MODULE 5

ARTICLE 1507. A document of title in which it is stated that the goods referred to therein will be
delivered to the bearer, or to the order of any person named in such document is a negotiable
document of title. (n)

Document title of goods- includes bill of lading, dock warrant, quedan, warehouse receipt or any
document used in the transfer of goods

Goods- includes all chattel personal but not things in action or money of legal tender in the Philippines.

Order- relating to documents of title = an order by indorsement of the documents.

Nature and function of documents or title:

1. Refer to goods and not to money; receipts or a bailee or orders upon a bailee
2. Serves as transfer of title, transfer of possession, contract between parties who are bound by its
terms

3 Most common forms of documents of titles:

1. Bill of lading- It is a contract and a receipt for the transport of goods and delivery to the person
named (to order, or to bearer).

3 persons involved- carrier, shipper, consignee

As a receipt- date and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks, condition, quality, value

As a contract- contracting parties, freight rates and changes, route, destination, stipulates right and
obligations assumed by both parties.

2. Dock warrant- an instrument given by dock owners to an importer of goods warehoused on the dock
as recognition of the importer’s title of the goods.
3. Warehouse receipt- a contract or receipt for goods deposited with a warehouseman containing the
latter’s undertaking to hold and deliver said goods
Quedan- warehouse receipt for sugar received by a warehouseman.

Law governing documents of titles:

1. Civil Code (Arts. 1507, 1520, 1532, 1535, 1479)

2. The Warehouse Receipts Law (Act No. 2137)
3. The Code of Commerce

Classes of documents of titles:

1. Negotiable documents of title- bailee undertakes to deliver the goods to the bearer and those
by the terms of which the bailee undertakes to deliver the goods to the order of a specified
person
2. Non-negotiable documents of title- those by the terms of which the goods covered are
deliverable to a specified person.
 Document of title = analogous to a bill of exchange or promissory note

Negotiable Non- Negotiable

-negotiation applies - can be transferred but not negotiated

-states that goods will be delivered to bearer - goods will be delivered to a specific person

Or order

-negotiated by indorsement or delivery - can be transferred by delivery

-person whom a negotiable instrument has been - person whom negotiable instrument was

Negotiated acquires rights enumerated in Art. 1513 transferred acquires rights in Art. 1514

-protected from attachment or levy of goods - may be defeated by the levee or attachment

Or execution upon the goods by the creditor

Of the transferor.

ARTICLE 1508. A negotiable document of title may be negotiated by delivery:

(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the bearer; or

(2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the order of a specified person, and such person or a subsequent
indorsee of the document has indorsed it in blank or to the bearer.

Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the
same to himself or to any specified person, and in such case the document shall thereafter be
negotiated only by the indorsement of such indorsee. (n)

- A negotiable document of title is negotiable by delivery if the goods are deliverable to the
bearer or when indorsed in blank or to the bearer by the person to whose order the goods are
deliverable or by subsequent indorsee
- Indorsement is in blank when holder merely signs his name at the back of the receipt without
specifying to whom the goods are to be delivered.
- If specially indorsed= it becomes an order document of title and negotiation can only be
effected by the indorsement or indorsee
ARTICLE 1509. A negotiable document of title may be negotiated by the indorsement of the person to
whose order the goods are by the terms of the document deliverable. Such indorsement may be in
blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated
by the indorsement of such person in blank, to bearer or to another specified person. Subsequent
negotiations may be made in like manner. (n)

Negotiation of negotiable document by indorsement

1. If indorsed in blank or to bearer- document becomes negotiable by delivery

2. If indorsed to a specified person- it may be again negotiated by the indorsement of such person
in blank, to bearer, or to another specified person; delivery alone not sufficient

-Party is liable only as guarantor (not indorser) if indorsement is made for identification purposes only

-title will not pass unless there is an intention to pass it if negotiable instrument of title is delivered by
the owner.

ARTICLE 1510. If a document of title which contains an undertaking by a carrier, warehouseman or

other bailee to deliver the goods to bearer, to a specified person or order of a specified person or
which contains words of like import, has placed upon it the words “not negotiable,” “non-negotiable”
or the like, such document may nevertheless be negotiated by the holder and is a negotiable
document of title within the meaning of this Title. But nothing in this Title contained shall be
construed as limiting or defining the effect upon the obligations of the carrier, warehouseman, or
other bailee issuing a document of title or placing thereon the words “not negotiable,” “non-
negotiable,” or the like. (n)

“not negotiable” “non-negotiable” have no effect and continues to be negotiable when placed upon a
document of title in which the goods are to be delivered to “order” or to “bearer”

-when the document of title is to order, the bailee is obliged to take it up before delivering the goods.
ARTICLE 1511. A document of title which is not in such form that it can be negotiated by delivery may
be transferred by the holder by delivery to a purchaser or donee. A non-negotiable document cannot
be negotiated and the indorsement of such a document gives the transferee no additional right. (n)

Negotiation- used with respect to documents negotiable in form

vs. Transfer- non-negotiable instruments may simply be transferred

Rules of transfer apply the following:

1. The transfer of documents originally made out to order but not properly indorsed for
negotiation at the time of the transfer.- the document itself is the symbol of the goods but
under the terms of the document, the new holder does not become the promise of the bailee;
not entitled to enforce bailee’s promise

2. The transfer of straight bills of lading and similar documents in which the bailee’s promise is
merely to a specific person- document not properly the symbol of the goods.

Ex. carrier may deliver goods billed straight without demanding from the consignee the
surrender of the bill of lading.

- Non-negotiable instrument cannot be negotiated but it can be transferred or assigned by

delivery

ARTICLE 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. (n)

-thief or finder not included in the article

-between 2 innocent persons- the loss must fall upon him whose misplaced confidence made the loss
possible.
ARTICLE 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 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. (n)

Rights of the person whom document has been negotiated: person acquires

1. The title of the person negotiating the document over the goods covered by the document
2. The title of the person to whose order by the terms of the document the goods were to be
delivered over such goods
3. The direct obligation of the bailee to hold possession of the goods for him, as if the bailee had
contracted directly with him

Instances where buyer does not acquire title: even if document is genuine

1. Bailee may never have received any goods and may have issued document fraudulently
2. The depositor of the goods may have no title to goods that were deposited
3. The goods deposited may have been destroyed after their receipt by the bailee but prior to the
negotiation of the title.
4. The goods may have been delivered by the bailee to one who has right to retain them prior to
the time of the negotiation of the document.

If no goods received by bailee who issued document of title = purchaser of the document acquires no
property rights

-bailor who have no title of goods cannot deposit or receive a document of title in return

If goods are destroyed after receipt of carrier prior negotiation- person whom the document is
negotiated cannot acquire any goods by his purchase.

-forged document cannot transfer title of goods

ARTICLE 1514. A person to whom a document of title has been transferred, but not negotiated,
acquires thereby, as against the transferor, the title to the goods, subject to the terms of any
agreement with the transferor.

If the document is non-negotiable, such person also acquires the right to notify the bailee who issued
the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to
hold possession of the goods for him according to the terms of the document.

Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document
of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee
may be defeated by the levy of an attachment of execution upon the goods by a creditor of the
transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the
transferor of a subsequent sale of the goods by the transferor. (n)

-Article refers to the rights of a person to whom a negotiable instrument of title but lacks endorsement
has been transferred (par 1) or of transferee of a non-negotiable document (par 2 and 3)

Rights of person to whom document has been transferred:

1. Title to goods as against transferor- person acquires title to the goods

2. Transferee of a non-negotiable document of title also acquires- (a) the right to notify the bailee
of the transfer; and (b) the right to acquire the obligation of the bailee to hold the goods for him

Last par (attachment of goods covered by document transferred)- non-negotiable document of title is
not a symbol of the goods = document does not control possession of goods

-transfer of non-negotiable document of title does not effect the delivery of the goods covered by it.

-if document is negotiable= goods cannot be attached or levied

ARTICLE 1515. Where a negotiable document of title is transferred for value by delivery, and the
indorsement of the transferor is essential for negotiation, the transferee acquires a right against the
transferor to compel him to indorse the document unless a contrary intention appears. The
negotiation shall take effect as of the time when the indorsement is actually made. (n)

-negotiable instrument should be indorsed so that the person to whom it is negotiated should have a
perfect title

Article specifies the rights of a person to whom an order document of title not properly negotiated by
mere delivery has been delivered without indorsement; transfer of order document without
indorsement

1. The rights to the goods as against the transferor

2. The right to compel the transferor to indorse the indorsement

Rule where document subsequently indorsed- negotiation shall take effect as of the time when the
indorsement is actually made not on the time the document was delivered.

ARTICLE 1516. A person who for value negotiates or transfers a document of title by indorsement or
delivery, including one who assigns for value a claim secured by a document of title unless a contrary
intention appears, warrants:

(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 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. (n)

-Article is about the treats of the warranties or liabilities of a person negotiating or transferring a
document.

-liability limited only to violation of the 4 warranties in Art 1516; person negotiating could be held liable
if document is forged

-duty of the indorsee to know all previous indorsements as genuine

ARTICLE 1517. The indorsement of a document of title shall not make the indorser liable for any
failure on the part of the bailee who issued the document or previous indorsers thereof to fulfill their
respective obligations. (n)

-Indorser not a guarantor

Indorsement has a double effect:

1. It is a conveyance of the instrument and a contract of the indorser with the indorsee that on
certain conditions the indorser will pay the instrument if the party primarily liable fails to do so
2. The indorsement of a document of title amounts merely to a conveyance by the indorser, not a
contract of guaranty.
-indorser of a document of title shall not be liable to the holder (ex. bailee fails to deliver goods
because they were lost due to his negligence)

ARTICLE 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, or 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. (n)

-Negotiable document may be negotiated by any person in possession of the same; such possession may
be acquired; thief can acquire good title if he paid value in good faith (contradicts Art. 1512); theft of
document, not goods
ARTICLE 1519. 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 they cannot thereafter, while in possession of such bailee, be
attached by garnishment or otherwise or be levied under an 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. (n)

Under mercantile theory of documents of title, the negotiable documents of title represents the goods
and a person may deal safely with the document on that assumption.

-bailee may not deliver the goods even to the person entitled to receive without surrendering the
negotiable document of title.

-Article 1519 applies to a negotiable document of title

If non-negotiable= transfer does not prevent bailor’s creditors from causing the levy or attachment of
the goods.

If negotiable= the person to whom the document is negotiated acquires title and delivery of the goods

Bailee has direct obligation to hold possession of goods for the original owner:

1. Goods cannot be attached or levied under an execution unless the document will first be
surrendered
2. Bailee cannot be compelled to deliver the possession of the goods until the document is
surrendered to him or impounded by the court.

-Article 1519 not applicable if the person depositing is not the owner of the goods (ex: thief) or one who
has no right to convey the title of the goods

-does not also apply to actions for recovery of goods by the real owner or to cases where attachment is
made before the issuance of the negotiable instrument of title.

ARTICLE 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled
to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such
document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to
property which cannot readily be attached or levied upon by ordinary legal process. (n)

-Article expressly gives the court full power to aid by injunction; goods cannot be readily attached or
levied upon by ordinary legal process
- if an injunction is issued but the negotiable document of title is negotiated to an innocent person, the
transfer is nevertheless effectual.