Document of Title
A document of title is a document whose holder is treated, in law or commercial practice, as entitled to receive and deal with the goods it covers, so that transferring the document transfers control of the goods themselves.
Also called: document of title to goods · title document · negotiable document of title
The point is to let goods held by someone else, a carrier or a warehouse, change hands without being moved. The Uniform Commercial Code in the United States defines a document of title to include a bill of lading, dock warrant, dock receipt, warehouse receipt or order for delivery of goods, and any other document treated in the regular course of business or financing as showing that its holder is entitled to receive, hold and dispose of the goods. It must be issued by or addressed to a bailee holding the goods. English common law has long recognised the transferable bill of lading as a document of title through mercantile custom, and has been slower to extend the status to other documents.
This is what makes documentary trade finance work. A bank under a letter of credit or a documentary collection that holds a negotiable bill of lading controls the goods until it is paid or reimbursed. A sea waybill or a bill made out to a named consignee does not give that control.
The UK Electronic Trade Documents Act 2023 lists bills of lading, warehouse receipts, ship's delivery orders and bills of exchange among the paper documents whose possession is needed to claim performance, and lets them exist electronically, which is the basis of the electronic bill of lading. A document of title is only as good as the goods behind it and the honesty of the issuer: the same metal pledged twice is a problem no document can solve.
In practice
A document's name does not decide its status. Whether it works as a document of title depends on its terms, for example whether it is made out to order, and on the law that governs it.
Example
A trader buys 20,000 tonnes of wheat afloat for US$5 million. The seller presents the order bill of lading under the letter of credit; the issuing bank pays and hands the endorsed bill to the buyer only once the buyer reimburses it. At every step, whoever holds the endorsed bill can demand the wheat from the carrier.
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to Document of Title, with more detail and background.
Commonly confused with
| Term | How it differs |
|---|---|
| Bill of lading | A bill of lading is one kind of transport document. Only a negotiable (order or bearer) bill works as a document of title; a straight bill to a named consignee generally does not. |
See also
- Bill of LadingA bill of lading is a transport document issued in connection with the carriage of goods by sea. Depending on its form, it can evidence receipt of the goods, contain the carriage terms and function as a document controlling delivery.
- Warehouse ReceiptA warehouse receipt is a document issued by a warehouse operator acknowledging that it holds specified goods for a depositor. A negotiable receipt lets the holder sell or pledge the goods by transferring the receipt, which makes it a common basis for commodity finance.
- Electronic Bill of LadingAn electronic bill of lading is a bill of lading created, held and transferred as an electronic record on a system that ensures only one party controls it at a time, so that it can do the job of a paper original, including as a document of title.
- Letter of CreditA letter of credit is a bank’s conditional undertaking to pay when the seller presents documents that comply with its stated terms. Banks examine documents rather than confirming the physical quality or performance of the goods.
- Documentary CollectionA documentary collection is a trade-payment method in which banks handle shipping or commercial documents in exchange for payment or acceptance. The banks facilitate the process but do not provide the same payment guarantee as an issuing bank under a letter of credit.