Short answer. When a negotiable document of title is duly negotiated, the new holder acquires the best title the negotiating party could give, as well as a direct obligation from the bailee — the warehouse or carrier — to hold the goods for the holder on the same terms as the document states.
What the law says
A person to whom a negotiable document of title has been duly negotiated acquires thereby: (1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and (2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him.
Civil Code, Article 1513 — Rights of a Holder by Due Negotiation. Read the full provision →
What a document of title is and what 'due negotiation' means
A document of title — a warehouse receipt or a bill of lading, for example — is a document that represents goods in the possession of a bailee (a warehouse operator or carrier). When that document is negotiable, it can be transferred from one person to another so that the receiver steps into the shoes of the original holder. Due negotiation means the document was transferred in the ordinary course of business, for value, without notice of any defect in the transferor's title. These conditions matter: a person who receives a document by gift, or who knows the seller obtained it fraudulently, does not acquire the special protections Article 1513 provides.
First right: the best available title to the goods
Article 1513's first grant is title to the underlying goods. The new holder receives whatever title the negotiating party had — and also whatever title the person named in the document originally had. The phrase 'had or had ability to convey to a purchaser in good faith for value' is deliberate: it allows the holder to receive a title that is better than what the immediate transferor could give on an ordinary sale, because the chain of negotiation can cure defects that would ordinarily travel with the document. A holder by due negotiation is not subject to claims or defences that earlier parties could have asserted against one another.
Second right: a direct obligation from the bailee
The second right is equally important in practice. Article 1513 imposes on the bailee — the warehouse or carrier holding the goods — a direct obligation to the new holder, as fully as if such bailee had contracted directly with him. Before negotiation, the bailee's duty ran only to whoever originally deposited the goods or was named in the document. After due negotiation, the holder can demand delivery from the bailee directly, without needing to go back through the chain of prior owners. This makes the document commercially useful: the holder does not have to prove a chain of assignments — presenting the duly negotiated document is enough.
Why this matters in a commercial dispute
If you are holding a warehouse receipt or bill of lading and a seller or earlier owner tries to claim the goods back, or if the bailee refuses to release the goods to you, the rights under Article 1513 are your starting point. The bailee cannot validly refuse delivery by arguing that you were not the original depositor. Earlier parties cannot reclaim the goods from you by asserting defects in title that existed before you received the document, provided you received it in due course. Disputes about whether negotiation was properly done — whether you gave value, whether the document was indorsed correctly, whether you had notice of defects — are the battleground in these cases, and getting legal advice early is advisable.