Letter of Credit Forum

Hello

Firstly, as there is no global ‘law’ of bills of lading – so you will find differing positions in differing jurisdictions. You would even find the position different for dry cargo as opposed to a deteriorating or perishable shipment.

What we can say generally is that consigning the bill ‘to order’ is an endeavour to make it function as a transferable instrument. In this, the holder would have the rights enjoyed by the party they receive the bill from i.e. the rights to further transfer the goods – or to claim them.

Holding a bill does not necessarily transfer property. ‘Ownership’ is an action of law, not of contract. Accordingly, passing the bill from one party to another may be seen as evidence of the parties’ intentions to pass property – but it would be for the law to decide if this intention is permissible. Posession of the bill confers rights and privileges on the holder, but of itself it does not constitute ownership.

Under normal conditions, I think the bank would have every right to dispose of the bills, but interestingly, in this instance one of the few conditions where the law may have a very strong opinion against this disposal exits in the property aspect of bills in the case of an insolvency.

Insolvency laws are often seen as paramount laws when deciphering property matters – for example, in your case;

a.       Is there a sufficient link between the insolvent applicant and the bill?

b.      Did the applicant pledge the paperwork as security to the issuing bank’s finance?

c.       Crucially; are there other creditors with greater claims on the underlying property than the holder? (Outstanding taxes for example where the State might be seen as a preferred creditor and so on)

d.      Would the holder – the bank – have to surrender the property to the executors of the insolvent estate and become just another in a long line of creditors?

The devil is in the detail...but a declared insolvency would bring the matter to a certain head. Without the insolvency we need look to the banks rights of lien and the more uncertain areas of local contract laws.

Others will be able to add further I am sure...

cheers

phill doran

"...in armour bright, the merchant men..." 

In my opinion, you should ask this case to a lawyer.

As an issuing bank you should honor the complying presentation. The commercial relationship between the buyer and the issuing bank is outside scope of the LC rules -assume ucp600-. The local law is the source of reference in your question.

Regards,

International letter of credit consultancy services.

Dear Rafa,

in order to answer your question I think there are 3 things to consider:

1. the issuing bank, before the issuance of the letter of credit, for its own interest, is supposed to check the financial situation of the buyer-applicant. Consequently, if the buyer is not able to reimburse the issuing bank due to financial problems, I think the issuing bank would never undertake to pay to nobody.

2. the consignee of a Bill of Lading has the right to do what he-she preferes concerning the good represented by the Bill of Lading.

3. the issuing bank, before issuing letter of credit signs a contract with the buyer-applicant and the bank undertakes to  pay in buyer's name the beneficiary in case .............

So, I think that the issuing bank could sell the goods while they are travelling towards the buyer, but you must remember that, in this case, the sell of the goods would be an action outside the "contract of letter of credit" and the bank would not have the right to do anything with the good because there is no contract stating that the bank is the owner or wants to buy the good. 

Another thing to consider is that in same country the property of goods pass to the buyer at the moment in which the contract of sale is signed.

Damiano

Padua, Italy