A document of title is a document issued by a carrier or warehouseman reciting the receipt of goods for carriage or keeping and the terms and conditions thereof. It sets forth the contract between the bailee and bailor; and also is a symbol of the goods themselves whereby they may be transferred.
A document of title is a document issued by a bailee setting forth the fact and terms of the bailment. The term is not used to describe a document which in itself effects or evidences transfer of title. Thus a bill of sale while in one sense a document of title, inasmuch as it is a document whereby the transfer of title is witnessed, is not a document of title as that phrase is used in commercial law. The idea in the phrase document of title is that one has possession of goods to which another is entitled, and to show such possession issues an instrument which instrument thereupon stands to the owner in the place of the goods and is the evidence of his ownership thereof.26
Documents of title in use in commercial life are bills of lading and warehouse receipts.
A document of title is a contract between the parties, and is a symbol of the goods themselves whereby they may be transferred. It also in its form is very important in determining whether title has passed between buyer and seller.27
26. "All documents of title have this in common, that they are receipts of a bailee or orders upon a bailee." Williston on Sales, SEC. 405.
Documents of title were assignable at common law.
By the common law (meaning thereby the non-statutory law and ignoring the distinction between equity and law), bills of lading were assignable; they were not negotiable. A transferee took such right to the goods as his transferor had, and could protect that right by notice to the bailee. Today documents of title are both assignable and negotiable as drawn, as hereafter shown.
There have been recently enacted: (1) The Uniform Bills of Lading Act; (2) The Uniform Warehouse Receipt Act; (3) The Federal Bills of Lading Act; (4) The Uniform Sales Act, containing provisions as to documents of title.
The need of an up-to-date and authentic statement of the law concerning documents of title as felt in the commercial practices of the day has been met by state and federal enactments, as follows:
(1) The Uniform Bills of Lading Act.28
(2) The Uniform Warehouse Receipt Act.29
27. See Subject Transfer of Title, post.
28. In force in Alaska, California, Connecticut, Idaho, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, North Carolina, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin.
29. In force in Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Idaho, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland, Massa(3) The Federal Bills of Lading Act.30
(4) The Sales Act, which recognizes and incorporates the provisions of the other acts so far as they affect sales and pledges.31
Under the legislation above noted bills of lading and warehouse receipts are divided into those that are non-negotiable and those that are negotiable, according to their form.
By the legislation noted in the previous section, bills of lading and warehouse receipts are of two forms, those that are negotiable, or "order" bills of lading and warehouse receipts, and those that are "straight" bills of lading and warehouse receipts. The order document is to the consignor or consignee's order;32 the straight document is direct to consignor or consignee. The order document is the more suitable one to use when a sale of goods is contemplated while they are in transit or in the warehouse, and especially where the document is to be used for purposes of security.
If a document of title is negotiable it passes with greater freedom from hand to hand chiefly by reason of the fact that the transferee thereof does not need chusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Porto Rico, Rhode Island, and South Dakota.
to notify the bailee (railroad or warehouseman) of his acquisition of title, while a transferee of an assignable document of title acquires no rights against the bailee except by giving notice. Other distinctions noted below.
30. United States Statutes at Large, Vol. 39, p. 538; see Uniform Bill of Lading, set out in the back of this book.
31. See Section 31, post.
32. Uniform Sales Act, SEC. 27.
The law of negotiable paper (bills of exchange, promissory notes and checks), became incorporated into the common law by judicial decision recognizing the customs of merchants. Such instruments, being drawn with certain requisites of form, were characterized by freedom of transferability that the non-negotiable promise or order or contract of any form did not have, and out of that central characteristic arose others, and the negotiable instrument thus became an instrument of credit and a means of payment that we can hardly imagine the commercial world doing without. Such instruments are called negotiable instruments, or negotiable paper or commercial paper; and are governed by the Uniform Negotiable Instruments Act. The law as to documents of title (bills of lading and warehouse receipts) has borrowed this feature of negotiability from the law of Negotiable Instruments; but it must always be remembered that the two classes of instruments, negotiable instruments on the one hand, and documents of title on the other, must in certain respects ever be different and be governed as they are today, by entirely different bodies of law. The negotiable instrument is a promise to pay, or an order to pay, money, generally (not any particular money), while a document of title calls for the delivery by a bailee of goods - certain, particular goods. It is well to keep this thought in mind that a bill of exchange or warehouse receipt is a document of title, not a negotiable instrument, and that there is a separate body of law governing each.
Documents of title are negotiable or non-negotiable, as explained in the previous section. But both kinds are transferable. If the negotiable bill of lading is transferred, no notice of its transfer need be given the carrier, as the carrier must assume that being negotiable, it may therefore have been negotiated and must call for its production before surrendering the goods, while the transferee of a negotiable bill of lading must in order to protect his acquisition give notice to the carrier. The carrier must take up the negotiable bill of lading and will be liable to any one who may purchase it in case of its failure so to do; while it would not be so liable in case of a non-negotiable bill.
A negotiable document is transferable by delivery when it runs to bearer, and by indorsement when it runs to the order of a certain person. If indorsed in blank it then becomes payable to bearer.
If the document runs to bearer it may pass from hand to hand without indorsement; if to a person's order, then it must be indorsed by him to transfer title. He may indorse it in blank, that is, by simply writing his name; or specially, that is, to a certain person over his signature. If he indorses in blank, this permits its further negotiation by mere delivery; if he indorses it specially it can only be negotiated by indorsement.
When a negotiable or non-negotiable document of title is transferred in due form, it accomplishes the transfer of title to the goods. It is a symbolical delivery and title thereupon vests in the transferee.
A document of title is a symbol of the goods. When it is transferred in proper form, the title passes. The goods then become the goods of the transferee. We have seen that notice to the carrier, warehouseman or other bailee must be given in order to protect the transferee's rights and protect him against the future acts of the transferor. But in negotiable documents this is unnecessary, and in non-negotiable documents, it is unnecessary as between transferror and transferee.
The transferror warrants to the transferee the genuineness of the bill, his title thereto, and may also by the transfer warrant the goods, as shown below.
A transferror of a bill of lading or warehouse receipt warrants:
(a) That the bill or receipt is genuine;
(b) That he has a legal right to transfer it;
(c) That he has knowledge of no fact that would impair the validity or worth of the document;
(d) That he has a right to transfer the title to the goods, that the goods represented by the document are merchantable or fit for a particular purpose wherever those warranties would be made if the sale were directly to the goods themselves without use of such document. But the transferror does not guarantee that the carrier or warehouseman or previous indorsers will perform their obligations. In that event the holder must sue the carrier or warehouseman. In this respect a transfer of a document of title is notably different from an indorsement of negotiable paper which (unless qualified) renders the indorser liable if the party primarily liable fails to make payment.
Documents of title are very widely used as security to obtain credit from banks and other lenders.
In case of credit being extended with a document of title as security it has been pointed out that the negotiable or order form is the more convenient and safer one to use. If offered by the consignor it should be to consignor's order; if by consignee, should be to his order or endorsed to him or in blank.
The negotiation of a negotiable document of title gives the transferee as against the issuer such rights as such transferee would have had against the issuer had the contract been directly with him according to the terms of the document.
The holder of a negotiable document becomes by his acquisition and without notice to the carrier or warehouseman a party to the document as though he had originally contracted with the issuer.
The carrier (or warehouseman) cannot interpose the defense that he has not received the goods where the bill of lading is issued by an official or agent having power to issue bills of lading. Neither can the carrier defend that the contents of the goods are not as described, unless it is stated that "contents unknown," or "said to contain" or "shippers load and count," etc. If the goods are visible, such phrases cannot be used to qualify the liability, unless the shipper did his own loading, and even there such provisions do not qualify if the goods were actually known to the carrier by use of its own scales, etc.33
33. See Article in 16 Mich. L. R. 402.