Legal Definitions - document of title

A document of title is a formal written paper that represents ownership or control over specific goods, such as products, materials, or commodities. It authorizes the person legally holding the document to receive, store, and ultimately direct the disposition of those goods. Essentially, possessing this document is treated as possessing the goods themselves, even if the goods are physically held by a third party (often called a "bailee," like a storage facility or carrier).

• Example 1 (Grain Storage): A large agricultural cooperative harvests thousands of bushels of corn. Instead of storing it all on their own property, they deliver it to a commercial grain elevator. The elevator issues a document to the cooperative, detailing the quantity and type of corn stored. This document allows the cooperative to later instruct the elevator to release the corn to a buyer or to another facility, simply by presenting or endorsing the document.

  Explanation: The document serves as proof of the cooperative's right to the corn held by the grain elevator (the bailee), authorizing them to control its eventual release.

• Example 2 (Imported Goods): An electronics company imports a container ship full of microchips from overseas. When the ship arrives at the port, the shipping carrier issues a document to the electronics company. This document confirms that the carrier is holding the container of microchips and authorizes the company to claim them from the port warehouse or direct their onward shipment to a distribution center.

  Explanation: The document represents the microchips held by the shipping carrier, giving the electronics company the power to manage their retrieval and movement.

There are two main types of documents of title:

Negotiable Document of Title

A negotiable document of title is a special type of document where the document itself embodies the goods it covers. To transfer ownership or control of the goods, the document must be transferred to the new owner. Whoever legally holds the negotiable document is considered the owner of the goods, and the goods cannot be released without surrendering the document.

• Example 1 (Commodity Trading): A metals trader buys a large quantity of copper ingots that are stored in a secure, certified warehouse. The warehouse issues a negotiable warehouse receipt to the trader. If the trader later sells the copper to another company, they don't physically move the copper; instead, they endorse and transfer the negotiable warehouse receipt to the buyer. The buyer then presents this receipt to the warehouse to take possession of the copper.

  Explanation: The negotiable warehouse receipt *is* the copper for all practical purposes. Ownership of the copper passes with the transfer of the document, and the warehouse will only release the copper to the person who surrenders the original, properly endorsed receipt.

• Example 2 (International Shipping): A manufacturer in China ships a consignment of furniture to a retailer in the United States using a negotiable bill of lading. The manufacturer sends this bill of lading, along with other payment documents, to their bank. The U.S. retailer must pay the manufacturer's bank to receive the original negotiable bill of lading. Only by presenting this original document to the shipping company at the U.S. port can the retailer claim the furniture.

  Explanation: The negotiable bill of lading acts as the key to the furniture. The shipping company will not release the goods without the surrender of this specific document, ensuring that the manufacturer is paid before the retailer gains control of the shipment.

Nonnegotiable Document of Title

In contrast, a nonnegotiable document of title merely serves as proof that certain goods are being held for a specific person. While it identifies the goods and the party entitled to them, transferring the document itself does not automatically transfer ownership or control of the goods. The original owner can typically still direct the release of the goods, even if someone else holds the nonnegotiable document.

• Example 1 (Personal Storage Unit): A family stores their household goods in a self-storage unit. The storage facility provides them with a nonnegotiable storage receipt that lists the unit number and the family's name. If the family wants to authorize a moving company to pick up their items, they don't need to hand over the original receipt to the moving company. Instead, they can simply inform the storage facility directly, or provide a written authorization, and the facility will release the goods to the authorized party.

  Explanation: The storage receipt is proof of the family's right to the goods, but it doesn't need to be physically transferred to authorize someone else to pick them up. The family retains control and can direct the release independently of the document's physical possession.

• Example 2 (Car Dealership Parts): A car dealership orders a specific engine part from a manufacturer, which is shipped to a local distribution center. The distribution center sends the dealership a nonnegotiable delivery order confirming they have the part. The dealership can then send their own delivery truck to pick up the part, or they can call the distribution center and authorize a third-party courier service to collect it. The physical delivery order doesn't need to be given to the courier; the dealership's instruction to the distribution center is sufficient.

  Explanation: The delivery order confirms the part's presence and the dealership's entitlement, but the dealership maintains direct control over who can pick it up, regardless of who holds the physical document.