This text is a draft.

Comments and suggestions are welcome at

f.stevens@law.eur.nl

1. A historical introduction.

1. Negotiable instruments and documents of title were not invented, but developed over
time, through commercial practice in answer to the needs of (international) trade.

2. Suppose, for example, that a medieval Dutch merchant travelled to Venice and there sold
a consignment of blue and white Delft tiles to a Venetian buyer for his palazzo. The buyer
then obviously had to pay the sales price. He could do so in Venetian coin, but that would
then oblige the Dutch merchant to travel back to the Netherlands with a chest full of money,
which is cumbersome (metal is heavy) and dangerous (highway robbery). Furthermore, he
would have arrived back home with foreign money that he could not (easily) spend. Over
time, therefore, an alternative system developed. The Venetian buyer paid the sales price to
a Venetian money exchanger, who then wrote a letter to a colleague of his in the Netherlands,
instructing the latter to pay the sales price in Dutch currency to the Dutch merchant. The
Dutch merchant then could travel back to the Netherlands, only carrying that letter, and could
collect local Dutch money from the addressee of the letter once he was back home. Such
letter became known as a 'bill of exchange'1, bill simply meaning 'document' and exchange
because one of its primary purposes was to exchange Venetian coin for Dutch coin. The Ve-
netian money exchanger, who wrote the letter, is known as the 'drawer' of the Bill of Ex-
change, his Dutch colleague to whom the letter was addressed is the 'drawee'2, and the Dutch
merchant who in the end got the money is the 'payee'. Then, at some stage, the bill of ex-
change became 'negotiable'3. The Dutch merchant who was the beneficiary (payee) of the
bill of exchange often had debts of his own, e.g. to the manufacturer of the tiles. It was real-
ized that, rather than the Dutch merchant collecting the physical money from the Dutch
money exchanger and carrying it to the manufacturer, it was more efficient to transfer the
bill of exchange to the manufacturer, so that he could collect his money directly from the
Dutch money exchanger, or transfer the bill of exchange again, to pay for the raw materials
for example.

3. In the early days of international trade, the merchants travelled with their goods to the
places where they thought they could sell them. Later, and particularly in the overseas trade,
the merchants stayed at home and shipped their goods to agents abroad. In those days, how-
ever, shipping was slow and once the ship had left port, no communication was possible until
the ship arrived at destination. For a significant period of time, therefore, the goods were

1
In the USA, a bill of exchange is known as a 'draft'.
2
The 'drawee' of course had to accept the bill of exchange. It is not possible for a party to create obliga-
tions for another party without that party's consent.
If the drawee (the Dutch money exchanger) refused to accept the bill of exchange, the drawer (the Ve-
netian money exchanger) remained liable for payment.
3
See on the meaning of the term 'negotiable' below, nr. 17-20.

2
commercially unavailable: they could not be sold, pledged, etc. because they could not be
physically delivered to the buyer, the pledgee, etc. After time, the merchant found a solution
to this problem, by accepting that certain types of documents could be considered to repre-
sent the goods themselves, so that these documents could be handled, traded and pledged
in lieu of the actual goods. Such documents became known as 'documents of title'.

2. On terminology.

4. From the introduction above, it is already evident that different terms are used in this
context.

5. An instrument is a document that embodies4 an obligation to pay a sum of money5. Such

instrument is negotiable if the rights embodied in the document can be transferred by en-
dorsing and delivering the document or by simply delivering the document. The best known
examples of negotiable instruments are bills of exchange and promissory notes.

6. A document of title is a document that embodies a claim to goods, to money or to services.

Usually, when the term 'document of title' is used, it refers to goods, but technically, a nego-
tiable instrument could also be called a 'document of title to money'6. An instrument obvi-
ously needs to be negotiable in order to be a 'negotiable instrument'. For documents of title,
the requirement is not obvious from the term itself, but here also, the document needs to be
'negotiable'7 to be a document of title8. The best known example of a document of title is the
bill of lading.

7. Another term that is also used, although less frequently, is documentary intangible. A
tangible is a physical object (a pair of shoes, a car, etc.), an intangible is something that has
no physical existence. In the legal context, a (pure) intangible refers to a right, a claim (e.g.
the right to claim performance under a contract). If such intangible right is embodied in a
document, that document is called a 'documentary intangible'. Both negotiable instruments
and documents of title are documentary intangibles.

8. Finally, the concept of 'documentary intangibles' also includes, in addition to negotiable

instruments and documents of title, bearer shares. Registrable shares on the other hand are

4
On the difference between a document that embodies a right and a document that is only evidence of a
right, see below, nr. 11-12.
5
Currently, the term 'instrument' is mostly reserved for obligations to pay money. In older texts and deci-
sions, however, it was also used for obligations to deliver goods. In Henderson v Comptoire d'Escompte
de Paris (1873) LR 5 PC 253, for example, the bill of lading was referred to as a negotiable instrument, be
it that the actual bill of lading issued in that case was not so qualified because it had not been made out
'to order'.
6
A. Pretto-Sakmann, Boundaries of Personal Property: Shares and Sub-Shares, Oxford, Hart Publishing,
2005, at p. 73.
7
With regard to documents of title, the term 'negotiable" is not used in the strict sense. See below, nr.
26.
8
Kum v Wah Tat Bank Ltd. [1971] 1 Lloyd's Rep. 439 at 445.

3
not considered documentary intangibles9. (Bearer) shares are, of course, important instru-
ments for companies, but their role in international trade and commerce is limited. For that
reason, shares will not be further considered in this text.

9. The Dutch language uses the term 'waardepapier' (literally: valuable document). German
uses the very similar term 'Wertpapier'. In French, the term is 'titres négociables', which lin-
guistically is closer to 'negotiable instruments', but is actually equivalent to documentary in-
tangibles. The concept of 'titre négociable' indeed includes documents of title such as the bill
of lading.

10. Combining these different terms results in the following table:

Documentary intangibles
(waardepapier, Wertpapier, titre négociable)

Documents of title Negotiable instru- Documents of title Bearer shares

(to goods) ments (to services)
(Documents of title to
money)

* at common law - bill of exchange e.g. activity vouchers

- bill of lading - promissory note (helicopter flight,
- cheque para-jump, ...), (public)
transport tickets, etc.

* statutory (Factors
Act 1889, S. 1)
- bill of lading
- dock warrant
- warehouse-
keeper’s certifi-
cate
- warrant or order
for the delivery of
goods

9
A. Pretto-Sakmann, Boundaries of Personal Property: Shares and Sub-Shares, Oxford, Hart Publishing,
2005, at p. 74-75.

4
3. Definition.

3.1 General.

11. A documentary intangible, and thus both a negotiable instrument and a document of
title, is a document in which a right or a claim is embodied in such way that the right or claim
cannot be exercised or transferred without the document itself10. Possession of the docu-
ment is an essential requirement to exercise or transfer the embodied right.

Art. 965 of the Swiss Code of Obligations – Switzerland being one of only a few legal systems
to have a general definition of documentary intangibles – provides:

Sont papiers-valeurs tous les titres auxquels un droit est incorporé d’une manière telle qu’il soit
impossible de le faire valoir ou de le transférer indépendamment du titre.

(Documentary intangibles are all titles in which a right is incorporated in such way that it is
impossible to exercise or to transfer the right independently of the title.)

12. In practice, documents are often very important to prove rights or defences. A party that
is not able to produce written evidence will often find itself in a (very) weak position. Never-
theless, there is a clear distinction between documents that 'only' serve as evidence – im-
portant as they may be – and documentary intangibles, where possession of the document is
an essential prerequisite to exercise or transfer a right.

13. Many legal systems do not have a statutory regime that covers negotiable instruments
and documents of title in general or as a whole. Some systems have a few general provisions
– the Dutch Civil Code, for example, deals with the general categories of 'instruments to order'
('orderpapieren') and 'instruments to bearer' ('toonderpapieren') and defines how these in-
struments can be transferred (Art. 3-93) and which defences can be invoked against the trans-
feree (Art. 6:146.(1)) – but often, there are only specific rules dealing with specific instruments
or documents. With regard to negotiable instruments, the UK has had a Bills of Exchange Act
since 1882, covering bills of exchange, cheques and promissory notes. On an international
level, there is the Geneva Convention of 7 June 1930 providing a Uniform Law for Bills of
Exchange and Promissory Notes11 and the Geneva Convention of 19 March 1931 providing a
Uniform Law for Cheques, both of which were ratified by many continental European coun-
tries. Bills of exchange, cheques and promissory notes are, however, not the only negotiable

10
E. Dirix, R. Steennot and H. Vanhees, Handels- en economisch recht in hoofdlijnen, Antwerpen, Intersen-
tia, 2014 (10th Ed.), n° 199 at p. 167; K.-H. Gursky, Wertpapierrecht, Heidelberg, C.F. Müller Verlag, 2007
(3rd Ed.), at p. 2; E. McKendrick, Goode on Commercial Law, Penguin Books, 2016 (5th Ed.), n° 2.56 at p.
51.
11
A new version of this convention was signed in New York on 9 December 1988 (United Nations Conven-
tion on International Bills of Exchange and International Promissory Notes), but this convention was not
a success and has never entered into force.
See on the 1988 Convention G. Herrmann, "Background and salient features of the United Nations con-
vention on international bills of exchange and international promissory notes", 1988 U. Pa. J. Int'l Bus. L.,
Vol. 10:4, p. 517-540.

5
instruments that exist, while the rules that are given for these instruments do not always
(fully) apply to other types of negotiable instruments. With regard to documents of title, the
situation is even worse. In the UK, s. 1.(4) of the Factors Act 1889 provides that the expression
“document of title” includes any bill of lading, dock warrant, warehouse-keeper’s certificate,
and warrant or order for the delivery of goods. It then continues to more generally define
'documents of title' within the meaning of the Factors Act 1889 as "... any other document
used in the ordinary course of business as proof of the possession or control of goods, or
authorising or purporting to authorise, either by endorsement or by delivery, the possessor
of the document to transfer or receive goods thereby represented". The Hague (Visby)
Rules12, the international convention on the carriage of goods by sea, refers to bills of lading
"... or any similar document of title" (Art. 1.b), thus indicating that a bill of lading is a document
of title and that there might be other documents of title, but without defining the concept.

3.2 Negotiable instruments.

14. As explained above, there is no general regime dealing with negotiable instruments as
such. Most of the rules and principles in this regard have been deduced from the rules on the
archetypical example of a negotiable instrument, the bill of exchange13.

15. S. 3 of the Bills of Exchange Act defines a bill of exchange as follows:

(1) A bill of exchange is an unconditional order in writing, addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to or to the order of a specified
person, or to bearer.
(2) An instrument which does not comply with these conditions, or which orders any act to be
done in addition to the payment of money, is not a bill of exchange.

The US Uniform Commercial Code (UCC) has a very similar definition of negotiable instrument
in § 3-104 (a):

(a) Except as provided in subsections (c) and (d), "negotiable instrument" means an uncondi-
tional promise or order to pay a fixed amount of money, with or without interest or other charges
described in the promise or order, if it:
(1) is payable to bearer or to order at the time it is issued or first comes into possession of a
holder;
(2) is payable on demand or at a definite time; and

12
International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, signed in
Brussels on 25 August 1924. This Convention, commonly known as the 'Hague Rules' were amended in
1968 by the Visby Protocol, and are since then known as the 'Hague Visby Rules'. The Visby Protocol did
not modify Art. 1.b of the original Hague Rules.
13
Cheques and promissory notes are also the subject of statutes and conventions, but were – for interna-
tional trade purposes – always less important, and have nowadays all but disappeared in many countries.
With the development of electronic banking, bills of exchange have also become less important, but they
continue to be used to this day.

6
 (3) does not state any other undertaking or instruction by the person promising or ordering
payment to do any act in addition to the payment of money, but the promise or order may
contain (i) an undertaking or power to give, maintain, or protect collateral to secure pay-
ment, (ii) an authorization or power to the holder to confess judgment or realize on or
dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage
or protection of an obligor.

16. From these definitions, the following requirements for a document to be an instrument
can be deduced:
(a) the engagement in the promise or order to pay must be unconditional;
(b) it must be a promise or an order to pay a sum of money, without other engagements;
In the civil law tradition, it could also be some other form of performance than the pay-
ment of money14, although in practice such non-pecuniary instruments are rather rare.
An example, however, is an insurance certificate to bearer. In marine cargo insurance,
the insurer often issues certificates, which are transferred to the subsequent buyers to-
gether with the other required documents (invoice, certificates of origin, certificates of
quality, etc.). In civil law, such certificate can be seen as a negotiable instrument: it is a
document that embodies a claim against the insurer15, it is easily transferable ('negotia-
ble'), and only those defences that are apparent from the certificate itself can be invoked
against a holder in good faith. In Zürich v Lebosch16, the Dutch Supreme Court explicitly
confirmed that insurance certificates to bearer are indeed negotiable instruments17.
(c) the money must be paid at a fixed or at a determinable18 time.

14
F. Schelteman, Wissel- en chequerecht, Alphen aan den Rijn, Samson, 1993 (6th Ed.), at p. 33.
15
That claim, of course, is often a claim for money, but a claim against the insurer under the policy is not
necessarily limited to only the payment of a sum of money.
16
Hoge Raad, 19 April 2002, ECLI:NL:HR:2002:AE1683, S&S 2002, 126 (Zürich / Lebosch).
17
In the common law approach on the other hand, insurance certificates are not instruments. They could
be said to embody a promise (by the insurer) to pay money, but that promise is dependent on the con-
tingency of the insured risk materializing. Insurance certificates clearly are not documents of title to
goods either. Marine insurance policies can be transferred by endorsement (s. 50 Marine Insurance Act),
but such a transfer does not have the consequences associated with the transfer of a negotiable instru-
ment or a document of title (see below, n° 26).
18
What is a 'determinable time' is further defined in s. 11 of the Bills of Exchange Act.

7
 Documents that require payment on or before a certain date are in the UK not considered
'instruments' within the meaning of the Bills of Exchange Act, as they are said to intro-
duce a contingency19, an element of uncertainty20. That position is not generally ac-
cepted, though, not even in other common law countries. Canada and Ireland for exam-
ple take a different view21.

It is, on the other hand, not required that the document is dated or that it indicates the place
where it was created or the place where the payment must be made22.

17. In addition to being an instrument, the document also needs to be negotiable. Negotia-
bility, however, is a somewhat complex subject, not in the least because the term is used both
in a strict and in a more general sense. 'Negotiable' in the strict sense of the word is used
with regard to negotiable instruments, and refers to easy transferability of the instrument
plus beneficial effects of such transfer for the holder in due course. 'Negotiable' in the more
general sense – sometimes also called 'quasi-negotiable', or simply 'transferable' – is used
with regard to documents of title, and only includes the easy transferability of the document;
such transfer has no, or at least much less, beneficial effects for the subsequent holder.

18. Negotiability, both in the strict and in the more general sense, refers to specific, easy
ways to transfer a claim from one creditor to a new creditor. In general, unless an obligation
is strictly personal ('intuitu personae'), legal systems allow the existing creditor to be replaced
by a different one. Most often, such replacement requires an assignment. Assignment, how-
ever, has several limitations or drawbacks: there might be formalities to be observed, notice
to the debtor is generally required, and the new creditor takes the claim as it existed for the
previous creditor, i.e. with all defences and limitations attached to it ('subject to equities').
These limitations do not sit well with the requirements of international trade. The formalities
to be observed might be quite stringent, and the requirement to notify the debtor of the
assignment is cumbersome, or even plainly unwanted. Commercial law therefore developed
its own ways of transferring claims to new creditors. The probably oldest of these ways is to
include an 'order clause', which makes the instrument payable to creditor X or to his order.
When the instrument is 'to order', the creditor can transfer the claim by simply endorsing it

19
The last sentence of S. 11.(2) of the Bills of Exchange Act provides: "An instrument expressed to be pay-
able on a contingency is not a bill, and the happening of the event does not cure the defect."
20
Williamson v Rider [1962] 3 W.L.R. 119, [1963] 1 Q.B. 89 (Court of Appeal, 22 March 1962), per
Danckwerts LJ: "... on the whole, I have come to the conclusion that the option reserved by the instrument
in the present case to pay at an earlier date than the fixed date creates an uncertainty and a contingency
in the time for payment."
In Claydon v Bradley [1987] 1 W.L.R. 521 (Court of Appeal, 28 November 1986) the Court, although criti-
cising the majority view in Williamson v Rider, felt unable to distinguish that case and therefore were
obliged to follow it.
21
See John Burrows Ltd. v. Subsurface Surveys Ltd. (1968) 68 D.L.R. (2d) 354 (Canada) and Creative Press
Ltd. v. Harman [1973] I.R. 313 (Ireland). Both decision prefer the dissenting opinion of Ormerod LJ in
Williamson v Rider.
22
See s. 3.(4) of the Bills of Exchange Act.

8
and delivering the endorsed instrument to the new creditor. 'Endorsing' means that the cur-
rent creditor writes an instruction23 to the debtor on the instrument24 to pay to someone else
– this is the only 'formality' that needs to be complied with. The endorsement does not need
to be notified to the debtor. Endorsements can be to a named creditor, to a named creditor
or his order (which allows for a string of endorsements) or 'in blank', in which case any holder
of the instrument can claim payment. An instrument endorsed in blank in fact becomes a
bearer instrument, which then led to instruments that were issued as bearer instruments
from the very start. In case of a bearer instrument, the claim is transferred to a new creditor
by simply delivering the instrument to the new creditor, without any further formalities or
notices required.

In addition to order documents and bearer documents, there are also 'named' or 'straight'
documents. Such documents are made out to a specific creditor, without an order clause.
They can still be transferred to a new creditor, but only by way of assignment, not by the easy
ways of endorsement and delivery or sole delivery. These named or straight documents do
embody a claim, but the easy transferability is lacking. Their classification is therefore not
straightforward: some legal systems count named documents among the documentary intan-
gibles, others don't. In the UK, for example, the classification of a straight bill of lading has
long been debated, but in 2005, the House of Lords in the Rafaela S25 held that a straight bill
of lading is indeed a 'document of title' for the purposes of the Hague Visby Rules.

19. If a document contains an order clause or is made out to bearer, it is quite obvious that
it is intended to be 'negotiable' (in the sense of easily transferable). Explicit provisions are,
however, not required to make a document negotiable. Documents that are not explicitly to
order or to bearer can still be negotiable if that was the intention of the parties or is in line
with commercial usage. Courts will be careful, though, not to make too many documents
negotiable. In Akbar Khan v Attar Singh26, for example, the defendant had signed a document
confirming receipt of a sum of money, together with an undertaking to repay that sum plus
interest after two years. When later the question arose whether this document was a prom-
issory note (i.e. a negotiable instrument), the Privy Council held that "Receipts and agree-
ments generally are not intended to be negotiable, and serious embarrassment would be
caused in commerce if the negotiable net were cast too wide". Similarly, in Claydon v Bradley27
the defendant had signed a note confirming the receipt of a sum of money as a loan, to be
repaid in full by a certain date. Here also, the Court of Appeal held that was not intended to
be negotiable, not in the least because it indicated an amount of 10,000 GBP whereas in re-
ality only 7,600 GBP had been lent.

23
The instruction to pay to someone else must be clear, but there is no sacrosanct wording.
24
Originally, such instructions were written on the back of the instrument, hence the name 'endorsement',
which comes from the French 'endossement', itself derived from 'en dos', on the back.
25
JI Macwilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S) [2005] UKHL 11, [2005] 2 A.C. 423
(House of Lords, 16 February 2005).
26
Nawab Major Sir Mohammad Akbar Khan v Attar Singh (Appeal No. 62 of 1933) [1936] UKPC 29, [1936]
2 All E.R. 545 (Privy Council, 6 April 1936).
27
Claydon v Bradley [1987] 1 W.L.R. 521 (Court of Appeal, 28 November 1986).

9
20. Negotiability, in the strict sense of the term, has a second aspect in addition to the easy
transferability: the person to whom the instrument is transferred, the 'holder in due course',
may get a better title than the person transferring the instrument had. In principle, the trans-
feror of a thing or a right cannot give more than he himself had ('nemo dat quod non habet')28.
If a thief steals a car and then sells it, he cannot provide the buyer with a good title to the car,
because the seller (the thief) did not have good title to the car. If the car is found, the real
owner can recover it from the buyer. If, on the other hand, the thief steals a bill of exchange
and sells that, a buyer in good faith does get good title to that bill of exchange. The real owner
cannot recover the bill of exchange from the buyer.

Such buyer in good faith is referred to, in regard to bills of exchange, as a 'holder in due
course'. S. 29 of the Bills of Exchange Act defines this concept as follows:

Holder in due course.

(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of
it, under the following conditions; namely,
(a) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonoured, if such was the fact:
(b) That he took the bill in good faith and for value, and that at the time the bill was negotiated
to him he had no notice of any defect in the title of the person who negotiated it.

The requirements in subsection 1.(a) are rather specific to bills of exchange, but the require-
ments in subsection 1.(b) have a more general importance. In order to be a holder in due
course, able to acquire a better title than his predecessor had, the holder must have acted in
good faith, must have acquired the instrument for value, and cannot have had notice of title
defects29. Good faith in this respect is a subjective requirement: the question is whether the
holder believed that he was acting honestly30. Even if it is shown that the holder has been
negligent and that he could have realized that something was wrong had he been more dili-
gent, that finding does not destroy his good faith, unless the negligence was so grave that, in
fact, it amounted to deliberately turning a blind eye. Similarly, the notice of title defects re-
fers to actual notice31, not constructive notice. The fact that the holder 'should have' known
something is irrelevant, unless again it amounts to deliberately turning a blind eye.

28
There are, however, a number of exceptions to this principle. See E. McKendrick, Goode on Commercial
Law, Penguin Books, 2016 (5th Ed.), n° 16.09 - 16.93 at p. 453-480.
29
E. McKendrick, Goode on Commercial Law, Penguin Books, 2016 (5th Ed.), n° 19.35 - 19.46 at p. 537-541.
30
S. 90 of the Bills of Exchange Act provides:
"Good faith.
A thing is deemed to be done in good faith, within the meaning of this Act, where itis in fact done hon-
estly, whether it is done negligently or not."
31
Or imputed notice, i.e. notice acquired by an agent that should have been transmitted by that agent to
his principal.

10
3.3 Documents of title.

21. The UK Factors Act 1889 defines documents of title in s. 1.(4) as follows:

The expression “document of title” shall include any bill of lading, dock warrant, warehouse-
keeper’s certificate, and warrant or order for the delivery of goods, and any other document
used in the ordinary course of business as proof of the possession or control of goods, or author-
ising or purporting to authorise, either by endorsement or by delivery, the possessor of the doc-
ument to transfer or receive goods thereby represented.

The US Uniform Commercial Code has a very similar definition in § 1-201.(16):

"Document of title" includes bill of lading, dock warrant, dock receipt, warehouse receipt or or-
der for the delivery of goods, and also any other document which in the regular course of busi-
ness or financing is treated as 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.

22. From these definitions, however, it is clear that documents of title were not created by
the Factors Act or the UCC, but that these texts are referring to something that already ex-
isted. The authors therefore distinguish between documents of title at common law, and
statutory documents of title. There is currently only one document that is undoubtedly a
document of title at common law, and that is the bill of lading. The bill of lading is also listed
in the Factors Act, along with dock warrants, warehouse-keeper’s certificates and warrants
or orders for the delivery of goods, which at common law would not always or necessarily be
documents of title, but are statutory documents of title for the simple reason that the Factors
Act declares them to be.

23. Mate's receipts are not documents of title at common law32. Warehouse receipts or
warrants are generally not documents of title either33, except in specific circumstances. The
London Metal Exchange (LME) for instance operates a scheme whereby metal is stored in
verified, bonded warehouses that issue 'LME warrants'34. The metal is then traded by means
of these warrants. Such LME warrants are documents of title35.

24. As pointed out above, there is no doubt that a bill of lading is a document of title at
common law. There is, however, no generally accepted definition of what exactly a 'docu-
ment of title' is at common law. The authors however have tried to identify the defining

32
Nippon Yusen Kaisha v Ramjiban Serowgee [1938] A.C. 429 (Privy Council, 11 March 1938), at p. 445.
33
See for example Mercuria Energy Trading Pte Ltd v Citibank [2015] EWHC 1481, [2015] 1 C.L.C. 999
(Queen's Bench Division (Commercial Court), 22 May 2015), para 57-58.
34
See Niru Battery Manufacturing Co & Anor v Milestone Trading Ltd & Ors. [2002] EWHC 1425 (Queen's
Bench Division (Commercial Court), 11 July 2002), para 14 and D. O'Hegarty, "The London Metal Exchange
and LME warrants", S.T.L. 2001, 1(7), 3-5.
35
Niru Battery Manufacturing Co & Anor v Milestone Trading Ltd & Ors. [2004] 1 C.L.C. 647 (Court of Appeal,
23 October 2003), para 9.

11
characteristics of a document of title, mainly by referring to the functions and characteristics
of the bill of lading36. The first essential characteristic is that a document of title embodies
(constructive) possession of the goods identified in the document. The holder of the docu-
ment can give instructions to the party physically holding the goods (carrier, warehouse com-
pany, etc.) and can demand that the goods be (re)delivered to him. These rights are embod-
ied in the document, and thus exclusive to the holder of the document: no one else can give
instructions or claim delivery. Because of this exclusivity, the document in fact becomes a
symbol for the goods, that can be traded in lieu of the physical goods. This characteristic is
also found in s. 1.(4) of the Factors, which refers to any other document used in the ordinary
course of business 'as proof of the possession or control of goods'.

25. The words 'document of title' would seem to suggest that this is a document that con-
cerns title to goods, i.e. ownership or property of the goods. Initially, that was indeed the
case. In the 19th century, transferring a bill of lading automatically meant that the ownership
of the carrier goods was transferred to the new holder. In those days, therefore, a bill of
lading was literally a document of title. Since the end of the 19th century, however, the courts
have realized that the transfer of a bill of lading does not necessarily transfer title. Transfer-
ring the bill of lading only transfers possession. Transfer of possession may, of course, result
in transfer of title, if the parties agreed that title would pass upon delivery of the goods, but
that is by no means necessary. The holder of the document of title may, for example, be a
freight forwarder, who will take possession of the goods to carry them to their final destina-
tion, not to become their owner.

26. A document of title, in addition to embodying constructive possession of the goods, must
also be 'negotiable', at least in the sense of being easily transferable. A document of title to
order is transferred to a new holder by endorsement and delivery, and a document of title to
bearer is transferred by simple delivery. Named or 'straight' documents of title are indeed
documents of title if they embody the exclusive right of delivery37, but can only be transferred
by assignment.

Documents of title, on the other hand, are not negotiable in the strict sense of the word, in
the sense that a holder of a document of title, even in good faith and without notice of title
defects, does not get a better title than the transferor. If a thief steals a bill of lading and sells
it, the buyer in good faith does not get a good title to the goods – or at least not by the transfer
of the document of title38.

36
That means, however, that to say that the bill of lading is a document of title becomes somewhat circular:
the bill of lading is a document of title, and a document of title is something that functions like a bill of
lading.
37
With regard to straight bills of lading, this was decided by the UK House of Lords in JI Macwilliam Co Inc
v Mediterranean Shipping Co SA (The Rafaela S) [2005] UKHL 11, [2005] 2 A.C. 423 (House of Lords, 16
February 2005).
38
He may, depending on the circumstances, be able to invoke one of the other exceptions to the nemo dat
rule.

12
3.4 Transferable documents.

27. For completeness' sake, it should be mentioned that there is also a (very limited) category
of documents that are 'negotiable' in the sense of easily transferable, but that are neither
instruments nor documents of title, and where the negotiation of the document does not
provide the transferee with a better title. Marine insurance policies, for instance, can be
transferred by endorsement (s. 50 Marine Insurance Act). An insurance policy, however, does
not satisfy the requirements to be an instrument, and it cannot be considered a document of
title either. Also, the person to whom the policy is endorsed does not obtain a better position
than the original insured: he must satisfy the insurable interest requirement and the insurer
can invoke any defence that could have been invoked against the original insured.

3.5 Open or closed system?

28. Can parties create additional negotiable instruments or documents of title? In many legal
systems, the answer is – at least in theory – affirmative39. Any document that falls within the
definition of an instrument and that is explicitly made negotiable or intended to be negotiable
is a negotiable instrument. In practice, there are indeed new negotiable instruments that are
being created40. In many UK supermarkets, for example, there is a Coinstar machine, in which
shoppers can deposit their loose change. The machine counts the coins inserted and prints
out a voucher for the corresponding amount, which the shoppers can then use to pay their
supermarket bill. These vouchers are, effectively, instruments to bearer41: they embody a
claim to money, and they are to bearer, and thus negotiable. New documents of title could
also be created. The existing documents of title indeed have not been created by statute; the
statute only recognized documents of title that had been created by the customs of mer-
chants. S. 1.(4) of the Factors Act, for example, lists bills of lading, dock warrants and ware-
house-keeper's certificates, but also 'any other document' that has the functions of construc-
tive possession and transferability. That being said, however, (mercantile) customs do not
develop easily anymore, and there are currently no other documents than the bill of lading
that are generally accepted as documents of title42.

29. Some legal systems (e.g. Germany) have a closed system with regard to negotiable instru-
ments and documents of title: only the statute can create or recognize such documents.
Without statutory recognition, a document cannot be considered a negotiable instrument or
document of title.

39
D. Sheehan, The principles of personal property law, Oxford, Hart Publishing, 2017 (2nd Ed.), at p. 130.
In the Netherlands, the Supreme Court held that in principle any claim can be embodied in a document
of title (Hoge Raad, 19 April 2002, ECLI:NL:HR:2002:AE1683, S&S 2002, 126 (Zürich / Lebosch)).
40
Chitty on Contracts, Vol. II, Specific Contracts, Sweet & Maxwell, 2012 (31st Ed.), n° 34-191 at p. 382.
41
The Commissioners for Her Majesty's Revenue & Customs v Coinstar Limited, [2017] UKUT 256 (TCC), 2017
WL 02672282 (Upper Tribunal Tax and Chancery Chamber, 22 June 2017).
42
Chitty on Contracts, Vol. II, Specific Contracts, Sweet & Maxwell, 2012 (31st Ed.), n° 34-192 at p. 383.

13
4. Characteristics.

4.1 Autonomy, abstraction, and protection of the holder.

30. One of the most important and remarkable characteristics of both negotiable instruments
and documents of title is that they create a separate obligation, distinct from the underlying
relationship that is the legal cause for the creation of the document. Under a sales contract,
for example, the buyer is obliged to pay the sales price. If the buyer then signs a promissory
note or accepts a bill of exchange for the amount of the sales price, the underlying sales con-
tract is the reason or cause why he does so, but the payment obligation under the promissory
note or bill of exchange is a new and separate obligation. The note or bill is not simply extra
proof that the buyer owes the price for the goods under the sales contract. The same applies
to documents of title. The shipper and the carrier enter into a contract of carriage, which
obliges the carrier to carry the goods to destination and to deliver them to the addressee. If,
however, the carrier issues a bill of lading, a separate obligation under the bill of lading comes
into being. This is very clear when the contract of carriage between the shipper and the car-
rier is a charter party. It is less clear when there is no charter party and the bill of lading is the
contract of carriage between the shipper and the carrier, but even then, the carrier's obliga-
tions under the bill of lading (as contract of carriage) to the shipper are not completely iden-
tical to the carrier's obligations under the bill of lading (as document of title) to the holder of
the bill. The most obvious example is the fact that the bill of lading is prima facie evidence to
the shipper, but conclusive evidence to the third party holder in good faith (Art. 3.(4) HVR).
Since the obligations under negotiable instruments and documents of title are separate obli-
gations, they are also known as 'autonomous' or 'abstract' obligations43.

31. The fact that a new obligation is created does not mean, however, that the existing obli-
gation is extinguished. If the buyer accepts a bill of exchange for the amount of the sales
price, he now has a payment obligation under the bill of exchange, but he also remains liable
to pay the sales price under the contract of sale. If the buyer does not pay ('dishonours') the
bill of exchange at its maturity date, the seller still has his action under the sales contract.
Obviously, however, this does not mean that the seller can claim payment twice. If the buyer
does honour the bill of exchange, his obligation under the sales contract is thereby extin-
guished.

32. Since negotiable instruments and documents of title create an additional obligation, the
question arises what the relation is between the original (underlying) obligation and the new
(documentary) obligation. One of the most important aspects of this question is to what ex-
tent the debtor under an instrument or document of title can invoke defences that arise from
the underlying relation. Can the drawee of a bill of exchange refuse to pay because the goods
delivered pursuant to the underlying contract of sale were not of satisfactory quality? Can
the carrier reject the claim of the bill of lading holder for the loss of cargo that was washed
overboard because he agreed with the shipper that the goods would be carried on deck at
shipper's risk?

43
With regard to bills of exchange, courts and authors also refer to the 'cash principle': if a party holds a bill
of exchange for 1,000 EUR, it should be as if it was holding cash in that amount.

14
33. Historically, there has been a time that the obligations under negotiable instruments were
considered fully autonomous, even between the parties to the underlying transaction. If for
example a buyer had accepted a bill of exchange drawn by the seller for the amount of the
sales price, he then had to pay the seller under that bill of exchange, even if he could prove
that the goods were defective or delivered or not at all. The buyer in such case did of course
have a recourse action against the seller under the contract of sale, but the fact that he al-
ready had been made to pay put him at a disadvantage, and by the time the buyer had ob-
tained a judgment against the seller, the latter might have disappeared or become unable to
reimburse the buyer44. Today, many civil law systems have largely been abandoned such 'full'
autonomy, and a distinction is now made between parties to the underlying contract and
third parties. Between the parties to the underlying contract, negotiable instruments and
documents of title are prima facie evidence, and thus make the initial position of the holder
of the document easier. If the seller holds a bill of exchange for 50,000 EUR, he has a prima
facie claim for that amount and does not have to prove that this amount is correct in light of
the quantity of goods delivered, the price determination provisions in the contract of sale,
etc. On the contrary, it is the buyer who, if he does not want to pay this amount, has to prove
that it was calculated incorrectly, that he has a counterclaim (e.g. for quality defects) that has
to be set-off, etc. Similarly, a shipper who holds a bill of lading for 10,000 MT of grain has a
prima facie claim to that cargo, without having to prove that he actually delivered this quan-
tity of grain to the carrier, that it was in good condition at the time, etc. The burden of (par-
tially) disproving the claim lies with the carrier.

In the UK, the autonomy continues to apply to a large extent, even between the original par-
ties45. The only defence is a liquidated claim for total or partial failure of consideration, such
as where a seller failed to delivered all or part of the goods sold. An unliquidated claim on
the other hand, such as for alleged quality defects, does not constitute a defence.

Once the negotiable instrument or document of title has been transferred to a 'third' party –
i.e. someone who was not a party to the underlying contract – however, the situation
changes. As against third party holders, a documentary intangible is indeed autonomous,
separated from the underlying contract. This means that the party obliged under the docu-
mentary intangible cannot invoke defences that arise from the underlying contract, that
would have been available against a party to that contract. The only defences that can be
invoked against a third party holder are those that are appear from the document itself or
concern the document itself46. If as in Claydon v Bradley47 a bill of exchange is issued for
10,000 GBP, a third party holder of that bill can claim payment of 10,000 GBP, even if it can
be shown that only 7,600 GBP was actually loaned to the original party. If, on the other hand,
the bill of exchange states that it is payable 90 days from shipment, a third party holder cannot

44
For those reasons, several legal systems made it illegal to have consumers accept bills of exchange.
45
E. McKendrick, Goode on Commercial Law, Penguin Books, 2016 (5th Ed.), n° 19.116 at p. 565.
46
If, for example, it can be shown that the document is a forgery, the party identified in the document can
of course raise that defence.
47
Claydon v Bradley [1987] 1 W.L.R. 521 (Court of Appeal, 28 November 1986).

15
claim payment before that term has lapsed, even if the underlying contract of sale called for
immediate payment.

In this respect, the transfer of a negotiable instrument or document of title differs fundamen-
tally from an assignment of rights. When rights are assigned, the assignee takes those rights
'subject to equities'. He steps into the shoes of the assignor, and all defences that could have
been invoked against the assignor can now be invoked against the assignee. The third party
holder of a documentary intangible, on the other hand, does not take the rights embodied in
the document 'subject to equities'. He takes those rights as they are described in the docu-
ment, with only those limitations or restrictions that the holder can learn from the document
itself.

34. For completeness' sake, it should be pointed out that if there are pre-existing relations
between the party obliged under the document and the holder of the document – the debtor
under a negotiable instrument is, for example, a bank and the holder of the instrument is a
customer of the bank –, the debtor can also invoke defences that arise from that relation: the
bank can set off the amount it has to pay under the negotiable instrument with the claim that
the bank has on its customer.

35. Some legal systems see the third party holder as taking over the initial party's claim48 or
even as acceding to the underlying contract. The third party holder is obviously not an initial
party to that contract, but by becoming the holder, or by exercising rights as a holder, he
becomes an (additional) party to the contract. If that position is taken, however, the auton-
omy concept doesn't work. It is not possible to say that the holder's position under the doc-
ument is autonomous and separate from the underlying contract if the holder takes over the
claim as it existed within that contract or becomes a party to that contract. An alternative
solution, however, is to say that the third party holder, who was in a sense 'invited' to partic-
ipate in the underlying contract through the document, is entitled to assume that this docu-
ment tells him everything he needs to know about the underlying contract. If, afterwards, it
turns out that relevant elements (e.g. the existence of certain defences) were not communi-
cated to the third party holder through the document, the third party holder has detrimen-
tally relied on the document, and the original parties are estopped from invoking those non-
disclosed elements against the third party holder. In the end, therefore, the result is very
much the same as in the autonomy / abstract approach, only the theoretical analysis is differ-
ent.

36. It is often said that documents of title are (fundamentally) different from negotiable in-
struments, as documents of title – in contrast to negotiable instruments – can never fully be
disconnected from the underlying contract. Since bills of lading are the most important doc-
uments of title, that underlying contract is often a contract of carriage. Whereas the obliga-
tion to pay a sum of money under a bill of exchange can be entirely disconnected from the
underlying contract of sale, the obligation to carry and deliver goods under a bill of lading

48
In this approach, the transfer of a documentary intangible is in essence an assignment, but with fewer
formalities and thus better suited to the fast-paced commercial world.

16
cannot be cut off from the underlying contract of carriage, so the argument goes. The differ-
ence, however, is quantitative rather than qualitative. It is true, of course, that paying a sum
of money is generally easier than carrying goods over sea, and that there are fewer circum-
stances that can hinder the payment of money than the carriage of goods. Furthermore, it is
generally accepted that a carrier should not be liable for everything that can go wrong during
the carriage. On the legal level, the result is that the carrier under a bill of lading has more
defences available to him that the debtor under a bill of exchange. Those defences, however,
do not really stem from the underlying contract of carriage; they are granted to the carrier by
the (mandatory) laws and conventions on the carriage of goods. Furthermore, it is very well
possible for the defences available to the debtor of a negotiable instrument to be increased
(the recent sanction regimes against different countries are a perfect example) and the de-
fences available to the carrier under a bill of lading to be limited (the Hamburg Rules have far
less defences than the Hague-Visby Rules, while in air carriage, the carrier has almost no de-
fences at all). There is, therefore, a difference between negotiable instruments and docu-
ments of title in this respect, but that difference can hardly be considered fundamental.

4.2 Literal character / strict interpretation.

37. With documentary intangibles, the right is embodied in the document and is transferred
to other parties by means of that document. Those other parties were not present at or in-
volved with the creation of the document, they acquire an existing document and are in prin-
ciple) only aware of what is stated in the document itself. It is hardly surprising then the rule
developed that such documents must be taken at face value and interpreted strictly, without
going back to the (possible) intentions of the original parties. This is, of course, more of an
issue for documents of title than for negotiable instruments. Amounts of money are not often
misunderstood, whereas the description of cargo, terms, conditions, etc. on documents of
title may indeed raise issues of interpretation. In The Starsin49, Lord Hoffmann held with re-
gard to bills of lading (§ 73-76):

“The interpretation of a legal document involves ascertaining what meaning it would convey to
a reasonable person having all the background knowledge which is reasonably available to the
person or class of persons to whom the document is addressed. (. . .) To whom is a bill of lading
addressed? It evidences a contract of carriage but it is also a document of title, drafted with a
view to being transferred to third parties either absolutely or by way of security for advances to
finance the underlying transaction. (. . .) The reasonable reader of the bill of lading will therefore
know that it is addressed not only to the shipper and consignee named on the bill but to a po-
tentially wide class of third parties including banks which have issued letters of credit. (. . .) As it
is common general knowledge that a bill of lading is addressed to merchants and bankers as
well as lawyers, the meaning which it would be given by such persons will usually also determine
the meaning it would be given by any other reasonable person, including the court. The reason-
able reader would not think that the bill of lading could have been intended to mean one thing
to the merchant or banker and something different to the lawyer or judge.”

49
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 A.C. 715 (House of
Lords, 13 March 2003).

17
38. Although the interpretation as such of negotiable instruments is not often problematic,
the strict character also extends to complying with the terms of the instrument. If, for exam-
ple, a bill of exchange is payable at a certain date, that bill must be presented for payment on
that exact date, failing which the drawer and indorsers of the bill are discharged of their lia-
bility under the bill (s. 45.(1) Bills of Exchange Act 1882).

4.3 Reference to external content.

39. Documentary intangibles – documents of title more often than negotiable instruments –
sometimes refer to and incorporate external content. Charter party bills of lading are a well
known example of this. Such bills of lading explicitly refer to a charter party, of which all or
some of the terms are incorporated into the bill of lading. Such practice, however, is at odds
with the literal character of documentary intangibles. A party determines the value of the
document and whether or not he wants to become the holder of that document based on
what he can read in the document itself. If that document then refers to another document,
the interested party has the additional burden of obtaining a copy of that other document,
which in practice may be difficult or even impossible.

40. Some recent (maritime) codes have become rather reluctant as to the incorporation of
external content. The Dutch Civil Code, for instance, in Art. 8:415.(1) provides that external
content can only be invoked if it is 'readily knowable' (duidelijk kenbaar) for the holder. Under
§ 522.(1) of the German Commercial Code, external content that is simply referred to does
not become part of the bill of lading.

4.4 The requirement of presentation.

41. With documentary intangibles, the right is embodied in the document itself, in such way
that only the holder of the document can enforce the right. Obviously, then, if the holder
wants to enforce the right, he must prove that he is, indeed, the holder of the document. The
easiest way to do that is to simply present the actual document to the party obliged under
that document (in theory, other ways of proving holdership would be conceivable).

With straight documents, that identify the beneficiary of the document, the position could be
taken that it is sufficient for the beneficiary to prove that he is, indeed, the beneficairy, with-
out having to produce the document as such. Many legal systems, however, do require
presentation of the document, even for straight documents.

42. Presentation of the document is also important for the party obliged under the document.
Since the right is embodied in the document, it can be transferred to another party as long as
the document remains in existence. That other party (provided it is acting in good faith) could
then again present the document and claim performance. Once the party obliged under the
document has performed, it is very important therefore that it recovers and destroys the doc-
ument, or at the very least puts a notice on the document, explicitly stating that the obligation
has been performed (and the document thus no longer embodies rights).

18
With regard to documents of title (bills of lading), the holder's duty to surrender the docu-
ment is confirmed in several codes50.

4.5 Legitimation.

43. Holdership of a documentary intangible legitimizes the holder, in a double way. First of
all, the authorized51 holder of the document is entitled to enforce the right embodied in the
document. He does not have to prove how he became the holder of the document or that he
became the holder pursuant to a valid contract. The fact that he is the holder of the document
sufficiently proves his standing. If the party obliged under the document intends to contest
that standing, the burden of proof lies with that party, which basically will have to prove that
the holder of the document is acting fraudulently.

44. This rule, however, also protects the party obliged under the document. If this party pays
or performs to the authorized holder, it is discharged of its liabilities under the document,
even if it later turns out that this person was, in fact, not entitled to enforce the rights under
the document.

4.6 Chattel.

45. A sheet of paper is – in principle – an object that has an owner, that can be sold, pledged,
etc. Since the value of a single sheet of paper is very low, however, these issues never come
up in practice. Negotiable instruments and documents of title are, in essence, also pieces of
paper, but because they embody a claim to money or to goods, they do have a (very) consid-
erable value. In English law, such documents are considered 'chattel', i.e. items of personal
property, just like cars, machinery, commodities, etc. Negotiable instruments and documents
of title can and are indeed sold and pledged, their misappropriation is protected against by
the tort of conversion, etc.

50
The Dutch Civil Code provides in Art. 8:481.(1):
The holder of the bill of the bill of lading, who has presented himself to take delivery of the goods, is
obliged, before he has received them, to sign off on the bill of lading and surrender it to the carrier.
§ 521.(2) of the German Commercial Code provides:
The carrier is only obliged to deliver the goods against return of the bill of lading, on which the delivery
is attested, and against payment of the amounts due pursuant to § 494 paragraph 2 and 3.
Section 304 of the Norwegian Maritime Code provides:
The receiver can only demand delivery if he or she deposits the bill of lading and issues receipts as and
when the goods are delivered.
When all the goods have been delivered, the bill of lading, duly receipted, shall be returned to the
carrier.
Article 252.1 of the Spanish Act 14/2014 on Maritime Navigation provides:
The carrier shall deliver the goods to the legitimate holder of the original bill of lading, collecting the
bill of lading as proof of physical delivery.
51
Who the 'authorized' holder of the document is depends on the type of document. With a bearer docu-
ment, it is the person who physically possesses the document, with an order document, it is the last
endorsee, and with a straight document, it is the person identified in the document.

19
4.7 Legal nature of the relation with the holder.

46. The holder of a documentary intangible quite obviously has a legal relationship with the
party obliged under the document. If the holder is a third party holder, i.e. not one of the
parties to the underlying contract, what is the nature of this relationship? Does a contract
come into being between the party obliged under the document and the holder, or is their
relationship more of a legal or statutory matter? The question is not of theoretical interest
only. If the relationship is contractual in nature, the debtor and the holder have consented,
or are at least presumed to have consented, to be in a contractual relationship, and that (pre-
sumed) consent is then also relevant as regards the terms and conditions that apply to the
relationship. If the relationship is statutory in nature, there is no (presumed) consent, or at
least, consent cannot be deduced from the holdership as such.

47. UK law very clearly sees the relationship as contractual in nature. The Bills of Exchange
Act 1882 for example explicitly refers to the contract on a bill of exchange (s. 21.(1)) and re-
quires capacity to contract as a prerequisite to incur liability under a bill of exchange (s.
22.(1)). Bills of lading are equally considered to create a contract between the carrier and the
holder of the bill.

48. The contractual approach is not the only possible one, though. Several other legal sys-
tems see the relationship between the debtor and the holder as statutory in nature, i.e. as
created by law rather than by the intent or consent of the parties involved.

49. There are arguments for both the contractual and the statutory approaches, and both
are actually used in practice. It is important to realize, however, that the contractual ap-
proach is not the only possible one.

20