In international trade, banks often provide essential services to cargo shippers, such as making loans and issuing letters of credit.

For these financial services, shippers enter into a variety of credit arrangements that give banks security interests in their goods.

Often the shipper will have a vessel's master issue a bill of lading for the goods to the order of the bank as consignee (the party to whom the goods are to be delivered). The bill of lading then will act as a receipt and document of title for the cargo, as well as the contract of carriage. This permits the financial institution to hold the bills of lading and to maintain security interests in teh shipper's cargo.

As a rule, banks do not concern themselves with the payment of freight charges to ocean carriers that transport their collateral. The cargo shipper, rather than the consignee, is primarily liable to vessel owners for frieght charges on ocean shipments.

It is only when there is some specific obligation on the part of the consignee in the bill of lading to pay freight charges that the courts will look beyond the shippers for freight obligations.

If the bill of lading imposes no expressed liability on the consignee to pay freight, courts sometimes examine the consignee's conduct to determine whether a promise to pay may be implied. The most obvious indication of a consignee's implied agreement to pay freight charges occurs when the consignee accepts the goods as his own. Even when there is no actual acceptance of the goods, presumptive ownership may arise by the consignee's exercise of dominion and control over the cargo.

The recent case of A/SD/S TORM (1990 AMC 2232) (now on appeal) in the federal court for the Southern District of New York illustrates that banks, named as consignees in bills of lading for securing reasons, may find themselves liable for shippers' transportation charges. This can happen when banks attempt to exercise dominion and control over their collateral to protect their investments.

In the Torm case, a Swiss bank financed a $5.2 million purchase of a gasoline cargo for a shipper to be transported from Venezuela to Oregon aboard the M/V Torm Rotna.

During the voyage there was a substantial drop in market price for gasoline, and the bank realized that it could suffer a substantial loss. The bank was informed by its insolvent shipper that hte cargo would be discharged into a third-party's storage tanks and sold to wholesalers. The sales procees would be paid to the bank to reduce the shipper's debt.

When the vessel arrived in Oregon, the bank authorized the cargo to be discharged to the facility for resale in accordance with the bank's instructions. Neither the shipper nor the bank paid the $586,000 freight charges. The vessel owner then sued the bank to recover transportation charges.

The court found the bank never specifically undertook to pay the fright fees.

However, the bank made an implied promise to pay these charges because it exerted dominion and control over the cargo. The bank would not authorize a cargo discharge until it received the financial information concerning the storage facitliy. Thereafter the banks required the storage terminal to issue warehouse receipts and would not permit cargo to leave the terminal without its consent.

In holding the bank liable for the $586,000 freight charges, the court emphasized that the bank clearly benefited from the shipowner's services. The bank's losses would have been greater had not the vessel delivered the cargo.

The TORM case should send a message to banks that actively involve themselves in shipping matters to protect their collateral. Parites involved in international shipping are not immune from its inherent risks.