Goods, Documents of Title to Goods

Section 2 (4) of the sale of Goods Act defines a Document of title to goods as “A document used in the ordinary course of business as a proof of possession or control of goods authorizing or purporting to authorize either by endorsement or delivery, the possessor of the documents to transfer or to receive the goods thereby represented.”

Essential requirements of a Document of Title to Goods:

• The mere possession of the document creates a right by law or trade or usage, to possess the goods represented by the Document.
• Goods represented by documents are transferrable by endorsement and/or delivery of the document. The transferee can take the delivery of the goods in his own right.
• Bill of Lading, Dock-warrant, Warehouse-keeper certificate, Railway receipt and delivery orders, etc. can be said as the documents of title to goods.

Risk in Advance against Document of Title to goods:

1. Possibility of Fraud Dishonesty:

• It may happen that the documents may be forged one or the quantity written within the documents may be fraudulently altered.
• The shipping and railway authorities too do not testify such documents; they only testify the number of bags or packages received for the purpose of transportation.

2. Not Negotiable Document:

• These documents are not negotiable instruments like cheque, bill of exchange and promissory note.
• Here banker cannot have better title, if the documents are forged or stolen one.

3. Forgery of Endorsement:

• “Forgery conveys no title”, therefore, in case of forged endorsement banker cannot assert his right of ownership.

4. Right of stoppage in transit is with the unpaid seller:

• If the buyer becomes insolvent before the goods are delivered to him, the unpaid seller can stop the goods in transit.

Precautions to be taken by the banker at the time of Advancing against the documents of title to goods:

1. Integrity of the customer: In order to avoid risk of fraud the banker should take into account the character, capacity and capital of the customer. Banker should only accept the documents as security from honest, reliable and trustworthy customers.
2. Certificate of Packing: Banker should always ask for the certificate to ascertain the content of the packages or bags.
3. Supervise the Packing: the banker should depute a representative to supervise the packing.
4. No Onerous Condition: If the document of the title to goods contains any onerous remark, it make it unfit to be a security. The banker should avoid to advance against such documents.
5. Endorsement in Blank: The banker should get the document endorsed in blank, or the liability to pat the freights will be on the part of banker and not of the customers.
6. Insurance against Risk: The goods must be insured against the risks like Fire and theft for its full value. The banker should ask for the insurance policy before granting advances against such documents.
7. Special care in realizing the goods: It is advisable on the part of the banker, not to part with the security before repayment of advances.
8. Other Precautions:

• Proper examination to ensure the originality and recent origin of the document.
• Insurer must be a reliable person or firm for the goods in the document.
• To obtain a general stamped letter for the purpose of Hypothecation.

Documents of Title to Goods

1. Bill of Lading:

• Meaning: “A document issued by the shipping company acknowledging the receipt of goods to be transported to a specified port. It also contains the conditions for such transportation of goods and full description of the goods, i.e., their markings and contents as declared by the consignor.”
• Contents/Items in Bill of Lading:

1. Names of Consignor and consignee
2. Names of the ports of departure and destination
3. Name of Vessel
4. Date of departure and arrival
5. List of goods being transferred
6. Number of packages and kind of packaging
7. Marks and numbers on packages.
8. Weight of the goods
9. Freight and amount
10. Description of goods

2. Warehouse keeper’s certificate (wharfinger’s Certificate or warehouse Certificate:

“Warehouse receipt means an acknowledgement in writing or in electronic form issued by the warehouse keeper or by his duly authorized representative.” • Warehouse means a store where goods are accepted temporarily for safe keeping. On the receipt of the goods a warehouse keeper gives a certificate known as warehouse keeper’s certificate.

• Under the Bombay Warehouse Act 1959, the warehouse receipt shall be transferable by endorsement.

3. Dock- warrant:

“A Dock- Warrant is the document issued by a dock company in exchange of goods received.”

Key points of Dock-warrant;

1. The document possesses title to goods and the person named in can obtain the possession of the goods stored at the dock.
2. It is not a receipt, but it is a warranty only.
3. It can be transferred by endorsement and delivery.

Precautions in the case of Dock-Warrant:

1. Before advancing against the dock-warrant, the banker must be satisfied with the integrity and the financial condition of the customer.
2. It is to be verified that the dock company is having the authority of lien on goods or not.
3. To prevent the unauthorized dealing of the goods, the banker should get himself registered as owner of the goods.

4. Railway Receipt:

It is a document issued by the Railway authority acknowledging the receipt of the goods for the purpose of transportation to a space specified therein.

It cannot be transferred by endorsement and delivery.

Precautions to be taken by the banker in case of Railway Receipt:

1. Documentary bill of well–established parties only should be accepted/discounted.
2. To examine the authenticity of the railway receipt, banker should examine it carefully.
3. The railway receipt should be endorsed in favour of bank. (bank should be made consignee by endorsement)
4. There should not be any alteration in the receipt other than the competent authority.
5. The goods must be covered by the insurance against fire, theft and damage in transit.
6. The banker should accept only ‘Freight Paid’ railway receipt, as banker would ot be paying any freight due.
7. To ensure the validity and the availability of the goods the date of the receipt should be checked carefully.
8. Advance should not be granted in case if the receipt contains the information regarding the damaged goods or defective packing.
9. Delivery Order:

• Delivery order is an order issued by the owner of the goods to the warehouse keeper to deliver the goods to a particular person.
• According to the Uniform Commercial Code, “A delivery order refers to an order given by an owner of a goods to a person in possession of the warehouse keeper directing that person to deliver the goods to a person named in the order.”
• it is the document issued by the transporter or the carrier of the goods directly if they have their own office at the destination. The holder of the delivery order must either take delivery of the goods or obtain a receipt or warrant from warehouse keeper or get his title of goods registered in the books of the warehouse keeper.