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VII.

Documents of Title
A. Concept and function
Document 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 Functions
a.) 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 importers
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 latters 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
warehouseman
Classes 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 transferor
ii. The right to notify the bailee of the transfer thereof
iii. 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 made
a. 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
are
i. 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 negotiation
b.) 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 Ttitle
a.)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.

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