Notes on Negotiable Instruments.

What is a negotiable document of title?

A negotiable document of title is a document, used in the ordinary course of
business, in the sale or transfer of goods as proof of possession, or control over the
goods, or authorizing or purporting to authorize the possessor, to transfer, or receive
either by endorsement or delivery, goods that are represented by the document.

What are the features and functions of a negotiable document of title?

A negotiable document of title has the following features and functions:
1. They serve as contracts;
2. They serve as receipts of goods;
3. They operate as transferable documents of title, to the goods they
describe.

What are the distinctions of the negotiable instrument, and the negotiable document
of title?
The negotiable instrument is governed by Negotiable Instruments Law and the
Code of Commerce. The negotiable document of title is governed by Articles 1507-1520
of the New Civil Code, the Warehouse Receipts Law and the Trust Receipts Law.
The negotiable instrument is used for the transfer of credit or money. The
negotiable document of title is used for the transfer of goods.
In a negotiable instrument, the holder may become a holder in due course. In
negotiable document of title, the holder is not a holder in due course, but a holder for
value.
A negotiable instrument may be transferred by negotiation or assignment. A
negotiable document of title may be transferred by negotiation or assignment.
In negotiable instruments, an order instrument may be converted to a bearer
instrument. A bearer instrument may be converted to an order instrument, and back to

bearer instrument. In negotiable documents of title, there is universal convertibility. An

order document may become a bearer, and then order again. There is no end of cycle.
In negotiable instruments, all parties are bound by their specific warranties. In
negotiable documents of title, only the transferor makes warranties, in favor of the
transferee. Endorsers are not liable for failure of the bailee to deliver the goods.

In negotiable documents of title, what determines negotiability?

According to Article 1507, the negotiability of the negotiable document of title, is
determined by the words of negotiability. The insertion of words like, non-negotiable
has no effect, if the words contain words of negotiability.

How is a negotiable document of title negotiated?

A bearer negotiable document of title, is negotiated by mere delivery. Possession
of the negotiable document of title is controlling. The obligations of the warehouseman
follows the possessor of the negotiable document of title.
An order negotiable document of title is negotiated by, endorsement:
1. In blank;
2. To bearer;
3. To a specified person.
If the document is endorsed to a specified person, he may again negotiated the
document in blank, to bearer or to another specified person. Endorsement is controlling.
The warehousemans obligation follows the endorsement of the order negotiable
document of title.

Does the transfer of the negotiable document of title, result in the transfer of the title
of the goods?
Yes, the transfer of the negotiable document of title, results in the transfer of
goods. The transfer of the document, controls the transfer of the goods. The negotiation
of a negotiable document of title, has the effect of manual delivery, so as to constitute
the transferee, the owner of the goods. The direct obligation of the bailee, issuing the

negotiable document of title, to hold possession of the goods, is owed to the transferee,
from the moment of negotiation.

Suppose the document was not negotiated but merely transferred to the holder, what
are the effects?
The person to whom it has been transferred, and not negotiated, acquires against
the transferee, the title of the goods, subject to the terms of any agreement with the
transferor. The transferee may convert the plain transfer, to negotiation, by compelling
the transferor to complete the negotiation process.

What is the effect if there was, in fact, an intent to negotiate the document, but
possession of the same is retained by the transferor?
The interest of the prior transferee, may be defeated if the document is
subsequently transferred to a purchaser in good faith, without notice. The subsequent
negotiation of the document, under any sale or other disposition, to any person
receiving the same, in good faith and for value, and without notice of the previous sale,
mortgage, or pledge, shall have the same effect as if the first purchaser had expressly
authorized the subsequent negotiation.
Article 1544 of the New Civil Code, or the rules on double sale cannot apply. The
law negates will of the first purchaser, and assumed that 1 willingly permitted sale
number 2.

What are the rights of a person, to whom a negotiable document of title, was duly
negotiated?
The rights of the holder of a negotiable document of title are:
1. He acquires such title to the goods, as the person negotiating the
document to him, had or had the ability to convey.
2. The direct obligation of the bailee issuing the document, to hold
possession of the goods for him, as if such bailee had contracted
directly with him.

Remember that the goods follow the negotiable document of title. However, no
additional rights are conferred over the goods to the transferee. In a negotiable
instrument, the holder acquires a better right from the source. That is another material
difference.

May an unpaid seller, go after the purchaser of the negotiable document of title?
No, the unpaid seller cannot pursue the purchaser of a negotiable document of
title. There is no sellers lien, or right of stoppage in transitu, that can defeat the rights of
the purchaser for value, in good faith, to whom the receipt has been negotiated.
The warehouseman is also not obliged to deliver to an unpaid seller, until and
unless the receipt is first surrendered for cancellation. The presentation of the receipt for
cancellation is important, because it is proof that the unpaid seller has validly
reacquired the receipt from the holder for value.
The general rule is that the warehouseman is not excused from liability for
refusing to deliver the goods according to the terms of the receipt. The exceptions are:
1. The warehousemans title or right, is derived directly or indirectly from
a transfer made by the depositor, at the time of or subsequent to the
deposit for storage;
2. The right is based on the warehousemans lien.
The defenses that the warehouseman may raise, for non-delivery of the goods
are:
1.
2.
3.
4.

Loss or destruction of the goods, without his fault;

Failure to satisfy bailees lien;
Failure to surrender the negotiable document of title;
Unwillingness of the person claiming the goods, to sign the
acknowledgement of receipt of the goods;
5. The receipt by the bailee, of a request by or on behalf of the person
lawfully entitled to a right of property, or possession of the goods, not
to make delivery;
6. The bailee has information, that the delivery about to be made was to
one not lawfully entitled, to the possession of the goods;
7. Delivery to a claimant with a better right;

8. Attachment or levy of the goods, by a creditor where the document is

surrendered, or its negotiation is enjoined, and the document is
impounded;
9. The negotiable document of title is attached by the creditor.

What are the charges included in a warehousemans lien?

The charges included in a warehousemans lien are:
1. All lawful charges for storage and preservation of the goods;
2. All lawful claims for money advanced, interest, insurance,
transportation, labor, weighing, coopering, and other charges and
expenses in relation to the goods;
3. All reasonable charges and expenses, for notice and advertisement of
the sale, and for the sale of the goods, caused by defaulting on the
warehousemans lien.

When is a warehousemans lien deemed lost?

A warehousemans lien is deemed lost when:
1. When he surrenders the possession of the goods;
2. When he refuses to deliver the goods, when demand is made with
which he is bound to comply, under the Warehouse Receipts Law.