Explain the following article:

1510(Own explanation and example)

• Negotiable documents of title marked non-negotiable

1511(Own explanation and example)

• Transfer of non-negotiable documents

1512(Own explanation and example)

• Persons who may negotiate a documents

1513(Own explanation and example)

• Right of person to whom document has been negotiated

1514(Own explanation and example)

• Rights of person to whom document has been transferred
• Rights of third person to goods where document has been transferred

1515(Own explanation and example)

• Transfer of order document without indorsement
• Subsequent indorsement of negotiable document transferred

1516(Own explanation and example)

• Warranties on sale of documents

1517(Own explanation and example)

• Indorser not a guarantor

Art. 1510. Negotiable documents of title marked non-negotiable

First, we must understand what "negotiability" of a document means. Negotiability is where you get to transfer the document from one person to another, and the person who accepts it becomes the holder of such document.

For example, Fabian issued a negotiable document of title which says "deliver bearer" and transferred it to you. You now become the holder of the document and the goods subject of the document.

Verily, a non-negotiable instrument is one that cannot be transferred to any person or entity, other than the person specified in the document. It is non-negotiable if, by the terms of which, the goods are deliverable to a specific person.

Example: A document of title has words "deliver to Isha". This cannot be negotiated to a person or entity other than Isha, because the words "deliver to Isha" made it non-negotiable. Meaning, cannot be transferred.

The document likewise cannot be negotiated if thereupon it stamped the words "non-negotiable" or "not negotiable". However, if it is deliverable to "order" or "bearer", meaning not to a specific person or entity, the words "non-negotiable" and the like have no effect on the negotiability of the document. Meaning, it can still be negotiated.

Take note, it is the bailee/warehouseman who issues the negotiable document of title to the owner of the goods. Thus, it is the bailee's right and obligation to hold and deliver the goods that are subject to negotiation, not the goods themselves. Because the title over the goods can be transferred by endorsement. But not the bailee's right to hold and deliver the goods.

Art. 1511. Transfer of non-negotiable documents

It is now understood that a  non-negotiable document cannot be negotiated or transferred by the holder (the one who holds the document). However, it can be assigned or transferred by delivery to a purchaser or donee.

For example, Fabian is the warehouseman and Isha delivered the goods to the warehouse for storage. Fabian issued a warehouse receipt where he undertook to deliver the goods to Isha. Meaning, the goods were deliverable to Isha. Thus, the document is non-negotiable. However, Fabian didn't write "non-negotiable" but signed the document. Then Isha endorsed the document to Vilpa, the buyer of the goods. Is it now a negotiable instrument? No. Neither the endorsement nor the absence of words of negotiability converted the document into a negotiable document. It still remains to be non-negotiable. 

So Vilpa is holding a non-negotiable document. But has she acquired any right over the goods? Yes. She acquires better right on the goods over Isha. Meaning, she has better ownership right over the goods than Isha. But she did not acquire the direct obligation of the bailee/warehouseman Fabian to hold the goods. Meaning, Fabain is still holding the goods in his warehouse for Isha, and Vilpa did not acquire the right to have the goods held for herself. In sum, only Isha's right to own the goods was transferred to Vilpa, but not Fabian's right to hold the goods. 

In order for Vilpa to acquire the obligation of Fabian, meaning to have the goods held/stored in Vilpa's name, she needs to notify Fabian of the transfer of the document from Isha to her. It is only then that Vilpa will acquire Fabian's obligation to hold the goods. Meaning, after notification, it is only when Fabian will hold the goods in his warehouse for Vilpa, and not anymore for Isha.

Art. 1512. Persons who may negotiate a documents

Article 1512 enumerates who may negotiate a negotiable document:

1) the owner of the document, and

2) the person to whom the possession or custody of the document has been entrusted by the owner (meaning, pinagkatiwalaan nung dokumento) if the bailee promises to deliver the goods to such person or the document is in a form that can be negotiated by delivery.

Verily, a mere finder of the document is not included among those persons who may negotiate a negotiable document.

Art. 1513. Right of person to whom the document has been negotiated

1. Such title to the goods which the person negotiating had in the goods or which he can convey to a purchaser in good faith for value;
   • Example, I am the owner of a document of title over a sack of rice stored in Fabian's warehouse. You bought the sack of rice so I negotiated to you the document of title over the sack of rice. My title over the goods is now transferred to you.
2. Such title to the goods which the person to whose order the goods were to be delivered had or which he can convey to a purchaser in good faith for value; and
   • Example, the document of title says "deliver to Isha" but since you bought it, Isha's title is now transferred to you by reason of negotiation of the document.
3. the direct obligation of the bailee issuing the document to hold the possession of the goods for him as fully as if the bailee had contracted directly with him.
   • Example, since you are now the holder of the document of title and you now have the title over the goods, you also acquire the obligation of the bailee to hold/store/possess the goods for Isha. Meaning the bailee now holds the goods for you, since the document was already negotiated to you.

Art. 1514

Take note, negotiation is used to refer to negotiable documents, meaning can be transferred. While transfer refers to non-negotiable documents.

1. Rights of person to whom the document has been transferred
   • This pertains to the title to the goods against the transferor, subject to the terms of any agreement with the transferor. Meaning, Vilpa has better rights over the goods than Isha.
   • Right to notify the bailee of the transfer to him of the document of title, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document.
2. Rights of third person to goods where document has been transferred
   • For negotiable document, generally, the goods covered by a negotiable document cannot be attached or levied. Here, the bailee cannot be compelled to surrender the goods to the creditor/3rd person. Except when the document is surrendered to the bailee, or the negotiation of the document is enjoined by the court.
     • Attachment is when the creditor asks the courts to enjoin the negotiation of the document or stop the delivery of the goods to the owner (who is the debtor).
   • For non-negotiable document, since the transfer requires notification to the bailee, before notification, the bailee is not bound to the transferee. Meaning the transferee's title and his right to acquire the obligation of the bailee may be defeated by the levy or an attachment or execution upon the goods by a creditor or 3rd persons.

Art. 1515

1. Transfer of order document without indorsement
   • By its nature, a negotiable document cannot be negotiated by mere delivery. it has to be coupled with endorsement.
   • Here, if the document was transferred to another for value (for a sum), the transferee acquires the right to compel the transferor to endorse the document.
2. Subsequent indorsement of negotiable document transferred
   • Again, negotiation becomes complete only when endorsed. Its effect is not retroactive.
   • Thus, if at the time of endorsement, the transferee knew already of the defect in the title of the transferor, he cannot be considered a buyer in good faith.

Art. 1516. Warranties on sale of documents

The transferor must guarantee that:

1. the document is genuine. Meaning the warehouse receipt or document of title is not forged or faked. Otherwise, the transferor Isha is liable to Vilpa.
2. he has a legal right to negotiate or transfer it. Example, he stole it or he only found it.
3. he has knowledge of no fact which would impair the validity or worth of the document. Meaning he has no knowledge nor did he hide any information that would make the document worthless.
4. the goods are merchantable or fit for a particular purpose for which they were purchased. Meaning it can be sold and used for what it's meant for, not damaged or defective.

Art. 1517. Indorser not a guarantor

Note that the warranty is limited to the 4 warranties stated above. He does not guarantee the fulfillment of the obligation of the bailee or the previous endorsers.

Example. Isha negotiated a warehouse receipt issued by Fabian. The goods covered were lost due to the fault of Fabian. Pursuant to Article 1517, Isha is not liable for Fabian's failure to deliver the goods to Vilpa.

Lastly, take note that a document of title is not a negotiable instrument defined under the Negotiable Instrument Law. Thus, if a document of title is indorsed, it is merely a transfer of the document. It does not guarantee the obligations of the bailee or previous endorser.