LEGAL PRINCIPLE: COMMERCIAL LAW – Bill of Lading – Nature and Function – Document of Title
PRINCIPLE STATEMENT
One of the three vital functions of a bill of lading is that it is a document of title to the goods specified in it in the sense that where the owner of the goods indorses the bill of lading in favour of a purchaser for value and transfers same to him, the owner of the goods transfers the property in the goods to the purchaser. While a bill of lading is a negotiable or an assignable document of title to the goods, it is however NOT a negotiable instrument under the Bills of Exchange Act, because, unlike a bill of exchange, the bona fide holder of a bill of lading for value cannot acquire a better title than the transferor possesses.
RATIO DECIDENDI (SOURCE)
Per Achike, JSC, in Boothia Maritime Inc. & Ors v. Fareast Mercantile Co. Ltd. (2001) NLC-901999(SC) at p. 15; Paras B–E.
"One of the three vital functions of a bill of lading is that it is a document of title to the goods specified in it in the sense that where the owner of the goods indorses the bill of lading in favour of a purchaser for value and transfers same to him, the owner of the goods transfers the property in the goods to the purchaser. While a bill of lading is a negotiable or an assignable document of title to the goods, it is however NOT a negotiable instrument under the Bills of Exchange Act, because, unlike a bill of exchange, the bona fide holder of a bill of lading for value cannot acquire a better title than the transferor possesses."
EXPLANATION / SCOPE
A bill of lading is a document of title—indorsement and transfer passes property in goods to a purchaser for value. However, it is NOT a negotiable instrument under the Bills of Exchange Act. Unlike a bill of exchange, a bona fide holder of a bill of lading for value cannot acquire better title than the transferor possessed. The nemo dat rule applies. The holder takes subject to defects in transferor’s title. This distinguishes bills of lading from bills of exchange and cheques. The principle protects true owners from unauthorized transfers. The bill of lading’s negotiability is limited—it is assignable but not “negotiable” in the strict legal sense. The holder’s rights depend on the transferor’s title.