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Documents of title and its Warranties

Art. 1636. In the preceding articles in this Title governing the sale of goods, unless
the context or subject matter otherwise requires:
(1) "Document of title to goods" includes any bill of lading, dock warrant,
"quedan,"(used for sugar) or warehouse receipt or order for the delivery of goods, or
any other document 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 or receive, either
by endorsement or by delivery, goods represented by such document.
"Goods" includes all chattels personal but not things in action or money of legal
tender in the Philippines. The term includes growing fruits or crops.
"Order" relating to documents of title means an order by endorsement on the
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed upon at the time a contract of
sale is made.
An antecedent or pre-existing claim, whether for money or not, constitutes "value"
where goods or documents of title are taken either in satisfaction thereof or as
security therefor.
(2) A person is insolvent within the meaning of this Title who either has ceased to
pay his debts in the ordinary course of business or cannot pay his debts as they
become due, whether insolvency proceedings have been commenced or not.
(3) Goods are in a "deliverable state" within the meaning of this Title when they are
in such a state that the buyer would, under the contract, be bound to take delivery
of them.
Now, what is the purpose of these documents of title?
In 1636, its clear, it can be used as evidence of control as well as possession of the
goods described in the said title.
And second; It is a medium of transferring possession and control of goods
described without having to undertake actual delivery.
For instance, when goods are kept in a warehouse, with that we are talking about a
warehouse being tended to by a warehouse man. Then the warehouse man has an
obligation to release the goods in your name. Even though it was not you who
deposited it there. Because what was issued was a negotiable warehouse receipt, it
can be transferred from one person to another by mere delivery.
What we have here in the Civil Code is the Negotiable Documents of title; what do
you do with negotiable documents of title? A negotiable instrument may be a bearer

document or an order document. When you say it is a bearer document it can be

negotiated by mere delivery.
So for example we have goods stored in a warehouse. If it is negotiable it will be
indicated therein, if it is deliverable to bearer, meaning whoever is in possession of
the warehouse receipt. So for example you want to sell the goods in that
warehouse, I can give the receipt to the buyer and he may rightfully claim what is
contained in the warehouse. The warehouseman cannot refuse to release the goods
because what he has in his possession is a negotiable document of title.
Another type of negotiable document is an order document; order documents are
similar to those who taken Negotiable instruments law, you have to deliver it to the
subsequent parties. This takes place upon endorsement and delivery.
It will be considered non-negotiable if it does not state that the goods referred to in
the document of title will be delivered to the bearer or the order of any person. Now
do take note that the validity of the negotiation that the validity is not impaired
even if the negotiation was undertaken under a breach of duty unless the owner of
the same was deprived thereof by loss, theft, accident or fraud.
If the holder is in good faith with notice of the defects and irregularities. For instance
a warehouse receipt is stolen from me and delivered to a person that does not know
it is stolen then he is a buyer in good faith of the goods covered in that receipt.
If I did not inform the warehouseman that the goods were stolen and this 3rd person
claims it. That would still be a valid release, because again the 3rd person and the
warehouseman are in good faith because the warehouseman has the obligation to
release the goods covered by the receipt as long as he has no knowledge of the
Now take note, what would be the relevance. Negotiation would give you a better
right than assignment with regard to contract of goods. Because an assignee merely
steps into the shoes of the assignor, he could not acquire any better right, now also
under the civil code we have the warranties on negotiable documents of title, if the
document is genuine, the holder has the right to negotiate or transfer it as long as
he has no knowledge of no fact which would impair the validity or worth of the
document and that he has the right to transfer title to goods.
So just take not of these salient provisions of documents of title. We have already
discussed that we have article 1523.
Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for the purpose of transmission to the buyer is deemed
to be a delivery of the goods to the buyer, except in the case provided for in Article
1503, first, second and third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such contract with
the carrier on behalf of the buyer as may be reasonable, having regard to the
nature of the goods and the other circumstances of the case. If the seller omit so to

do, and the goods are lost or damaged in course of transit, the buyer may decline to
treat the delivery to the carrier as a delivery to himself, or may hold the seller
responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under
circumstances in which the seller knows or ought to know that it is usual to insure,
the seller must give such notice to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do so, the goods shall be deemed to be
at his risk during such transit. (n)