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A valuable Instrument of Title

By ABDUL AZIZ ARAIN
M.A., M.COM., A.M.B.I.M.
 April 01 - 07, 2002

A Bill of Lading originates when the merchandiser can not travel with their goods and materials, and do not intend to bear any risk for the transportation of their commodities from one port to other port. This international transportation and delivery at foreign destinations have devised a system for handing over of goods at point of loading under a proper written receipt and to receive the same at other foreign port. This documentation is cailed BILL OF LADING. This commercial document in fact is an instrument which regulate the cargo transportation, whereby:

•The Shipper/Exporter has a proper documented receipt of the goods and materials received for shipment abroad and have been placed on a particular vessel.

•The ship owner (shipping companies and their Agents) know to whom they have to deliver the cargo and from whom they have to collect the agreed freight charges and other dues.

•The consignee or shipper can sell and re-sell the cargo on board, while the goods are still in passage and at high seas.

•The liabilities, responsibilities, rights, and limitations to the contract of sale of goods on board can be evidenced.

This mercantile document has been subject to many changes over the passage of time and has been subject to legislative enactments of national and international laws to regulate the international trade. Every Bill of Lading in the hands of a consignee or endorsee for value consideration, represent that the goods have been shipped on board on the particular vessel. A Bill of Lading is a convincing evidence of the shipment of goods if signed by the Master or by the authorized person or by the Shipping Agents of the ship owners, stating that goods or some part thereof have been so shipped. The holder of the Bill of Lading is notified at the time of its issue and quantified the same, if the goods had not been in fact laden on board.

• A Bill of Lading serves three main functions:

(i) Receipt for the goods shipped.
(ii) Evidence of the terms of the contract of affreightment.
(iii) Document of title to the goods specified in the Bill of Lading.

CONTENTS OF A BILL OF LADING

A Bill of Lading is a document which invariably contains the following particulars.

  • 1 Shipper/Exporters/Consignor- name and address.

  • 2 Consignee - Complete name and address/ Non-negotiable unless consigned to order.

  • 3. Notify party - complete mailing address.

  • 4. Place of receipt.

  • 5. Date Bill of Lading prepared.

  • 6. Date Bill of Lading issued.

  • 7. Place of Bill of Lading issued.

  • 8. Bill of Lading Nos:

  • 9. Number of original Bills of Lading signed.

  • 10. Pre-carriage by- if any.

  • 11. Vessel Voyage (Flag) - Name of ship.

  • 12. Port of loading.

  • 13. Port of Discharge and place of delivery.

  • 14. Booking Nos:, Document Nos:, Export Declaration.

  • 15. Export references.

  • 16. Forwarding Agents references, name & address.

  • 17. Country of origin of the goods.

  • 18. Type of move - containerized or otherwise.

  • 19. Final Destination.

  • 20. Container Nos;, Seal Nos:, Mark Nos:

  • 21. No: of packages or containers - in Nos. & words.

  • 22. Kind of packages, description of goods shipped.

  • 23. Total Gross weight - kg/pounds.

  • 24. Total measurement - cbm/cft.

  • 25. Freight charges, Rate per unit, prepaid or to be collected.

TYPE OF BILLS OF LADING

THERE ARE FOUR TYPES OF BILLS OF LADINGS:

  • (1 ) INLAND B/L

  • (2) OCEAN B/L

  • (3) THROUGH B/L AND

  • (4) AIR WAY BILL.

INLAND BILL OF LADING: This is a contract between a shipper and transportation company used when transporting goods overland to an exporter's international carrier.

OCEAN BILL OF LADING: This is a contract between an exporter and an international carrier for transportation of merchandise to a specific foreign port abroad.

THROUGH BILL OF LADING: A document that establishes the terms between a shipper and a transportation company covering both the domestic and international transport of export goods between specified points for a specified charge. For example, an air shipment can be converted with a through bill of lading; however, ocean shipments require both an inland bill of lading (for domestic transport) and an ocean bill of lading (for international transport).

AIR WAY BILL: An air way bill is a bill of lading which covers both domestic and international flights transporting goods to a specified destination. It establishes the terms between a shipper and an air transportation company for the transport of goods. Included in the documents are the conditions, limitations of liability, shipping instructions description of commodity, and applicable transportation charges. In addition, the air way bill is a non-negotiable document which serves as a receipt for the shipper, indicating that the carrier has accepted the goods listed and obligates itself to carry the consignment to the airport of destination according to specified conditions.

Air Waybill form is of great benefit to the international air transport. Air Waybill was developed by the International Air Transport Association (IATA) according to the Warsaw Convention in 1986.

The other type of Bill of Lading not in common use called House Bill of Lading, issued by freight forwarders acting as consolidators.

Terms and conditions of carriage given on B/L

The shipping companies and their Agents who issue the Bills of Lading, besides describing the details as described under the heading "Contents of a bill of lading" above, while certifying the conditions of the goods do indicate and qualify the Bill of Lading stating that the carrier (shipping company) has agreed to transport the goods subject to all the term and conditions appearing on the front as well as on the reverse of the said Bill of Lading to which the shipper agrees by accepting the Bill of Lading, notwithstanding any local privileges and customs. The bill of lading further qualifies that the particulars given in the B/L are as stated by the shipper and the weight, measure, quantity, condition, contents and value of the goods are un-known to the carriers and that the carrier has had no possibility to check whether these particulars are correct.

The common terms and conditions printed on the front and back of the Bills of Lading which form part of the contract may, slightly differ in order and wording, from carrier to carrier are:

(1) JURISDICTION AND LAW CLAUSE APPLICABLE.

(i) Provision of The Hague Rules as amended by the protocol signed at Brussels on 23rd Feb. 1968.

(ii) Hamburg Rules - the United Nations Convention on the carriage of goods by Se~a 1978, signed in Hamburg on 31.03. 1978.

(iii) "COGWA" Carriage of Goods by Water Act 1936 of Canada.

  • (2) CARRIER'S TARIFF.

  • (3) WARRANTY.

  • (4) NEGOTIABILITY AND TITLE OF THE GOODS.

  • (5) CERTAIN RIGHTS AND IMMUNITIES FOR THE CARRIER AND OTHER PERSONS.

  • (6) CARRIER'S RESPONSIBILITY.

    •

 

  • (i) Paramount clause as referred in (1 ) above.

  • (ii) Port to port shipment.

  • (iii) Combined Transport.

  • (iv) General conditions

  • (a) delay, consequential loss.

  • (b) Package or shipping unit limitation.

  • (c) Ad - Valorem;- Declared value of package.

  • (d) Definition of package or shipment unit.

  • (e) Rust.

  • (f) Notice of loss or damage.

  • (g) Time bar.

 

  • (7) SHIPPERS/MERCHANTS RESPONSIBILITY.

  • (8) CONTAINERS.

  • (9) TEMPERATURE CONTROLLED CARGO.

  • (10) INSPECTION OF GOODS.

  • (11 ) MATTERS AFFECTING PERFORMANCE.

  • (12) METHODS AND ROUTE OF TRANSPORTATION.

  • (13) DECK CARGO.

  • (14) NOTIFICATION AND DELIVERY.

  • (15) BOTH-TO-CLAIM COLLISION.

  • (16) NEW JASON CLAUSE.

  • (17) GENERAL AVERAGE.

  • (18) FREIGHT & CHARGES.

  • (19) LIEN.

  • (20) VARIATION OF THE CONTRACT.

  • (21) PARTIAL INVALIDITY.

 

BILL OF LADING A DOCUMENT OF TITLE

A Bill of Lading is a peculiar document of title which clearly establishes that the goods contained and mentioned in the Bill of Lading, and possession of such a document by a lawful holder is a conclusive evidence of the title holding in law. This is more particularly important when the sale of goods contract is effected under Cost, Insurance and Freight (C.I.F) basis.

ENDORSEMENT OF BILL OF LADING

The consignee as mentioned in the Bill of Lading and the actual receiver of the goods may vary under the conditions in which the Bill of Lading has been or intended to be, negotiated. Thus the goods contained in the Bill of Lading may be consigned to:

(i) A named person or firm. (ii) A named person or firm or to an order or assign. (iii) To Bearer.

In condition (i), "A named person or firm" the goods are delivered to the named person on presentation of the Bill of Lading at the port of discharge.

Whereas in condition (ii) " A named person or firm or to an order or assign," the simple endorsement on Bill of Lading or fixing their signature/name on the back of the Bill of Lading, the goods consigned become deliverable to the bearer of the Bill of Lading document. This form of endorsement is called " endorsement in blank", and can convert an "Order- Bill of Lading" into a "Bearer" Bill, for the delivery of the property contained in such a bill. If the named person or firm wishes the goods to be delivered to a certain firm, he may restrict the transferability of the Bill by inscribing "Deliver to XYZ" followed by his signature. This endorsement is known as either a "special endorsement" or an "endorsement in full."

In case the original consignee adds the words " or to order" to his inscription " Delivery to XYZ " it leaves the direction clear for "XYZ" so desire, into a bearer instrument by simply endorsing his name and fixing his signature on the back of the Bill of Lading document.

In various foreign countries "Order" bills of Lading are prohibited by law.

In case of condition (iii), " This Bearer " when the form of Bill of Lading only shows the consignees as "to bearer" property passes just by delivery. The actual holder of the Bill of Lading being entitled to the goods.

Commonly Bills of Lading are consigned and made out as in condition (i) and (ii) described above. The "bearer" Bill of Lading is purely an academic and is included solely to illustrate the transferability of this commercial document.

Conditions to pass property of goods contained in a bill of lading by assignment

There are four conditions which must be met before the property of goods contained in a bill of lading may be passed on by assignment.

(1) The endorsement of the bill of lading is essentially required.

(2) That the goods are in transit, i.e. handed over to the custody of the ship owner or their Agents and not yet delivered to any person with a claim under the bill of lading.

(3) That there is an intension to transfer the property in the goods.

(4) That the bill of lading should have been put into circulation by some one with a good title to the goods.

The last, 4th condition is the most important of all, and before analyzing its importance it is highly desirable, and necessary to differentiate between three closely associated terms, " assign-ability," transferability" and "negotiability." This will bring out the difference between a quasi- negotiable document such as a bill of lading and a truly negotiable document such as a bill of exchange.

There are many instruments which may be passed from one hand to another in exchange for value so that the property as per Bill of Lading is transferred. These are known as transferable instruments, and if every thing is in order, the transferee obtains a good title to the property contained therein. When negotiability is not present, the right of the transferee may be defected by any prior fault of title or any other means by a prior holder.

The above description enables to assess and determine how far a bill of lading is a negotiable instrument:

(i) When the bill of lading is made out to a specified person or firm, and without the addition of the words " or order" or " or assigns", it would appear not to be negotiate in any condition of the term.

(ii) Where the bill of lading is drawn to order or assigns, than it is negotiable by delivery and endorsement for value, so long as the property contained in the bill of lading has been shipped, still in transit, and not been delivered.

Where a bill of lading, which is an assignable document of title of the goods stated therein, even when drawn to order or assigns, does not reach the standard of a truly negotiable instrument, for the transferee, who has obtained the document, bonafide and can not obtain a good title from a transferor, whose title is defective. The Latin maxim being, Nemo dat quod non habit ( no one can give what he has not got). A bonafide transferee for value is in a better position than the transferor for the lien of an unpaid vendor and also defeat his right to stop in transits, thus leaving the original seller to claim against the transferor.

Transferability of the property contained in the bills of lading

Through mercantile usage endorsement and delivery of a bill of lading while the goods are in transit passes over to the " Endorsee" such property as it was the intension of the parties to transfer. This intension in regard to the transference of the following:

(i) It can pass the property absolutely.

(ii) It can pass no property at all, when an unpaid seller takes out a Bill of Lading in his agent's name as the consignee. Thus the seller's Agent retains the bill of lading until the buyer of the goods pay for it.

(iii) It can pass the property conditionally.

This happens when an unpaid seller passes the bill of lading over to the buyer, accompanied and coupled with a Bill of Exchange drawn on the endorsee of the bill of lading for the price of the goods. This is, of course, a bit dangerous procedure, in the event of the buyer not accepting the bill of exchange and having transferred the bill of lading to another person, "XYZ" for value, than because the original transferee, was given a document of title to the goods, with the consent of the original seller and as such person/firm obtains a valid title of the goods.

SETS OF BILLS LADING

The minimum number of bills of lading for a set is three copies, however, any number of bills of lading of a set varies according to the requirements of the trade - and the consignees. The actual number of bills of lading issue is inserted at the face of the bill of lading itself, which reads and more or less states, alike.

"In witness whereof the Master or Agent of the ship has affirmed to (Nos.) Bills of lading, all of this tenor and date, one of which being accomplished, the other to stand void."

SOME SHIPPING COMPANIES STATES ON THE B/L:

"In witness whereof one(1 ) original Bill of lading has been signed, if not other-wise stated below, the same being accomplished the other(s), if any, to be void."

The additional bill of lading (not included in the set) marked "NOT Negotiable, Master's copy," is retained by the Master of the ship. When the carrying vessel arrives at the port of destination with the cargo, it is the duty of the Master for shipping company or their agents to compare the bill of lading presented to them by the consignee's copy of B/L with the " Not Negotiable Master, copy" and if satisfied, to sign and date the consignee's copy of bill of lading, thus releasing the cargo from his charge and custody. This procedure is known as "Sighting of Bill."

It is the responsibility of the Master to deliver the cargo mentioned in the bill of lading to the consignor, upon payment of freight and production of the bill of lading, or to the holder of the bill of lading, properly endorsed and assigned. There is no justifications for the Master to deliver cargo without production of the bill of lading.

The practice and the legal position on the issue of the delivery order against the presentation of B/L is as follows:

(1) In the event of several parts of the bill getting into different hands, the first transferee for value is entitle to the goods.

(2) If the Master delivers the goods to a holder of a bill of lading, and acts bonafide and without notice of any conflicting claims, then no claim for damages can rise against him, or the ship-owner, if it is subsequently known that delivery has been made to a person not entitled to the cargo.

A CLEAN BILL OF LADING

Bill of lading is an admission as to the condition of the goods when shipped, and it is also a document which indicate the description of good contained therein. Most of the B/L commence with phrase " shipped in apparent good order and condition " and if this statement is not qualified by some reference to any defective condition of the goods then the bill is said to be " A clean B/L." when there is a rotation stating, such as, "Casks in leaky condition" "bales badly stained," "some bags torn" etc. etc., such bill of ladings said to be a qualified B/L.

Banks and financial companies prefer to have a clean bill of ladings, defect free, upon which they advance credit. It is, therefore beneficial to the shipper to obtain clean bills of lading. The shipper urge and pursue that the Master or the shipping Agents not to qualify the bills of Lading as to any defective condition in lieu of the shipper giving a letter of indenting or undertaking, sometimes referred to as "back letter".

The practice of issuing letter of indenting is practiced, especially in the case of general cargo trade. Some printed forms are used and many carriers and shippers give support to this practice, although it is costly to bankers and underwriters, on four basic grounds

1- That out of the lot many Letter of Indemnity issued only very small percentage come up before the court.

2- That their issue expedites shipment and avoids unnecessary delay.

3- That it is generally cheaper to re-condition at destination than in the country of origin, but depends upon the nature of good.

4- That individuals ship owners feel the necessity of accepting these " back Letters", since if they refused to accept the cargo, other owners would accept the cargo and they may lose freight revenue.

The fact remains, that the courts have held their Letter as contrary to Law and acceptance can prove costly.

Some check points in regard to preparation of bills of lading

DO's:

1- Do Check that bill of lading is properly dated. This is the date on which the vessel completes the loading of the Cargo described in the bill.

2- Do check that Cargo is actually shipped before signing.

3- Do check that the amount of demurrages incurred at port of loading is endorsed on the face of the bill.

4- Do see that the bill of Lading incorporates both the conditions and exceptions of the charter party.

5- Do check, when lay-days are reversible, that time taken to load is endorsed on the face of the bill.

DON't:

6- Do not part with cargo before signing the bill of lading.

7- Do not sign a bill of lading known to contain a false description of the goods.

8- Do not omit to insert the amount of freight, which may be due under the terms of the charter.

9- Do not accept any verbal or within assurances of the shipper at variances with the actual condition of the goods.

10- Do not fail to include relevant entry regarding advance of freight.