Advance against documents of title to goods chapter 3

Advance against documents of title to goods chapter 3, dock warrant, railway receipt, warehouse keeper certificate, bill of lading

1. Advance Against Documents
of Title to Goods.
SDJ International College
Vaghela Nayan

2. Documents of Title to Goods
•Meaning:
•Section2(4)ofthesaleofGoodsActdefinesaDocumentoftitletogoodsas
“Adocumentusedintheordinarycourseofbusinessasaproofofpossession
orcontrolofgoodsauthorizingorpurportingtoauthorizeeitherby
endorsementordelivery,thepossessorofthedocumentstotransferorto
receivethegoodstherebyrepresented.”

3. Essential requirements of a Document of Title
to Goods:
•Themerepossessionofthedocumentcreatesarightbylawor
tradeorusage,topossessthegoodsrepresentedbytheDocument.
•Goodsrepresentedbydocumentsaretransferrablebyendorsement
and/ordeliveryofthedocument.Thetransfereecantakethe
deliveryofthegoodsinhisownright.
•BillofLading,Dock-warrant,Warehouse-keepercertificate,Railway
receiptanddeliveryorders,etc.canbesaidasthedocumentsof
titletogoods.

4. Risk in Advance against Document of Title to goods:
1.PossibilityofFraudDishonesty:
•Itmayhappenthatthedocumentsmaybeforgedoneorthequantitywrittenwithin
thedocumentsmaybefraudulentlyaltered.
•Theshippingandrailwayauthoritiestoodonottestifysuchdocuments,theyonly
testifythenumberofbagsorpackagesreceivedforthepurposeoftransportation.
2.NotNegotiableDocument:
•Thesedocumentsarenotnegotiableinstrumentslikecheque,billofexchangeand
promissorynote.
•Herebankercannothavebettertitle,ifthedocumentsareforgedorstolenone.
3.ForgeryofEndorsement:
•“Forgeryconveysnotitle”,therefore,incaseofforgedendorsementbankercannot
asserthisrightofownership.
4.Rightofstoppageintransitiswiththeunpaidseller:
•Ifthebuyerbecomesinsolventbeforethegoodsaredeliveredtohim,theunpaid
sellercanstopthegoodsintransit.

5. 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.

6. 5.EndorsementinBlank:Thebankershouldgetthedocument
endorsedinblank,ortheliabilitytopatthefreightswillbeonthe
partofbankerandnotofthecustomers.
6.InsuranceagainstRisk:Thegoodsmustbeinsuredagainsttherisks
likeFireandtheftforitsfullvalue.Thebankershouldaskforthe
insurancepolicybeforegrantingadvancesagainstsuchdocuments.
7.Specialcareinrealizingthegoods:Itisadvisableonthepartofthe
banker,nottopartwiththesecuritybeforerepaymentofadvances.
8.OtherPrecautions:
•Properexaminationtoensuretheoriginalityandrecentoriginofthe
document.
•Insurermustbeareliablepersonorfirmforthegoodsinthedocument.
•ToobtainageneralstampedletterforthepurposeofHypothecation.

7. Documents of Title to Goods
1.BillofLading:
•Meaning:“Adocumentissuedbytheshippingcompanyacknowledgingthereceiptof
goodstobetransportedtoaspecifiedport.Italsocontainstheconditionsforsuch
transportationofgoodsandfulldescriptionofthegoods,i.e.,theirmarkingsand
contentsasdeclaredbytheconsignor.”
•Contents/ItemsinBillofLading:
1.NamesofConsignorandconsignee
2.Namesoftheportsofdepartureanddestination
3.NameofVessel
4.Dateofdepartureandarrival
5.Listofgoodsbeingtransferred
6.Numberofpackagesandkindofpackaging
7.Marksandnumbersonpackages.
8.Weightofthegoods
9.Freightandamount
10.Descriptionofgoods

8. •FeaturesofBillofLading:
1.Itcarriesfullownershipofthegoodswithit.ThepersonpresentingthecopyofBillof
Ladingcanhavethedeliveryofthegoods.
2.Itisissuedbytheshippingcompany.Itisacontractofaffreightment.
3.Itisnotanegotiableinstrumentbutitpossessessomecharacteristicsofnegotiability
andsoitisquasinegotiableinstrument.
4.Itistransferablebymereendorsementanddelivery.
5.Itcontainsalldetailsofthegoodstobeshipped.
6.Thedeliveryofthebillodladingorendorsementofthebillofladingwillbeconsidered
asSymbolicDeliveryofthegoods.
•FunctionsofBillofLading:
1.Evidenceofreceiptofgoods.
2.Evidenceofcontractofcarriage.
3.Documentationoftitletogoods.(proofofownership)
4.Itcanbeusedinthetransactionofletterofcreditandcanbequasinegotiable.
5.Itcanbebought,sold,tradedandcanbeusedassecuritiestoo.
6.Itcanbeusedasanevidenceincaseofcontroversyregardingownershipofthegoods.

9. •PrecautionsincaseofBillofLading:
1.AtthetimeofgrantingadvancesagainstBillofLading,thebankershouldaskfor
allthecopiesofit,asitispreparedintriplicate,thecustomercanacquirethe
possessionbyshowinganyofthecopytotheshipmaster.
2.Itisadvisabletogetthedocumentendorsedinblank,orthebankerwillbeliable
topaythefreightchargesionthegoods.
3.Thebankershouldverifythatthefreightchargesarepaidbytheconsignee.The
captainoftheshipwillhavetherightoflienoverthegoodswhenthereisnon
paymentoffreightsandothercharges.
4.Itshouldbetakencareofthattheinsurancepolicyhavingthecoverofallthe
marineperilsmustbeaccompaniedinthebilloflading.
5.Theoriginandthegenuinenessofthebilloflandingshouldbeexaminedcarefully
beforeadvancingagainstit.

10. 2.Warehousekeeper’scertificate(wharfinger’sCertificateorwarehouse
Certificate:
•Meaning:
•“Warehousereceiptmeansanacknowledgementinwritingorinelectronicformissued
bythewarehousekeeperorbyhisdulyauthorizedrepresentative.”
•Warehousemeansastorewheregoodsareacceptedtemporarilyforsafekeeping.On
thereceiptofthegoodsawarehousekeepergivesacertificateknownaswarehouse
keeper’scertificate.
•UndertheBombayWarehouseAct1959,thewarehousereceiptshallbetransferableby
endorsement.

11. •ElementsofWarehouseReceipt:
1.Serialnumber
2.Nameofwarehouseanditslocationlicensenumber.
3.Dateofissueofreceiptanddurationofstorage.
4.Nameofcommodity,itsquantity,qualityandgrading.
5.Privatemarkofdepositorsongoods.
6.Rateofstorageandothercharges,ifany.
7.Approximatevalueofgoodsstored.
8.Insurancedetails.
9.Whetherwarehousereceiptisnegotiableonnonnegotiable.
10.Signatureofwarehousekeeperorhisauthorizedagent.
•Featuresofwarehousecertificate:
1.Itisadocumenttotitletogoods.(SaleofGoodsAct,1930)
2.Issuedbywarehousekeeper.
3.Writtenorprinted.
4.Statestheownershipofgoods.
5.Itisadepositreceiptandnontransferableortransferablebasedoncircumstances.

12. •Precautionsinthecaseofwarehousereceipt:
1.Thebankershouldverifythetitleoftheholderortransferor.
2.Noadvanceshouldbegrantedagainstthewarehousereceiptissuedbyunlicensed
warehouse.
3.Verifyingthegenuinenessofthereceiptandtocheckthesignatureofthe
warehousekeeper.
4.Bankershouldsatisfyhimselfabouttheconditionofthegoodsatwarehouseby
inspectingthewarehouse.
5.Thebankershouldaskforadisclaimerregardingtheownershipofthegoodsat
theprescribedwarehouse.
6.Theadvanceshouldbegivenaccordingtothememorandumofpledge.
7.Thebankerinformthewarehousekeeperaboutthelienofthereceiptbyhim.
8.Bankershouldalsoseethatthegoodsatthewarehouseareinsuredatalltime
andtherentandotherchargesarepaidbythecustomer.
9.Bankershouldinformthewarehousekeepernottoreleasethegoodswithoutthe
consentofthebanker.
10.Thecertificateshouldalsobeaccompaniedwiththedeliveryorder.

13. 3. Dock-warrant:
•Meaning:
•“ADock-Warrantisthedocumentissuedbyadockcompanyinexchangeofgoods
received.”
•KeypointsofDock-warrant;
1.Thedocumentpossessestitletogoodsandthepersonnamedincanobtainthe
possessionofthegoodsstoredatthedock.
2.Itisnotareceipt,butitisawarrantyonly.
3.Itcanbetransferredbyendorsementanddelivery.
•PrecautionsinthecaseofDock-Warrant:
1.Beforeadvancingagainstthedock-warrant,thebankermustbesatisfiedwiththe
integrityandthefinancialconditionofthecustomer.
2.Itistobeverifiedthatthedockcompanyishavingtheauthorityoflienongoodsor
not.
3.Topreventtheunauthorizeddealingofthegoods,thebankershouldgethimself
registeredasownerofthegoods.

14. 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 favourof 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 otbe
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.

15. 5. 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.

16. •Precaution in case of Delivery Order:
1.Before accepting the delivery order as security, the banker should check the
authenticity of both the parties, customer offering the document and the company
issuing the order.
2.The banker should also check that the delivery order is issued for the same goods
that are stored in the warehouse.
3.The banker should also verify that the order contains the name of the pledger.
4.In order to avoid risk, the banker should register the delivery order with warehouse
keeper.
5.Special care has to be taken as the delivery order should not remain outstanding
for long period of time.

17. Thank You
Any Question?