Bill of Lading as a Document of Title

Bill of Lading as a Document of Title: This is the second function of a bill of lading. A document of title is something which a seller can sell to a buyer, standing in place of the goods. The holder of the document is entitled to possession of the goods referred to in it. The rights under the bill of lading/document of title are transferred by endorsement.

Typically, a bill of lading will be issued to a named shipper and consigned ‘to order.’ ‘To order’ means the bill is negotiable, that is, the shipper and the carrier understand that the goods will be sold to a third party by endorsement of the bill of lading.

To endorse a bill of lading the shipper named in the bill will put his company stamp on the reverse of the bill of lading and sign it. The bill of lading is then transferred with other documents to the shippers’ bank.

Under many international sales of goods, the buyer agrees to set up a Letter of Credit, to pay the seller. A Letter of Credit is a contract between the buyers’ bank and the sellers’ bank. The contract says that the agreed price will be paid to the seller when he presents certain documents to the bank.

These documents include the original bill of lading for the goods. The bill of lading is, therefore, the central document for triggering the payment of the price of the goods from the buyer to the seller. It is vitally important, therefore, that the bill of lading contains the details agreed in the sale contract and any Letter of Credit.

If there is any difference the bank will not pay automatically. They will ask the buyer for his approval. It is a typical requirement of a Letter of Credit under a sale contract that the bill of lading produced is clean.

There is also, usually, a deadline for shipment, and a requirement for a full description of the goods (quality and quantity). When the Letter of Credit is triggered and the price for the goods paid, the bill of lading and other documents are passed to the buyer, through his bank. When the ship arrives at the discharge port the buyer who holds the bill of lading must present the bill to the carrier/his agent to obtain delivery of the goods.

The carrier/shipowner must deliver the goods at the discharge port to the holder of the bill of lading, who presents the bill to the carriers agents there. Only then is the carrier protected against any claim for misdelivery of the cargo. This is, typically, why bills of lading are issued in sets of three.