Commercial papers with limited negotiability

Commercial Negotiable Non Used Used for Ownership

papers Negotiable for Credit
Trading transactions
Bill of
lading
Dock
Warrant
Warehouse
Receipts
Quedan

Stock
Certificate
Letter of
credit
Postal
Money
Order
Treasury
warrant
Trust
Receipt
Certificate
of Deposit
 Documents of Title
They are sometimes called or termed as negotiable documents for possessing
quasi-negotiability characteristics.

A document of title is a document used in the ordinary course of business in the sale or
transfer of goods as proof of possession/control of the goods or authorizing/purporting
to authorize the holder of the document to transfer the goods represented by the
document or receive them by either by declivity or indorsement. A document of title is
negotiable if it states that the goods indicated on it will be delivered to the bearer or
the order of the person named in the document. It's non-negotiable if deliverable to a
specific person.

Negotiating a negotiable document of title may be done by the indorsement of the

person to whose order the goods are deliverable by the document's terms. The
indorsement may be in blank, to bearer or a specified person. If it's indorsed to a
specific person, he can negotiate it further also in blank, to bearer or a specific person.
This is true even if the document is marked "non-negotiable."

Functions:

1.) A contract
2.) Evidence of receipt of goods
3.) Represents the goods/control over the goods

Documents of title are not negotiable as it does not conform to Sec. 1 of the
NIL. Document of titles does not conform with the requirement "sum certain in
money" Because the goods are considered as medium of exchange within their industry
therefore it is only limited within the industry they operate in.

Specific law that governs the following:

1. Bill of Lading (Civil code)
2. Dock Warrant(Civil code)
3. Quedan (Warehouse receipts law )
4. Warehouse Receipts (Warehouse receipts law)
5. Stock Certificate (Corporation code of the Philippines)
 Documentary Evidences of Ownership/Commercial
Papers used for Trading
Stock Certificate
A stock certificate is a legal document that certifies ownership of a specific number of
shares or stock in a corporation

A stock certificate has important legal significance; generally speaking, it can be

endorsed and transferred from one person to another.
What makes an stock certificate considered as a quasi negotiable
instruments?

Quasi negotiable means parang negotiable but it is not.

Certificates of stock as quasi-negotiable instruments of stock are regarded as quasi-

negotiable instruments, since they are intended for transfer, and to some extent the
transferee gets a better title than his transferor had.

It is as if it is negotiable is because of the presence of transfer of ownership of the

stock. When stocks are transferred, consequently the ownership of stocks evidenced
in certificates of stocks is as well transferred, same as how the credit is transferred
in cases of negotiable instruments.

Stock certificates seems to be negotiable because it can be transferred from one

stock owner to another. Its transferability is sometimes equated to its negotiability.

Negotiable or non-negotiable?

Although stock certificate is parang negotiable, in general it is not. A stock certificate is

not considered to be a negotiable instrument as it does not conform with the Sec.1 of
Negotiable instruments law. It doesn’t contain unconditional promise or order to
pay sum certain in money. As an additional, According to sec.7. An instrument is
payable on demand in which no time for payment is expressed. Where an instrument is
issued, accepted, or indorsed when overdue, it is as regards the person so issuing,
accepting or endorsing it, payable on demand.
Meaning to say, yes, stock certificate may be transferred by indorsement, but the fact
that the holder takes it without prejudice to such rights, makes it non-negotiable.

How can it be transferred?

Although it is considered as non negotiable instruments, it can be transferred. Whoever

holds it is considered the owner of the stocks, as a general rule.
Even if it not be transferred through negotiation, it can be transferred through by
indorsement , coupled with delivery
Warehouse Receipts

A warehouse receipt is a document that provides proof of ownership of commodities

(e.g., bars of copper) that are stored in a warehouse, vault, or depository for
safekeeping.
Warehouse receipts may be negotiable or non-negotiable.
When is it not negotiable?
A warehouse receipt is a non-negotiable instrument if it permits delivery only to a
named entity.
When is it negotiable?
It is considered as negotiable when the receipt stated, that the goods received will be
delivered to the bearer.
Although warehouse receipts are considered as quasi negotiable (parang negotiable)
generally, it is not negotiable because it does not conform with the sec. 1 of the
Negotiable Instruments Law. It is not payable to order or bearer and not conform with
the requirement "sum certain in money
Quedan (Sugar Warehouse receipts)
The Quedan is the warehouse receipt that functions in the sugar industry. it represents
physical sugar stored in a mill, the Quedan can change owners several times through
trading before the physical stocks are withdrawn. Under the Warehouse Receipt Law, a
mill assumes sole responsibility for the protection of the sugar stocks represented by
the piece of paper known as the Quedan.
Its function is refers to a warehouse receipt issued by a sugar mill refinery to the owner
as stated therein, attesting to the fact that the volume and class of sugar is kept at the
said sugar mill refinery, and with the commitment that it will be delivered to the holder
of said document by the sugar mill’s refinery’s warehouseman upon demand. Quedan is
issued in the name of the proprietor or operator of the sugar mill refinery, for its mill
share, and to the sugar planter, as owner of the sugarcane.

Is it negotiable or non-negotiable?
It is negotiable if itstated that the goods received will be delivered to the bearer.

A non-negotiable quedan is one in which it is stated that the goods received will be
delivered to the depositor or to any specified person.

Although quedan are considered as quasi negotiable (parang negotiable) generally, it is

not negotiable because it does not conform with the sec. 1 of the Negotiable
Instruments Law. It is not payable to order or bearer and not conform with the
requirement "sum certain in money
Dock warrant

A dock warrant is an instrument issued by a ware housekeeper, licensed by the state

to traders who deposit goods with them. A dock warrant certifies that the holder is
entitled to goods imported and warehoused in the docks. It transfers the absolute right
to the goods described in it.
It can passed through endorsement and delivery and transfers the absolute right to the
goods described in it.
But like other document of title, it can be non-negotiable if the goods covered are
deliverable to specified person.
Functions:
1.) A contract
2.) Evidence of receipt of goods
3.) Represents the goods/control over the goods

A dock warrant is similar to Quedan , it is an evidence of ownership of stock in a

warehouse. The only difference is that "quedan" is used in sugar industry and "dock
warrant" represents goods carried by docks. It is also kind of the same with the
warehouse receipt since like the warehouse receipt, certifies that the holder is entitled
to goods imported and warehoused.

Although dock warrants are considered as quasi negotiable (parang negotiable)

generally, it is not negotiable because it does not conform with the sec. 1 of the
Negotiable Instruments Law. It is not payable to order or bearer and not conform with
the requirement "sum certain in money
Bill of lading
A Bill of Lading document is an extremely important document involved in the shipping
and logistics industry. A Bill of Lading is a document that is issued by the Carrier of
goods to the “Shipper” of the goods. A bill of Lading must be transferable, and serves
three main functions: Bills of lading are one of three crucial documents used in
international trade to ensure that exporters receive payment and importers receive the
merchandise.
Functions of Bill of Lading
Evidence of Contract of Carriage
The bill of lading is the evidence of the contract of carriage entered into between the
“Carrier” and the “Shipper or Cargo Owner” in order to carry out the transportation of
the cargo (not to be confused with the sales contract between the buyer and the
seller)..
Receipt of Goods
A Bill of lading is issued by the carrier or their agent to the shipper or their agent as
proof of receipt of the cargo. The issuance of the B/L is proof that the carrier has
received the goods from the shipper or their agent in apparent good order and
condition, as handed over by the shipper..
Document of Title to the goods
This role of the bill of lading decides who is the owner of the title to the goods based on
which cargo is released.

When is it considered as quasi negotiable?

According to English law, bills of lading are not considered to be negotiable documents
in their full legal sense, even though they possess some of the legal
characteristics of negotiable documents, such as transferability by
endorsement. In fact, what is meant is that they are transferable. The bill of lading
does not have the essential characteristic of a negotiable document: the transferee of
the bill cannot acquire a better title than that of a predecessor.

The bill of lading issued to the shipper does not enable him to any title to a
transferee. The shipper can be an agent of the seller or the buyer.
The shipper is the party delivering the goods to the carrier, also called the consignor.
The consignor is usually the seller but can also be any one of a variety of agents,
brokers, forwarders or others. The bill of lading is addressed only to the consignee
When can it be considered as negotiable?
A negotiable bill of lading can be transferred by one of its cosignees to a third-party,
when the cosignee signs, or endorses the document and delivers it to the new cosignee
(the third party).
To transfer the negotiable bill of lading, the consignor (the person or business shipping
the goods) must stamp and sign the bill and the carrier must deliver it. A negotiable bill
of lading must be written to the order of the cosignee, and it must be clean bill of
lading.

Negotiable or non negotiable?

It is non negotiable even if it can be endorsed, the bill of lading didn't satisfy letter (d)
as to the sec.1 of the law on negotiable instruments "must be payable to order or
bearer". The parties in a bill of lading are the shipper, buyer, and seller. And the
contract is only binding to them.

Commercial papers used to facilitate credit

transactions
Commercial papers are used by merchants either to facilitate trade or credis
transactions.

Treasury warrant

Treasury warrant is an order in the form of a check. It is through treasury warrants that
government disbursements are paid. With the treasury warrant, a drawer authorizes
someone to pay a particular sum of money to another. In financial transactions,
a warrant is a written order from a first person that instructs a second person to pay a
specified recipient a specific amount of money or goods at a specific time.

A warrant differs from a check in that the warrant is not drawn on a checking account,
is not necessarily payable on demand, and may not be negotiable.

If it is paid out of government treasury, it is to be paid out of a particular

fund

Is it negotiable or non negotiable?

The warrant may or may not be negotiable and may authorize payment to the warrant
holder on demand or after a maturity date. Governments may choose to pay wages and
other accounts payable by issuing warrants instead of checks.

A treasury warrant is non-negotiable, which contradicts section 1 of Negotiable

Instrument Law that states “negotiable instrument must contain an unconditional
promise or order to pay a sum certain in money” because it is payable from a
specific appropriation (from a particular fund). Hence, the order is conditional
because it will be dependent upon the sufficiency and availability of the fund.

Postal Money Order

(PMO) is a certificate issued by a post office that allows the stated payee to
receive cash-on-demand. It can be purchased at a post office and is payable at
another post office to the named recipient. PMO functions much like a check ,
however check includes bank account information which can be a problem. Money
orders are helpful when the receiver doesn't want to run the risk of being paid with a
check that won't be honored because of insufficient funds because money order is paid
with cash up front, and the instrument is guaranteed by the issuer.

Postal money orders are not negotiable instruments because in establishing and
operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit. It
is a non negotiable instrument because it is subject to postal laws and regulations
which is in contrast with the definition of a negotiable instrument (it must be
unqualified and unconditional). Some restrictions imposed upon money orders by postal
laws and regulations are inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than one indorsement;
payment of money order may be withheld under a variety of circumstances. (Philippine
education co. Vs. Soriano, G.R. No. L-22405, June 30,1971, citing US jurisprudence)
1. Postal money order does not have free transmissibility
2. Cannot accumulate secondary contracts
3. It is payable to only one person- a certain individual and is not payable to order or
bearer.

Letters of Credit

A letter of credit is an engagement by a bank made at the request of a customer that

the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit. It is a document that guarantees the payment for
goods and services when the seller provides acceptable documentation. It is issued by a
third party, usually by banks or other financial institutions.

A letter of credit has generally three participants:

a) Beneficiary (Seller) - the person or institution who will be paid. He ships the goods to
the buyer and delivers the documents of title and draft to the issuing bank in order to
receive payment.

b) Applicant (Buyer) - procures the letter of credit and obliges himself to reimburse the
issuing bank upon receipt of the documents of title.

c) Issuing bank - issues the letter of credit and undertakes to pay the seller upon
receipt of the draft and proper documents, and to surrender the documents to the
buyer upon reimbursement.

Other parties
a) Confirming bank
b) Notifying/Advising bank
c) Paying bank
d) Negotiating bank

It is particularly useful where the buyer and seller may not know each other personally
and are separated by distance, differing laws in each country, and different trading
customs. It is a primary method in international trade to mitigate the risk a seller of
goods takes when providing those goods to a buyer. It does this by ensuring that the
seller is paid for presenting the documents which are specified in the contract for sale
between the buyer and the seller.

Negotiability
The letters of credit is generally not negotiable. Although, it may be considered as a
negotiable instrument as it obligates the issuing bank to pay the money not only to the
beneficiary but also to any other bank nominated by him. In this case, the bank
obligates itself to pay the seller or to the order of the seller (NIL section 1(d).
However, it can only be considered as negotiable when it includes an unconditional
promise of payment on demand or at a specified time (NIL section 1(b) and (c).