NEGOTIABLE DOCUMENTS OF TITLE Q: What is a negotiable document of title (NDT)?

A document used in the ordinary course of business in the sale or transfer of goods as proof of possession or control of the goods, or authorizing or purporting to authorize the possessor to transfer or receive either by endorsement or delivery, goods represented by such document. Q: What are the features and functions of NDTs? 1. They serve as a contract 2. They serve as receipt of goods 3. They operate as transferable documents of title to the goods they describe Q: How are NDTs different from negotiable instruments?
NEGOTIABLE INSTRUMENTS NIL Code of Commerce Lex Mercatoria (The Law Merchant) Transfer of Credit or Money Holder may be a HDC By Negotiation By Assignment An ORDER instrument may be converted to a bearer instrument Once a bearer instrument, always a bearer instrument All parties (i.e.: drawers, makers, endorsers) to a negotiable instrument are bound by their respective warranties NEGOTIABLE DOCUMENTS OF TITLE NCC (Arts.1507-1520) Warehouse Receipts Law (WRL); Trust Receipts Law (TRL) Transfer of Goods Holder is not a holder in due course, but a holder for value By Negotiation By Assignment Universal Convertibility a NDT may be converted from a bearer document to an order document and back to a bearer document again

Re: GOVERNING LAWS

Re: PURPOSE AND FUNCTION Re: POSSIBILITY OF DUE COURSE HOLDING Re: MODE OF TRANSFER Re: CONVERTIBILITY THROUGH NEGOTIATION

Re: WARRANTIES

only the TRANSFEROR of a NDT makes warranties in favor of the transferee Endorsers are not liable for failure on the part of the bailee to deliver the goods

Q: What determines the negotiability? Words of negotiability (art.1507, NCC; Sec.5, WRL) Q: What is the effect of stamping the words non-negotiable on a NDT? There is no effect, if the document contains words of negotiability, it remains negotiable despite the stamping on it of the words non-negotiable or others of like import Q: How is a NDT negotiated?

BEARER DOCUMENT By delivery (Art.1508, NCC) By endorsement (a) in blank; or (b) to bearer; or

ORDER DOCUMENT

*POSSESSION is controlling - the warehousemans obligation follows the possessor

(c) to a specified person If the document is endorsed to a specified person, he may again negotiate the document in blank, to bearer or to another specified person (Art.1509, NCC)

Q: Does the transfer of a NDT result in the transfer of title to the goods? Yes, because transfer of the document controls the transfer of goods. Negotiation of a document has the effect of manual delivery so as to constitute the transferee the owner of the goods. The direct obligation of the bailee issuing the document to hold possession of the goods is owed to the transferee from the moment of negotiation (Art.1513, NCC) Q: Suppose the document was not negotiated but merely transferred to the holder, what are the effects? The person to whom it has been transferred and not negotiated acquires as against the transferee the title to the goods, subject to the terms of any agreement with the transferor (i.e.: person in possession becomes an assignee of the goods), and the transferee may convert the plain transfer to negotiation by compelling the transferor to complete the negotiation process (Art.1515; secs.42,43, WRL) Q: what is the effect if there was in fact an intent to negotiate the document but possession of the same is retained by the transferor? The interest of the prior transferee may be defeated if the document is subsequently transferred to a purchaser in good faith without notice. The subsequent negotiation of the document under any sale or other disposition to any person receiving the same in good faith and for value and without notice of the previous sale, mortgage or pledge, shall have the SAME EFFECT as if the first purchaser had EXPRESSLY AUTHORIZED the subsequent negotiation (sec.48, WRL) *No, Art.1544 of the NCC on double sales does NOT apply to the second sale of a negotiable document like a warehouse receipt. The law (WRL) practically negates the will of the first purchaser and assumes that buyer 1 willingly permitted sale number 2. *Read this together with the right of the purchaser to compel the transferor to complete the negotiation this is why. Q: What are the rights of a person to whom a NDT was duly negotiated? 1. He acquires such title to the goods as the person negotiating the document to him had or had ability to convey 2. The direct obligation of the bailee issuing the document to hold possession of the goods for him as if such bailee had contracted directly with him (Art.1513, NCC; Art.41, WRL) *Think: the goods follow the document of title, BUT notice that NO ADDITIONAL RIGHTS are conferred over the goods to the transferee. *Here lies the crucial distinction between NDTs and NIs. Under the NIL, a holder in due course may acquire a better right than his transferor (i.e.: he gets a clean title to the instrument); whereas the transferee of a NDT acquires merely what the transferor had or could give (owing to the fact that NDTs are found under the law on Sales, the maxim applies: nemo dat quod non habet. One cannot sell what he does not have if the person who deposited the goods with the bailee who issued the document is not legally entitled to the goods,

no such title to them will be acquired by the transferee of the document of title EVEN IF he is a holder for value) Q: Suppose the goods were sought to be repossessed by an unpaid seller. May he run after the purchaser of the warehouse receipt? No, no sellers lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom the receipt has been negotiated, nor shall the warehouseman be obliged to deliver or be justified in delivering the goods to an unpaid seller UNLESS the receipt is first surrendered for cancellation (sec.49, WRL) Q: What is the significance of the unpaid seller presenting to the warehouseman the receipt for cancellation? Why cant the warehouseman deliver the goods prior to the surrender of such a receipt b y the unpaid seller? The surrender for cancellation of the receipt by the unpaid seller means that the unpaid seller has validly reacquired the receipt from the holder for value Q: May the warehouseman validly refuse to deliver the goods to a person claiming them? Yes (secs.31, 49, WRL; art.1519, NCC) *Flag this as another key distinction with negotiable instruments under the NIL, the parties liable may NOT validly refuse to pay a holder in due course (except, of course, when they can raise real defenses against the HDC) Q: Who may negotiate a NDT? 1. The owner 2. A person to whom the possession or custody of the document has been duly entrusted by the owner (art.1512, NCC; sec.40, WRL) *Theres a massive conflict in THIS particular area of the Civil Code negotiation of NDTs, owing to these provisions:
ART.1512 A negotiable document of title 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, if, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by delivery ART.1518 The validity of the negotiation of a negotiable document of title is not impaired by the fact that the negotiation was a breach of duty on the part of the person making the negotiation or by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, conversion, if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor in good faith, without notice of the breach of duty or loss, theft, fraud, accident, mistake, duress or conversion. ART.1513 A person to whom a negotiable document of title has been duly negotiated acquires thereby: (1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith and for value; and (2) The direct obligation of the bailee issuing the document to hold possession of the goods

for him according to the terms of the document as fully as if such bailee had contracted directly with him.

*CONSTRUING THE 1512-1518-1513 CONFLICT: 1. If STOLEN goods were DEPOSITED by a person (i.e.: a thief who obviously has no title nor authority over the goods), the NDT that results from that does NOT carry with it any title to the goods (1513), nemo dat quod non habet. The lawful owner of the goods has a better right over a purchaser for value, because the thief stole the goods before they were even covered by a NDT. The purchaser, therefore, acquired nothing because the thief had no authority or legal representation to deposit the goods to begin with. If, on the other hand, the goods were VALIDLY deposited with the bailee (i.e.: by the lawful owner or his duly authorized representative), and THEN the NDT was stolen and negotiated to an innocent purchaser for value and in good faith, the innocent purchaser has a BETTER RIGHT over the lawful owner of the goods (1518), because the fact of loss, theft, fraud, etc. does not operated to invalidate the negotiation to such an innocent purchaser for value and in good faith (1518)

2.

Q: Do the endorsers of a NDT make any warranties? No, endorsers are not liable for the failure of the bailee to deliver the goods. Only the transferor of the document makes any warranties in favor of the transferee Q: What are the warranties of a transferor of a NDT? 1. That the document is genuine 2. That he has a legal right to negotiate or transfer it 3. That he has knowledge of no fact which would impair the validity or worth of the document; and 4. That he has a right to transfer the title to the goods and 5. That 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 goods represented thereby (Art.1516, NCC; Sec.44, WRL) Q: when is a document of title (particularly a warehouse receipt) deemed non-negotiable? When it states that the goods received will be delivered to the depositor or to any other specified person (Sec.4, WRL) Q: How may a non-negotiable document of title be transferred? By assignment. A transferee of a non-negotiable receipt merely steps into the shoes of the transferor, his right may be defeated by other persons who by law are given superior rights. The transferee gains no additional rights over the goods by virtue of the transfer (sec.4, WRL; art.1515, NCC) The transferee, however, has a right to compel the transferor to complete the negotiation by endorsement (art.1514, NCC; sec.42, WRL) Q: What are the obligations of the bailee? 1. To possess the goods for the persons entitled to them;

2. 3.

To deliver the goods upon presentment of the document; To cancel the document upon presentment

Q: What is the legal effect if the bailee failed to cancel the document after presentment? He shall be liable for failure to deliver the goods to anyone who purchases the same for value and in good faith Q: What is the primary liability of the bailee? Failure to deliver the goods without a valid reason makes the bailee liable for conversion Q: Is a warehouseman justified in delivering the goods because the claimant alleged that the document was lost or destroyed? No, loss or destruction does not authorize the warehouseman to deliver the goods. He cannot determine for himself the fact of loss, only a court of competent jurisdiction may do so (Aquino, Banking Law and Negotiable Instruments Law, vol. I, 2009) Q: If goods were released because of a court order, is the warehouseman free from all liability? No, the warehouseman is still liable to a person to whom the negotiable receipt has been or shall be negotiated for value without notice of the proceedings or of the delivery of the goods (sec.14, WRL) The warehousemans remedy is to enforce the bond required by the court or to run after the person who obtained the release of the goods Q: May the warehouseman refuse to deliver the goods on account of an adverse claim over them? Generally, no. No title to or right to the possession of the goods on the part of the warehouseman shall excuse him from liability for refusing to deliver the goods according to the terms of the receipt (sec.16, WRL) EXCEPTIONS: (1) The warehousemans title or right is derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage; (2) The right is based on the warehousemans lien. Q: Under the WRL, what defenses may the warehouseman raise for non-delivery of the goods? 1. Loss of destruction of the goods without his fault 2. Failure to satisfy bailees lien (sec.8) 3. Failure to surrender the NDT(sec.8) 4. Lack of willingness by the person claiming the goods to sign acknowledgement of receipt (sec.8) 5. Receipt by the bailee of a request by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make delivery (sec.10) 6. The bailee has information that the delivery about to be made was to one not lawfully entitled to the possession of the goods 7. Delivery to a claimant with a better right 8. Attachment or levy of the goods by a creditor where the document is surrendered or its negotiation is enjoined and the document is impounded (sec.25) 9. The document of title is attached by a creditor (sec.26) Q: What are the charges included in a warehousemans lien? 1. All lawful charges for storage and preservation of the goods

2. 3.

All lawful claims for money advanced, interest, insurance, transportation, labor, weighing, coopering and other charges and expenses in relation to the goods; All reasonable charges and expenses for notice and advertisements of the sale, and for the sale of the goods where default had been made in satisfying the warehousemans lien

Q: When is a warehousemans lien deemed lost? 1. When he surrenders the possession of the goods 2. When he refuses to deliver the goods when demand is made with which he is bound to comply under the WRL