Banking, Business

Documents of Title to Goods

Documents of Title to Goods

Documents representing the title to certain goods are also accepted as security against loan. In this kind of security, the actual goods are not delivered to the creditor (Bankers). Only the documents, which show the rights of ownership of these goods, are deposited. Following are the main documents of title to goods.

  1. Bill of Lading.
  2. Dock Warrant.
  3. Delivery Order.
  4. Railway Receipt
  1. Bill of Lading: It is a receipt/acknowledgement issued and signed by the authority of ship’s captain. This receipt shows that the goods mentioned in it have been received duly on the board to deliver according to the agreed terms and conditions. When the goods reach the destination, the holder of bill of lading in due course can receive the goods by presenting this bill to the authority.
  2. Dock Warrant: This document is issued by a dock company stating that the goods mentioned in it have been duly received for the delivery to a particular destination or to the particular person mentioned their in or to whom it is endorsed. Goods are delivered to the holder or endorsee of this document.
  3. Delivery Order/Note: This document is addressed to the owner of warehouse, where the owner for safety or storage purpose keeps the goods. Owner of the goods writes an authority letter as an order to deliver the goods to a particular person. Delivery order is also acceptable as security against loan.
  4. Railway Receipt: If the goods are sent by railway then the railway authority issues a receipt in this regard, which shows that the goods written in it have been received to transfer to a particular destination according to the agreed terms & conditions. This receipt is also acceptable as security because by depositing it, rights of receiving the goods are transferred to the bank (creditor).

ADVANTAGES

Following are the advantages of documents as security.

  1. Easily Saleable: In case of default, these documents can be easily sold to recover the amount.
  2. Easily Transferable: Rights of these documents can be easily transferred without any legal formality.
  3. Easy determination of Price: Price of these documents can be easily determine because of availability of price and quantities therein.
  4. Re-acceptability: These documents can be presented as security to loan if the banker faces financial crises.
  5. Stable Prices: Normally these documents relate to such goods whose prices remain stable for a long time. Hence there is minimum chance of loss.
  6. Reliable: These documents have real worth and are-reliable because of the physical existence of goods.
  7. Un-disputed Rights: Rights of ownership of these documents are undisputed, so they are safe and risk free.

DISADVANTAGES

  1. Decrease in Prices: Sometimes, the prices of goods fall incredibly which may cause problem for a bank to recover the amount of loan.
  2. Perish-ability of Goods: Sometimes, the goods kept in warehouses may perish due seasonal effects or insects, which results in loss for the bank.
  3. Vague Ownership / Fraud: Sometimes, the bank may suffer loss due to vague title of documents of goods. This can happen if trader prepares fake documents or makes changes in the particular of original documents.
  4. Chances of Theft: There are always chances of theft of goods in the absence of good security system or dishonest workers may pilferage the goods.
Tagged , , , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *