DOCUMENTS OF TITLE

Arts. 1507 – 1520;

• 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)
• 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)
• 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)
• 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)
• 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)
• 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)
• 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)
• 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 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)
• 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 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)
• 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)
• 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)
• 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)
DOCUMENTS OF TITLE
Lecture
• Documents of title = includes any bill of lading, dock warrant,
“quedan,” 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 indorsement 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.
• Purpose of documents of title:
• Receipts of goods they represent.
• Evidence of transfer of title and possession of the goods they represent
• Evidence of the contract between the parties

• Most common forms:

• Bill of lading – contract and receipt for the transport of goods and their delivery.
• Warehouse receipt – issued by a warehouseman representing the goods containing
the warehouseman’s undertaking to hold the goods represented and deliver said
goods.
• Dock warrant – issued by dock owners to an importer of goods warehoused on the
dock
2 kinds of documents of title
• Negotiable document of title
• Bearer instrument
• Order instrument
• Specified person or order
• Order of a specific person
• Non-negotiable document of title
• Goods represented by the document are deliverable to a specific person

• Negotiability = transferability
• But note that non-negotiable documents of title can also be transferred, but
not by negotiation, but by assignment. In this case, the transferee will have no
additional right. (Art. 1511)
When is a document of title considered
negotiable?
• Art. 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.

• It is negotiable when it states that the goods referred therein will be

delivered:
• To the bearer of the document of title
• To the order of a specified person in the document of title (OR specific person
or his order)
So what?
• If the document of title is a negotiable document of title, then the
transferee acquires a better right, as against a transferee of a non-
negotiable document of title.
What are the two kinds of negotiable DoT?
• Bearer instrument
• Deliverable to the bearer
• Indorsed in blank
• Indorsed to the bearer

• Order instrument
• Deliverable to the order of a specified person
• Indorsed instrument to the order of a specified person

• NOTE: even if the DoT states that it is not negotiable, its negotiability is not
affected. If it is considered a negotiable DoT under Sales Law, then it is
considered as a negotiable DoT. (Art. 1510)
How to negotiate? (Art. 1508-1509)
• Bearer instrument = delivery of the DoT
• note: A DoT which is previously an order instrument may be converted to a
bearer instrument and be negotiated by delivery.

• Order instrument = indorsement by the person named and delivery of

the DoT
• note: A DoT which is previously a bearer instrument may be converted to an
order instrument and can now be only negotiated by indorsement and
delivery. (unless of course it is converted again to a bearer instrument)
Compel to indorse
• Note: if the DoT is an order instrument, an indorsement is required
for a valid negotiation. Art. 1515 provides that the transferee has a
right to compel the indorsement if it is required. But note that the
date of the negotiation will be the date when the indorsement was
actually made.
Who may negotiate a DoT?
• The Owner
• 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.
• BUT note:
• 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.
Arts. 1513 and 1514
NEGOTIATED (ART. 1513) ASSIGNED (ART. 1514)
The transferee acquires title to the goods The transferee acquires title to the goods only as against the
transferor
The bailee now holds the goods in favor of the transferee The transferee must first inform the bailee of the transfer to
acquire the obligation of the bailee to hold the goods in favor
of the transferee

Prior to such notice, the right of the transferee may be

defeated by:
1. the levy of an attachment of execution upon the goods
by a creditor of the transferor, or
2. 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.

The non-negotiable DoT does not represent the possession

of the goods. Delivery of a non-negotiable DoT does not
equate to delivery of the goods.
• As a rule, negotiation of the DoT transfers title to the goods to the
transferee. Except:
1. The bailee never received the goods
• The “transferee” can enforce a claim as against the guilty party. Ex: the bailee issued the DoT
fraudulently, then the “transferee” can file an action against the bailee.
2. The depositor did not have title to the goods
• Unless the owner of the goods is prevented by estoppel to question the lack of title of the
depositor. (Art. 1505)
3. The goods were destroyed before the negotiation of the DoT
• Unless the buyer agrees to bear the risk of past loss.
4. Delivery by bailee to a person who has a right to retain them prior to the
negotiation of the DoT
• This is because the goods are already delivered properly. The DoT no longer represents the
goods because the goods are no longer in the possession of the bailee. The DoT is now
considered spent.
• If a non-negotiable DoT is assigned or transferred, The transferee must first
inform the bailee of the transfer to acquire the obligation of the bailee to
hold the goods in favor of the transferee.

• Prior to such notice, the right of the transferee may be defeated by:
1. the levy of an attachment of execution upon the goods by a creditor of the
transferor, or
2. 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.
• Note that the rule is not the same in case the DoT is a negotiable DoT.

• 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.
Warranties
• 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)
• If any of the warranties is violated, then the indorser or the person
negotiating the instrument will be liable.
• 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)

• Note that this rule is only applicable to order instruments or bearer

instruments that are indorsed.

• The warranties of an indorser does not cover the actions or failures of

the bailee, thus the indorser will not be liable.
• 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)