Bills of Lading as a Document of Title

Negotiable Bills of Lading (B/L) originated in sea transport because the voyages were normally lengthy, and invariably slow. The owners of cargo therefore required a document of title in order to raise credit for an international sale or to take advantage of an opportunity to sell the goods in transit.

A bill will only operate as a Document of Title, however, if it is drafted as an order bill, i.e. a bill under which the carrier agrees to deliver the goods at their destination to a named consignee or to his ‘order or assigns’.

If the document only makes provision for delivery to a named consignee, it is known as a straight bill of lading or waybill, and lacks the negotiable quality required to qualify it as a document of title. Such a document is not so attractive as security for a commercial credit, nor can the holder of the bill transfer a good title to the goods during transit. While order bills are transferable by indorsement they are not technically negotiable instruments, since a bona fide transferee gets no better title to the goods covered by the bill than was held by the transferor. The bill merely represents the goods and possession of the bill of lading is treated as equivalent to possession of the goods covered by it – no more, no less.

There are three (3) purposes for which possession of the bill may be regarded as equivalent to possession of the goods covered by it:

A- The holder of the bill is entitled to delivery of the goods at the port of discharge.
B- The holder can transfer the ownership of the goods during transit merely by indorsing the bill.
C- The bill can be used as security for a debt.

The development of the bill as a document of title has been so successful that, over the years, it has come to exercise a tripartite function in relation to the contract of carriage, to the sale of goods in transit, and to the raising of a financial credit.

There is a general feeling that this multiplicity of roles is not always compatible and that the present form of the bill of lading is somewhat of an anachronism. The feeling is particularly strong among shipowners who believe that the three roles should be separated in order to prevent the carrier being burdened by the incidents of transactions which are none of his concern.