Jack may have a hard time convincing a court that the warehouse is responsible for payment. Warehouse receipts and bills of lading are considered to be documents of title under the Uniform Commercial Code. The pertinent section reads as follows:
"Document of title" includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass." The most common uses of documents of titles are bills of lading and warehouse receipts. In both instances, the document of title (i.e., bill of lading or the warehouse receipt) is issued to a bailee (someone who holds goods for transport or storage or other purpose) who is either transferring the goods as a common carrier (railroad or trucker) or holding the goods in a public warehouse for storage. When the Uniform Commercial Code was revised, the Code expanded this definition to include new usages of documents of title with the intention that it apply to any document yhat gains commercial recognition and accomplishes the desired results. The reason for this expansion was that it was totally unforeseeable what documents might one day serve the essential purpose now filled primarily by warehouse receipts and bills of lading. Document warrants and document receipts used primarily by shippers were specifically included. A recent case thoroughly analyzed what was known as "holding certificates," which were used to cover leases on platinum or other precious metals. In that instance, the holding certificates were negotiated to the bank for a loan. The bank actually filed UCC financing statements to protect their interest in the precious metal. The court held that these holding certificates were documents of title because they met the definition of the term. The precious metals, the court reasoned, were held in storage under the lease and the certificates were commercially recognized as a device to acquire the precious metal and hold it until such time as it was used. One must remember that title is vested in the holder of the bill of lading whose interest the carrier represents. Basically, the carrier is a special type of bailee for the benefit of the holder of the bill of lading. The carrier has neither actual nor apparent authority to sell the goods it carries. The carrier's sole legitimate interest is its limited right to possess the goods pending presentment of the bill of lading. One additional ingredient of the new definition of documents of title is that the documents (i.e., the bill of lading or warehouse receipt) must purport to be issued to a bailee who is holding property either for storage or transportation. What is most important is that the statute does not say that the party to whom the documents of title are issued must be a bailee. The statute only states that the party to whom the documents of title are issued must "purport" to be a bailee. The purpose of the use of the word "purport" certainly broadens the use of documents of titles. Even where the party to whom the documents of title are issued is not a bailee in the true sense of the word, the fact that he or she is holding the goods for some purpose may be enough to satisfy the word "purporting" to be a bailee. The next question, of course, is what makes a document of title negotiable, so that the Speedy Construction Corp. could negotiate the document of title to the Building Supply Corporation. Section 7-104 of the Uniform Commercial Code states as follows:
- A warehouse receipt, bill of lading or other document of title is negotiable.
a) if by its terms the goods are to be delivered to bearer or to the order of a named person or b) where there is recognized and overseas trade, if it runs to a named person or assigns. - Any other document is non-negotiable. A bill of lading in which it is stated the goods are consigned to a named person is not made negotiable by a provision that goods are to be delivered only against a written order signed by the same or another named person.
A document of title is negotiable if it satisfies this section. It must state "by its terms that the goods are to be delivered to bearer or to the order of a named person." Nevertheless, while some courts do apply a strict interpretation of this particular section of the UCC, others consider a broader interpretation. A document of title may be negotiated if it is apparent from the nature of the instruments that the language employed was intended to be negotiable. In one particular case warehouse receipts were considered negotiable because they were issued in blank and were delivered to the current holder in blank. The court held that the goods were to be delivered to the bearer of the receipt and the receipt met the requirements for negotiability. In the precious metal case, the words "or order" were added to the holding certificate, and the court felt that this was sufficient to indicate that the holding certificate was in fact negotiable. So when Frank issued the warehouse receipt in blank, he may have created a negotiable instrument. Under these circumstances, Frank probably should release the merchandise to the Building Supply Corporation. It would appear that Speedy Construction Company could have taken that warehouse receipt and used it as security for a loan to the bank or sold the lumber to the Building Supply Corporation (assuming that the receipt was negotiable). If Frank's intention was to deal only with Speedy Construction, he should have specifically named Speedy Construction in the receipt and omitted any terminology such as the word "bearer" or "to the order of a named person." Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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