Commercial Law

by Richard D. Currier; Richard William Hill; Samuel Williston

GOODS BEHIND BILL OF LADING INFERIOR IN KIND OR QUALITY.—The second difficulty is somewhat analogous to the first. Suppose there are some goods behind the bill of lading but they are not of the quantity, quality or kind that the bill of lading specifies. This is a difficulty that cannot very well be wholly obviated. We may suppose that the goods originally were of defective quality and kind, or that they became so. Suppose, first, that a number of barrels of sand are delivered to a railroad and they are marked barrels of sugar, and the carrier issues a bill of lading for so many barrels of sugar. Now, the purchaser of the bill of lading finds, when he comes to realize on his security, that he has got barrels of sand with a freight bill against them for more than they are worth. What can he do? Of course, he has a right of action against the fraudulent shipper, but perhaps the shipper has run away or is irresponsible. Is the carrier liable here? The answer to this is, no. In the first place, the bill of lading says, "Contents and condition of contents unknown," so that the carrier has expressly guarded against promising that the barrels really contained sugar. And even aside from this clause, it has been held that the carrier is not liable for such a concealed defect. If, however, it was apparent when the carrier received the goods that they were not of the kind or quality named, then the carrier would be liable if it issued a bill of lading without specifying the difficulty. Thus, if the bill of lading called for 100 barrels of sugar and there were 95, the carrier would be liable for the missing five. It has admitted it received 100, and has promised to deliver 100; it must do so or be liable.

SHIPPER'S LOAD AND COUNT.—There is an exception to this last statement, however, in regard to one class of bills which are very common in some lines of trade; these are "shipper's load and count" bills. In many cases railroads build spur tracks to factories and run empty cars up to the factories, where the shipper loads the cars and himself writes out the bill of lading. An enormous fraction of the business of the country, consisting of the large shipments from factories, at any rate, is done in this way. The railroad agent simply signs a bill of lading as it is presented to him by the shipper who has made out the whole bill except the signature, and has loaded the car, the railroad agent seeing nothing of it. The railroad agent stamps across such a bill of lading, "Shipper's load and count." That means, "The shipper loaded this car and counted the contents. We are not responsible, therefore, for the loading or the counting." The second great principle, in regard to lending money on bills of lading, is never to touch a shipper's load and count bill which obviously has not the responsibility of the carrier. You would have to rely wholly on the honesty of the shipper. The railroads, seeing that they are freed from liability on this form of bill, have sometimes, in some parts of the country, thought it would be a good thing to stamp every bill, "Shipper's load and count." That is an injury to the shipper, because the banks do not like to take such bills of lading, and yet not infrequently he cannot do much about it. In fruit shipments from California that sort of thing has been very common.

DESTRUCTION OF GOODS IN TRANSIT.—So much for defects arising at the time of shipment; but one may also have difficulties which arise after the shipment. Suppose the goods are absolutely destroyed in transit by any of a variety of causes. The owner of the bill of lading necessarily loses his security, unless under the bill the carrier is responsible for that particular kind of loss. But it may happen that the carrier is not responsible for that particular kind of loss. One may protect himself here, perhaps, by insurance of some kind. That would be the way to obviate this sort of risk, but if complete protection against this kind of risk is desired, the insurance ought to be not only against fire but against destruction, or really against deterioration in any form. Of course, goods which are likely to depreciate in transit are not as good security as goods which are more durable. A cargo of bananas is not as good security as a cargo of grain.

LACK OF TITLE IN SHIPPER.—A third risk, which any one who takes a bill of lading runs, is lack of title to the goods in the shipper. Suppose the shipper stole the goods and brought them to the carrier and demanded and received an order bill of lading. That looks like as good a bill of lading as any, and the goods may be all right, but the holder of the bill of lading cannot keep the goods. They still belong to the original owner from whom the shipper stole them.

SPENT BILLS.—A fourth risk is that the bill of lading may be a "spent bill," as it is called. A spent bill is one where the goods have been delivered by the carrier at destination, but the bill of lading has not been taken up. A bill of lading is unlike a note in this respect—it has no date of maturity. When you buy a promissory note you can guess whether it has been dishonored or not, by whether the time for performance has come or not; but if a bill of lading for a cargo of goods is offered to you, you have no means of telling whether the cargo arrived the day before or whether the goods have been removed. Of course, the carrier ought to take up an order bill of lading when the goods are delivered, and in the Uniform Bills of Lading Act that requirement is made, and the carrier is made liable on the bill if it is left outstanding and is purchased by a bona fide purchaser for value, who supposes that the goods are still in transit. This trouble with spent bills is not so likely to arise as a corresponding difficulty with what may be called "partially spent bills." It is not uncommon for partial delivery to be made and the bill of lading still left in the hands of the holder. Commonly, when all the goods are delivered, the bill of lading is taken up, but when part is delivered the carrier does not feel justified, and indeed is not justified, in demanding the surrender of the bill. What ought to be done, of course, is to indorse on the bill of lading the fact that part of the goods has been delivered, with a specification of the part. This also is required by the bill of lading statute, and a carrier is made liable for failure to indorse on a bill of lading the fact that part of the goods described therein has been delivered.

LACK OF TITLE TO BILLS OF LADING.—A fifth risk, which one who buys or lends money on bills of lading runs, is the chance that the person from whom he takes a bill of lading may not have title to it. This risk is the same that one runs in regard to negotiable paper. If an indorsement is forged, or if for any reason the holder of a bill of lading—or for that matter of a bill of exchange—cannot give a good title to it, one who purchases from him will not get a good title.

MEANING OF NEGOTIABILITY.—The extent of this risk depends somewhat on the degree of negotiability which is given to bills of lading, and requires an understanding of what negotiability means. Ordinarily, one who buys a contract right gets no better right than has the person from whom he buys it. On the other hand, though one who buys chattel property capable of delivery, like a horse or a book, does not get title if the person who sold it to him had no legal title, yet a purchaser does get a good title to such property if he buys, in good faith and for value, from a person who has legal title though not an equitable title. You will see this best by an illustration. If a fraudulent person has a contract right assigned to him by fraud, and then sells the contract right to a bona fide purchaser, the bona fide purchaser gets no greater right than the fraudulent person has; in other words, he cannot collect on the claim which he has obtained. On the other hand, if a fraudulent person has assigned to him, by fraud, a horse or a book, the legal title to which was in the assignor, he has acquired the legal title, and though he is subject to an equity, as the phrase is, and the horse or the book could be taken away from him by the defrauded person, if he could act quickly enough, yet a purchaser for value, without notice of fraud, will get an indefeasible legal and equitable title to the horse or the book.

Negotiable paper—like bills of exchange and promissory notes—is subject to the same rule as the horse or book, and is not subject to the same rule as ordinary contract rights; that is, a purchaser in good faith of an order bill of lading from a vendor having legal title thereto, will get title to it and to the goods behind it, in spite of the fact that the person from whom the bill of lading was bought had obtained title by fraud, and could have had the bill of lading, or the goods behind it, taken away from him by the person defrauded.

Another feature of negotiability is that the terms of the instrument, on the face and back, are regarded as definitely showing the title. If the instrument is made to A's order, A has power by indorsement to give a good title, whatever may have been the reason the instrument was made payable to A, and even though it was agreed by the original parties that A should be merely an agent and have no title or right to transfer. If the instrument is made out on its face to bearer, or is indorsed in blank by the person to whom it is made out on the face, anyone acting in good faith may treat the holder as the owner and acquire a good title from him, though in fact the holder may not have had a good title. Under the Uniform Bills of Lading Act, and under some other local statutes, bills of lading running to order are given full negotiability, but in many States they are only partially negotiable.

INDORSEMENT OF BILLS OF LADING.—Order bills of lading need, for their negotiation, indorsement by the consignee, just as a promissory note needs indorsement by the payee. But there is one difference between the indorsement of a bill of lading, it may be said in passing, and the indorsement of a promissory note. The indorser of a bill of lading incurs no liability by his indorsement. His indorsement is simply a transfer. If it turns out that the bill of lading is not honored by the carrier, the holder of an indorsed bill of lading cannot come back on the indorser in the way that the holder of a promissory note can come back on the indorser if the maker fails to pay.