Ocean bills of lading have long been recognized as evidencing ownership of goods in transit. The document is written acknowledgment that the vessel has received cargo from the shipper for a voyage to a particular destination where delivery will be made.

In common carriage, bills of lading are classified as "straight" or "order" bills. the former consigns cargo to a specified party and is nonnegotiable. The latter consigns goods to the order of anyone and may be negotiated by endorsement. Order bills permit shippers to retain control of goods in transit by requiring payment for cargo before bills are furnished to buyers.

A primary duty of ocean carriers is to make cargo delivery to the proper party. This duty under a straight bill of lading is performed by delivering goods to the named consignee. Delivery under an order bill is more complex, because the consignee is not named in the document. The carrier will inform the notify party on the bill that the goods are ready for delivery. The notify party relays the information to the consignee who has purchased the bill. the consignee will then obtain its cargo by presenting the endorsed bill to the carrier.

Proper Delivery Is Key
The ocean carrier must make delivery to the holder of the order bill. Delivery to an unauthorized party subjects the carrier to liability. A carrier that delivers cargo without collecting the bill will be liable to any subsequent good-faith purchaser of the document.

In certain instances, ocean carriers are asked to deliver cargo without bills of lading. Carriers usually protect themselves by demanding bank guarantees. The guarantees will hold carriers harmless for claims that may arise for delivering goods to consignees unable to surrender bills.

Ocean bills of lading issued in the United States are governed by general maritime law and federal statutes (the Pomerene Act, Cogsa and the Harter Act). The Pomerene Act of 1916 (49 U.S.C. Sec. 8 et seq.) is the most important, yet least publicized, of these statutes.

Pomerene applies only to bills issued by common carriers for interstate transportation or from the United States to foreign countries. It has no application to inbound shipments.

The "Allegator Fortune" case (1994 U.S. Dist. Lexis 7405), recently decided by the Southern District Court by New York, is based on the Pomerene Act and raises a point of importance to those using order bills in ocean trade: Must the carrier collect bills of lading before delivering cargo? The decision also has admiralty lawyers and marine insurers re-examining this old statute.

Case Sets Precedent
In the Allegator Fortune case, an American shipper sued six ocean carriers for improper delivery of 12 cargoes to bonded warehouses in South Korea belonging to the notify party on order bills. The $1.55 million payment for the goods was never received by the shipper after the cargo disappeared and the notify party declared bankruptcy.

The shipper argued that, under the Pomerene Act, the carriers failed to obtain bills of lading from the notify party before releasing the goods and were therefore liable for the loss.

The ocean carriers argued that the Pomerene Act allows delivery to "a person lawfully entitled to possession of the goods" who is not the holder of the bill of lading.

The court found the shipper had urged the carriers to make delivery to the notify party without the surrender of bills of lading. The court then held there is no absolute duty on carriers to take up bills before delivery where this duty is imposed neither by the terms of the bill of lading, nor by the mutual understanding of the parties, nor by the requirements of the Pomerene Act.

The "Allegator Fortune" case makes it clear that there is nothing in the Pomerene Act that obligates the carrier to take up bills of lading. Under the Act, the carrier has an option. It is not obliged to make delivery except upon production and surrender of the bill; but it is not prohibited from doing so.