Functions of Bill of Lading in Sale Contract

Endorsement and delivery of the Bill of Lading (B/L) will normally transfer the ownership in the goods covered by it to the endorsee, provided that four requirements are met:

1. The bill must be transferable on its face. That is, it must be an order bill expressly deliver- able to the ‘order or assigns’ of the shipper or consignee. This is not the case where the bill makes the goods deliverable only to a specified person, or where the bill is stated to be ‘non-negotiable’. Bills are normally issued in sets of three to six originals and, in the absence of any special agreement to the contrary, the indorsement of one bill of a set is sufficient to transfer the ownership in the goods covered by it. No subsequent indorsement of any of the remaining originals will have any effect on the ownership of those particular goods. This was the decision reached in Barber v Meyerstein where the consignee of a cargo of cotton had sold the goods to Meyerstein, indorsing two of the set of bills to him, and had subsequently sought to use the third bill of the set to gain an advance from a third party.

2. The goods must be in transit at the time of the indorsement. This does not mean that the cargo need be at sea, but it must be in the possession of a forwarding agent or carrier for the purposes of carriage and not yet be handed over to the party entitled to delivery at the destination port. The right to assign is lost once delivery has been made, a warrant for delivery has been issued or an order for delivery has been accepted.

3. The bill must be initiated by a person with good title. As has been noted earlier, possession of the bill is equivalent to no more than possession of the goods, with the result that an endorsee acquires no better title than that held by the endorser. The bill of lading does not possess the attributes of a negotiable instrument. In essence, indorsement of a bill of lading merely assigns the right to receive the goods described at their destination and operates to discharge the shipowner. It does not transfer an ownership which the shipper never possessed, otherwise possession of the bill would be more effective than possession of the goods.

4. The indorsement must be accompanied by an intention to transfer the ownership in the goods covered by it. Only such interest will be transferred as the parties intended at the time of the endorsement.

Three (3) different solutions are possible:

1- The parties intend to pass property absolutely as, for example, in performance of a normal contract of sale.
2- There is no intention to pass any property in the goods to the endorsee.

Thus, for example, the shipment may amount to no more than an in-house movement of goods between two branches of the same firm located in different countries. Such shipments are becoming increasingly common with the development of multinational corporations and clearly no shift in ownership is envisaged in such transactions. Alternatively, a seller, when shipping goods under a contract of sale, may wish to retain ownership as security for payment of the price.

In the case of the sale of unascertained goods, ownership will normally pass to the buyer when goods are unconditionally appropriated to the contract with the assent of both parties, whether express or implied. Such an implied appropriation will usually take place in the case of export sales when the seller unconditionally delivers the goods to a carrier for transmission to the buyer.

Were this to happen, an unpaid seller would be placed at a considerable disadvantage and so, in order to protect him, s 19 of the Sale of Goods Act 1979 confers on him the right, exercisable at the time of shipment, to reserve the right of disposal of the goods, i.e. to prevent the ownership from passing until the price has been paid. The right can be exercised in a variety of ways, either expressly, by naming the seller or his agent as consignee, or by sending the bill of lading to the buyer with a draft bill of exchange attached. In none of these cases will there be any intention that the mere transfer of the bill will effect any change in the ownership of goods.

3- The indorsement may merely be intended to effect a pledge as temporary security for a loan.

In such circumstances there will be no intention that the creditor become owner of the goods although, of course, there may be provision for him to assume ownership later, should the loan not be repaid. Indorsements in blank are frequently made in favor of banks as security for money advanced.