title to the goods. B cannot then stop the goods in transit if the
transfer was bona fide.
The second method is akin to the first. A buys the goods of
B, and before they are shipped resells them to C. B then delivers
them to the railroad for shipment to C. If A becomes insolvent
while the goods are en route, B has no right of stoppage, because
the title to the goods has passed out of his debtor,—Copyright, De-
cember, 1911, by Elton J. Buckley.