Article: Non-negotiable (straight), negotiable ('to order') and bearer bills of lading

This article will set out the differences between a straight, 'to order' and bearer bill of lading.

Non-negotiable bill of lading - Straight bill

A non-negotiable bill of lading is often referred to as a straight bill of lading. A key feature of a straight bill is that the consignee is named when the bill is issued and cannot later be changed. It is therefore not possible for the shipper or the consignee to transfer legal title and ownership of the cargo to a third party by means of endorsing the bill. The carrier is obliged to deliver the cargo to the consignee specified in the consignee box on the bill. The shipper can therefore not order the carrier to deliver the cargo to a party other than the party set out in the consignee box. It is worth noting that a straight bill of lading never includes the phrase 'to order' in the consignee box (or wording elsewhere on the bill making clear that it is transferable) as this makes the bill a negotiable bill of lading.

Example of a straight bill

In this example Grain Trader Ltd is the shipper and Wheat Import AS is the consignee. The absence of the words 'to order' in the consignee box (and provided there is no other wording indicating that the bill is transferable) means the carrier must only deliver the cargo to Wheat Import AS since Wheat Import AS is the named consignee. Grain Trader Ltd is not entitled to order the carrier to deliver the cargo to a third party. It is therefore not possible for Grain Trader Ltd to sell the cargo during the shipment to a third party buyer and then order the carrier to deliver the cargo to the third party buyer.  

Negotiable bill of lading - 'to order' bill

There are two distinct types of negotiable bills of lading - 'to order' bills and 'bearer' bills. 

For a bill to be a 'to order' bill, it either needs to state 'to order' or 'to order of [name of the party]' in the consignee box. Under an order bill of lading, legal title to the cargo can pass from the original bill of lading holder to a third party by means of endorsing the bill. Where the words 'to order' but no named consignee are added to the consignee box, the bill can be endorsed by the Shipper. Where the words 'to order' are added together with the name of a consignee, the bill can be endorsed by the named consignee.

Endorsing the bill simply means the Shipper of the named consignee signs the back of the bill and adds the name of the party to whom it is transferring the bill.

An order bill can be endorsed many times if the party endorsing the bill adds the words 'or order' after the name of the transferee when they endorse the bill. If the word 'order' is not added to the bill with the name of the new party, it is not possible for the new party (ie the endorsee) to again endorse the bill.  Instead the endorsee will be obliged to take delivery of the cargo. 

Example of a single endorsement

In this case the original consignee is Wheat Import AS. Wheat Import AS can choose to take delivery of the cargo. If Wheat Import is to take delivery it must not endorse the bill of lading to a third party. Alternatively, Wheat Import AS can choose to endorse the bill of lading to a third party. This is done by Wheat Import AS putting their stamp or signature on the bill of lading. The stamp or signature is normally put on the reverse of the bill. 

If the bill is endorsed to a specified third party, Wheat Import AS must write the name of the third party on the bill when it endorses the bill and puts its stamp or signature on it. Thus, if Wheat Import AS is to endorse the bill to a third party called Graincon AB, Wheat Import AS must write on the bill that the bill is endorsed to Graincon AB. Additionally, Wheat Import AS must put its stamp or signature on the bill to evidence that the bill has been endorsed.

If Wheat Import AS endorses the bill of lading without specifying the name of the party to whom the bill is endorsed (i.e. simply signs the reverse of the bill), the bill of lading becomes a bearer bill. As with any bearer bill, the party with lawful physical possession of the bearer bill is entitled to take delivery of the cargo.

Example of multiple endorsements

Endorsement of a bill multiple times works on the same basis as a single endorsement. In this case Wheat Import AS endorses the bill to a third party called Graincon AB. This is done by Wheat Import AS putting their stamp or signature on the bill and writing that the bill is endorsed to Graincon AB or 'to their order'. By adding the phrase 'to their order', or words to that effect, Graincon AB has the right in turn to endorse the bill to another party by adding its own stamp or signature to the bill of lading. A bill can in this way be endorsed multiple times between the date of shipment and final delivery provided that the phrase 'to their order' is added each time the bill is endorsed. The party who is the last party to have the bill endorsed to it has the right to demand delivery from the carrier. 

Negotiable bill of lading - Bearer bill

A bearer bill of lading is a second type of negotiable bill. A bearer bill can be 'blank'. That is, that no name has been added to the consignee box, which has been left blank. Alternatively, the words 'bearer' is inserted in the consignee box.

As set out above, it is also possible for a 'to order' bill to be converted into a bearer bill by the consignee signing the reverse of the bill without specifying a named party to whom the bill is being transferred.

Under a bearer bill of lading, the party who has lawful physical possession of the bill of lading has the right to take delivery of the cargo. If the bearer bill is physically transferred to a new party, that new party has the right to take delivery of the cargo. Since title to the cargo rests with the party with lawful physical possession of the bill, title to the cargo can be transferred multiple times by simply handing the physical bill from one party to the next.

Example of bearer bill

In this case the consignee box has been left blank. The bill is therefore a bearer bill. If the bill is physically in the possession of Wheat Import AS, the carrier has an obligation to deliver the cargo to Wheat Import AS. If Wheat Import AS physically sends the bill by courier to Graincon AB, Graincon AB has the right to take delivery of the cargo as soon as they are in physical possession of the bill. Graincon AB can in turn transfer physical possession of the bill to Grainex SA. By having physical possession of the bill, Grainex SA have title to the cargo and the right to demand delivery. Title to the cargo can then be passed from Grainex SA to another party by physically handing the bill to that other party and so on. 

Category: Bills of Lading