VII. Documents of Title

A. Concept and functionDocument of title of goods- includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for the delivery of goods, or any other documents used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer and receive, either by endorsement or by delivery, goods represented by such document.

2 Functionsa.) Evidence of the possession or control of the goods described therein;b.) The medium of transferring title and possession over the goods described therein, without

having to effect actual delivery thereof.Rationale: Merchants should be allowed to transact with goods and merchandise without having to physically carry them around, and that buyers should be assured that they may deal with the evidence thereof as though they could feel the merchandise themselves.

Common Forms of documents of Title:(1) Dock Warrant – It is an instrument given by dock owners to an importer of goods warehoused

on the dock as a recognition of the importer’s title to the said goods, upon production of the bill of lading.

(2) Bill of Lading- A contract and a receipt for the transport of goods and their delivery to the person named therein, to order, or to bearer. Involves three persons – the carrier, the shipper, and the consignee.

(3) Warehouse Receipt- a contract or receipt for goods deposited with a waregouseman containing the latter’s undertaking to hold and deliver the said goods to a specified person, to order, or to bearer

(4) Quedan – is a warehouse receipt usually for sugar received by a warehousemanClasses of Documents of Title

1.) Negotiable documents of title(NCC 1508-11)a. (1508-1509)Negotiation of negotiable document by delivery- if the goods are

deliverable to the bearer, or when it is indorsed in blank or to the bearer by the person to whose order the goods are deliverable or by a subsequent indorsee.

b. If the document is specially indorsed, it becomes an order document of title.c. A party is liable only as guarantor if his indorsement is for identification purposes only.d. (1510) The words “not negotiable” or” non negotiable” have no effect and the

document continues to be negotiable.e. Under the warehouse receipt law, any provision inserted in a negotiable receipt that it is

non-negotiable is declared void.

f. Transfer of non-negotiable document- it cannot be negotiated; It can only be transferred or assigned by delivery. In such case, the transferee or assignee acquires only the rights stated in Art.1514.(transferee of a document of title)

i. The title to the goods as against the transferorii. The right to notify the bailee of the transfer thereofiii. The right, thereafter, to acquire the obligation of the bailee to hold the goods for him

(the right of the transferee is not absolute and is subject to terms and agreements, he merely steps into the shoes of the transferor.)

2.) How negotiation is madea. May be negotiated (1) by the owner thereof; or (2) by any person to whom the

possession or custody of the document has been entrusted by the owner.(1512)b. Rights of person to whom document has been negotiated acquires(1513)

i. The title of the person negotiating the document, over the goods covered by the document;

ii. The title of the depositor/owner to whose order by the terms of the document the goods were to be delivered, over such goods; and

iii. The direct obligation of the bailee(warehouse or carrier) to hold possession of the goods for him as if the bailee had contracted directly with him.(cannot be attached and levied under an execution unless the document first be surrendered, or its negotiation prohibited by court. reason: for the protection of the bailee since he could be made liable to subsequent purchasers.)(1519)Art.1519 does not apply to depositor not an owner(One who purchases from a thief acquires no right over the goods for the thief has no right to transfer. But the purchaser acquires good title where the owner is estopped from asserting his title)

c. Transfer of order document without indorsement – the rights acquired arei. The right to the goods as against the transferor(1514)

ii. The right to compel the transferor to indorse the indorsement, unless if the intention is merely to transfer(1357)

For purposes of determining purchaser for value in good faith;When subsequently indorsed, the negotiation shall take effect as of the time when the indorsement is actually made, not at the time the document is delivered. (Reason: The negotiation becomes complete only at the time of indorsement.)

3.) Indorser not a guarantor(1517) The indorsement of a document of title amounts merely to a conveyance and not a

contract of guaranty. Unlike in NIL where there are Accumulation of secondary contracts and negotiation.

Indorser shall not be liable to the holder in case the bailee fails to deliver the goods.

4.) Negotiation not impaired by fraud, mistake, etc. (NCC1518)-A negotiable document may be negotiated by any person in possession of the same however such possession was acquired.-Appears in contrary with 1512, regardless. Art1518 speaks of the validity of the negotiation even if:a.) the negotitation was a breach of duty on the part of the person making the negotiationb.) That the owner of the document was deprived of the possession of the same by loss, fraud, theft, conversion, accident, mistake, duress.-As long as he took in in good faith and for value, and without notice of such,Thus, negotiation to a holder in due course is binding except for the real defense of forgery.Reason: protecting the rights and contractual expectations of a buyer in good faith; VELOCITY in commerce so as not to waste time and effort having to assure himself of the validity of the title.

5.) Non-Negotiable Documents of title(1510)(1514)6.) Warranties of a person negotiating or transferring document(1516)

-A person who for value negotaties or transfers a document of title by endorsement or delivery, including one who assigns for value a claim secured by a document of title, unless a contrary intention appears, warrants that:

The document is genuine He has a legal right to negotiate or transfer it. He has no knowledge of any fact which would impair the validity or worth of the

document. He has a right to transfer the title to the goods; and The goods are merchantable or fit for a particular purpose, whenever such warranties

would have been implied if the contract of the parties had been to transfer without a document of title the good represented thereby.

The warranties of one who negotiates a negotiable document of title, and one who assigns a non-negotiable document of title are the same.

7.) Rules on Levy/Garnishment of Goods Covered by Documents of Ttitlea.)When non-negotiable document of title-The assignment or sale by the original owner of the non-negotiable document of title, even when executed in a public instrument, does not transfer possession or title over the goods covered by the document of title, until actual notification is made to the bailee of the transfer or assignment of the goods.-Until notification, actions can be taken by the original owner to defeat the transfer of title.b.)When Negotiable document of title-If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them.-Such goods cannot, while in possession of the bailee, cannot be attached by garnishment or levy under and execution UNLESS the document be first surrendered to the bailee or its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded by the court.