Question—When lumber has been sold and shipped, and the seller afterwards directs the carrier not to deliver it to the buyer but to return it to him, is the carrier under any obligation to return it, or must he go ahead and deliver it to the buyer, or may he exercise his own will in matter? What are the legal rights of all parties in such a case?

Reply: If one who has sold lumber on credit learns, after it has been delivered to the carrier, that the buyer is insolvent it is his right to demand that the lumber be not delivered to the buyer, but be returned to him. This is known as the right of stoppage in transit, and it is founded upon the theory that one who buys on credit is bound by an implied contract to keep his credit good until the date of payment arrives. In order that the seller may be entitled to exercise this right the buyer must be actually insolvent, that is, unable to meet his just obligations as they fall due; the lumber must be still in the hands of the carrier, and not yet delivered into the actual or constructive possession of the buyer. If the lumber is represented by a bill of lading making it deliverable to the buyer or his order that must be still under the buyer’s control; if he has transferred it to a third person, who has taken it for value and in good faith, the seller’s right of stoppage is gone. If a seller who has a right to stop the lumber attempts to exercise the right by directing the carrier not to deliver it the carrier is bound to obey the direction. The carrier, however, acts at his peril in any case. If he obeys the instruction and refuses to deliver the lumber to the buyer, and the buyer is solvent, he may bring an action of trover against the carrier immediately. On the other hand, if the carrier disobeys the instruction, and delivers up the lumber, he makes himself liable to the seller, at least to the extent of the buyer’s indebtedness for the lumber, if it is a case in which the seller is justified in exercising his right of stoppage in transit. Because of these difficulties of his situation, the carrier is entitled to a reasonable time in which to investigate the financial condition of the buyer; but if he finally delivers the lumber to the buyer in any case in which the seller had a right to countermand the order for their delivery, and had done so, the carrier must answer for it.

Opinion No. 27.