Letter of Credit

All too often shippers demand three original bills of lading and in such a case there will be words to the effect that “any one being accomplished the others shall be void”. If asked why three originals, the shipper will explain that it is “the custom” or that it is demanded by the letter of credit.  The letter of credit itself will, of course, demand all three originals before paying out because they would not have security for payment if one of the originals was other than in their possession. For the reasons for three originals, one can go back to Malnes Les Mercantoria, a document written in1686. It stated “Of the Bills of Lading there is customarily three Bills of one tenor. One of them is enclosed in the letters carried by the same ship; another Bill is sent overland to the Factor or Party to whom the goods are consigned; the third remaineth with the Merchant, for his testimony against the Master if there were any occasion or loose dealing”. More recently a learned judge, Lord Blackburn wrote “I have never been able to learn why merchants and shipowners continue the practice of making out a bill of lading in parts. I should have thought that every purpose would be answered by making out one bill of lading only which should be the sole document of title.” In their printed instructions on how to open a letter of credit, the banks continue to refer to a “full set of three shipped on board bills of lading”.  And for obvious reasons all three have to be presented when negotiating the letter of credit. So what purpose do three B/Ls serve beyond trebling the risk of a document of title falling into the wrong hands?