Sales (Documents of Title)

1. Ana delivered a bill house lading where it states "Deliver to the Order of Ana" to JC. Was there a valid negotiation of the bill of lading? Explain Fully.
2. Based on your answer in no. 1 , what are the rights of JC? Explain Fully.

(pls justify it with article)

Material ( source) :

DOCUMENTS OF TITLE

A document of title is a written 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 indorsement or by delivery, goods represented by such document. (Art. 1636, New Civil Code)

Examples of Documents of Title

Bill of Lading - defines the rights and liabilities of parties in contracts of carriage (Shipping, freight, or passenger vehicles); it is a written document that proves the receipt of goods for the transport and delivery to the one named therein. (De Leon, 2016)

Quedan - a warehouse receipt which specifically deals with sugar deposits. (De Leon, 2016)

Warehouse Receipts - it is written instrument issued by the owner of a warehouse to the owner of goods deposited in the therein and the former's obligation to hold and deliver the goods to the order or holder of the instrument. (Ibid.)

Dock Warrant - a written instrument issued by a dock owner to the owner of goods stored in a warehouse on the dock proving the latter's right to the goods. (Ibid.)

Negotiable Documents of Title

A Document of Title can either be negotiable or non-negotiable.

Negotiation is the transfer of a negotiable instrument from one person to another making the transferee as the holder of the instrument. (Sec. 30, Negotiable Instruments Law) Negotiation must be done in good faith and for value in order to be valid.

1. Negotiable Document of Title - a document of title which states that the goods it represents will be delivered to the order of any person named or the bearer of the instrument. (Art. 1507, New Civil Code)

Kinds of Negotiable Document of Title:

a. Bearer document of title - a document that states that the goods shall be delivered to bearer, or to one where the last indorsement is blank. (Art. 1508, New Civil Code)

b. Order document of title - a document that states the goods shall be delivered to the order of the person specifically named therein. (1509, New Civil Code)

2. Non-negotiable Document of Title - a document of title that does not state that the goods it represents will be delivered to the order of any person named or the bearer of the instrument, or simply stated one that does not conform with Article 1507 of the New Civil Code. (Art. 1511, New Civil Code) A document of title where the words "not negotiable" or "non-negotiable" appears can still be negotiated, but such negotiation will not affect the agreements and stipulations between the parties in the original contract for which the document of title was issued. (Art. 1510, New Civil Code)

How is a Document of Title negotiated?

If the document of title is a Bearer document, then it is negotiated by its delivery. (Art. 1508, New Civil Code) For example A is the owner of the warehouse where B stored his goods and issued a warehouse receipt to where it says "Deliver to Bearer". Then B can further negotiate the warehouse receipt to C just by delivering to C the warehouse receipt, and C can do the same to further parties.

If the document is an Order document, then it is negotiated by delivery and indorsement. (Art. 1509, New Civil Code) Indorsement is for the purpose of transferring the document or for the better security of the obligation as represented by the document. (Maulini v. Serrano, G.R. No. L-8844, December 16, 1914) Indorsement is made by signing on the document itself or on a separate piece of paper attached to the document. (Sec. 31, Negotiable Instruments Law)

Kinds of Indorsement

a. Blank indorsement - an indorsement where no one is specifically named. (Art. 1509, New Civil Code)

b. Specific indorsement - an indorsement made to a specified person. (Art. 1509, New Civil Code)

If the last indorsement in a document is a specific indorsement, then the document must can only be negotiated by indorsement and delivery. (Art. 1508, par. 3, New Civil Code)

Who can negotiate?

A negotiable document of Title can be negotiated by:

1. The owner of the document; (Art. 1512, New Civil Code)

2. If the document is an order document or one where the last negotiation is specific, any person who has possession of the document and is authorized by the owner of the document to negotiate it further; or (ibid.)

3. Any person who has possession of the document when the document is a bearer instrument. (ibid.)

Effects of Negotiation of a Document of Title

The negotiation of a document of title will have the following effects:

1. The title of ownership of the goods as represented by the document is transferred to the transferee (Art. 1513, Sub. Par. 1, New Civil Code); and

2. The right to obligate the bailee (the bailee is one who keeps the possession of a thing in favor of another) to hold the goods represented by the document according to the original agreement (Art. 1513, Sub. Par. 2, New Civil Code);

Transfer of Document of Title Without Negotiation

If the document is transferred but not negotiated, the transferee will only obtain the same title as the transferor as against him, which may mean ownership or mere possession. (Art. 1514, Par 1, New Civil Code) For Example A is the owner of a warehouse receipt representing 10 tons of grains in D's warehouse. A entrusted the warehouse receipt to B for safekeeping. B then transferred the warehouse receipt to C. C only acquires the same title as B, which is to safekeep the warehouse receipt.

Transfer of Non-negotiable Document of Title

When what is transferred is a non-negotiable document of title the transferee will obtain the same right as the transferor as against him, and the right to notify the bailee who issued the document of title of such transfer. If the bailee is notified the transferee gains the right to obligate the bailee (the bailee is one who keeps the possession of a thing in favor of another) to hold the goods represented by the document according to the original agreement. (Art. 1514, Par. 2, New Civil Code) A subsequent transferee of the non-negotiable document will have a better right over the goods it represents if the same notifies the bailee first. (Art. 1514, Par. 3). The transferee may also lose his rights over the goods if the goods are subject to levy or attachment arising out of any judicial proceeding. (Ibid.)

Incomplete Negotiation of Order Document of Title

When an order document of title is negotiated only by delivery and without indorsement the transferee has the right to compel from the transferor the indorsement thereof in order to complete the negotiation. The negotiation is deemed completed only when the indorsement is made. (Art. 1515, New Civil Code) For Example A, the warehouseman, issued a quedan to B representing 1 ton of sugar, which stated "Deliver to the order of B". B subsequently delivered the quedan to C. At this moment C does not have any right to the goods represented but has the right to compel B to make the necessary indorsement.

Warranties of a Person Who Negotiates a Document of Title

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 it is genuine;

2. That he has a legal right to negotiate or transfer it;

3. That he is unaware of any 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, as would any contract that would involve transfer even without the use of a document of title. (Art. 1516, New Civil Code)

Other Rules on Negotiation of Documents of Title

1. Any breach of obligation made by the bailee will not make any subsequent indorser of the document of title liable thereof. (Art. 1517, New Civil Code)

2. The negotiation of a negotiable document of title to a transferee who has received the same in good faith and for value is valid even if the transferor had negotiated the same in bad faith, provided that the transferee was unaware of any infirmity in the title of the transferor at the time of negotiation. (Art. 1518, New Civil Code) For example, A owns a dock warrant representing 100 lbs. of gold. B stole the dock warrant and negotiated it to C who is a transferor in good faith and for value. C now holds the title to the gold and the right to obligate the bailee to deliver it to him.

3. The document of title must be surrendered to the bailee in order to subject the goods it represents to any judicial proceeding such as levy or garnishment or before the goods it represents could be delivered to the holder of the document of title. (Art. 1519, New Civil Code)

4. A document of title may be subject to levy or garnishment through the legal action of an unpaid creditor of the owner of the document of title. (Art. 1520. New Civil Code)