Short answer. Yes. Article 1518 protects a good-faith purchaser of a negotiable document of title. Even though the warehouse receipt was stolen, its negotiation is valid if the person who took it paid value in good faith, without notice of the theft or of any breach of duty by the person who negotiated it.
What the law says
The validity of the negotiation of a negotiable document of title is not impaired by the fact that the negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion
Civil Code, Article 1518 — Negotiation Despite Breach of Duty. Read the full provision →
Good faith beats a defective title
Article 1518 addresses a hard problem: a negotiable document of title — such as a warehouse receipt — has been passed on by someone who had no right to do so. The Code decides in favour of the innocent purchaser. It says the validity of the negotiation of a negotiable document of title is not impaired by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, so long as the taker qualifies as a protected purchaser. The theft, in other words, does not by itself break the chain of title.
What the buyer must show
The protection is not automatic; it is earned by two things. The person to whom the document was negotiated must have paid value therefor in good faith, and must have taken it without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion. Both are required. A person who received the receipt as a gift gave no value and is not protected. A person who knew, or was told, that it had been stolen took with notice and is not protected either. Only the buyer who genuinely paid and genuinely did not know stands to keep the goods.
Why the law protects the market, not the owner
This looks harsh on the original owner, and it is a deliberate choice. Negotiable documents of title are designed to move goods through commerce as freely as money. If every buyer had to trace how the seller came by the receipt, the documents would be useless. So the law places the loss on the owner who — however innocently — lost control of the document, rather than on the stranger who paid for it in good faith. The owner is not left without any remedy; his claim simply shifts from the goods to the wrongdoer who stole or misused the receipt.
Where the owner still has a case
The rule only defeats the owner where the purchaser truly qualifies. If the person who ended up with the receipt paid nothing, or had notice of the theft or of the negotiator's breach of duty, the negotiation does not gain the protection of Article 1518, and the owner's claim to the goods survives. The practical battleground is therefore what the buyer knew and what he paid. Documentary proof of the price paid and of the circumstances of the sale is what decides whether the purchaser keeps the goods or the owner recovers them.