Ocean bills of lading are documents commonly used in international trade and commerce.

Parties dealing with bills of lading are presumed to know the legal consequences and risks associated with these documents. However, admiralty law decisions indicate there is some confusion associated with the procedures and safeguards to be followed when dealing with bills of lading..

Ocean bills of lading have long been recognized as symbols of ownership of goods in transit. The bill is a written acknowledgment that the vessel has received goods from the shipper for a contracted voyage to a particular destination where delivery will be made to a consignee..

In common carriage by sea, the bill of lading has three essential purposes:.

1. Receipt as the quantity and description of the goods shipped.

2. Evidence of the contract of carriage..

3. Document of title to the goods..

In the United States, ocean bills of lading are interpreted under general maritime law and federal statutes (Pomerene Act, Carriage or Goods by Sea Act and Harter Act).

Ocean bills of lading can be classified as “straight” or “order” bills. The former consigns cargo to a specific party and is non-negotiable. The later consigns goods to the order of any person and may be negotiable. The later consigns goods to the order of any person and may be negotiated by endorsement. The order bill permits the cargo seller to retain control of goods in transit by requiring cargo payment before the bill of lading is delivered to the buyer..

The primary duty of the carrier with respect to bills of lading is to make cargo delivery to the proper party. This duty under a straight bill is performed simply by delivering goods to the named consignee..

Delivery under an order bill is more complex. Order bills are usually issued in sets of three. One set is sent to the consignee stamped “original.” The shipper and vessel each retain a set stamped “duplicate” or “non-negotiable.” The ocean carrier must make delivery to the holder of the original bill. Delivery to an unauthorized party subjects the carrier to liability for the misdelivery. If the carrier delivers the cargo without collecting the bill of lading, he also will be liable to any subsequent good faith purchaser of the bill..

In certain instances, the shipowner may be asked to deliver cargo without the bill of lading being presented. This situation may arise if a vessel arrives at destination before the bills of lading are received by the consignee, or if the bills are lost..

The ocean carrier may protect himself by demanding a bank letter of guarantee from the cargo receiver. The guarantee will hold the carrier harmless for claims that may arise for delivering goods to the consignee unable to surrender the original bill of lading. However, if the guarantee is used as a routine business practice, it may become a litigation catalyst. The recent NEBCO case (1991 AMC 1113) in the federal district court of New York illustrates this point..

In the NEBCO case, bill of lading holders (shippers) sued three ocean carriers for over a million dollars for delivering plaintiffs’ cargo to a consignee in Trinidad without the surrender of the original negotiable bills of lading. The court found that the plaintiff shippers were fully aware that the carriers customarily delivered the plaintiffs’ shipments against bank guarantees to this consignee. The court held that plaintiffs waived their rights to require delivery by presentation of the original bills of lading and were estopped from making claims for cargo losses..

Although the shipowners successfully relied upon bank guarantees in the NEBCO case, this practice is inherently risky. Letters of guarantee should be used sparingly if litigation is to be avoided.