Endorse First, Cancel Later — Can the Beneficiary Still Win?

Intro:

Sometimes in trade finance, a small action like endorsing a bill of lading too soon can create a big legal headache. What happens if a bank endorses the BL, then cancels that endorsement and returns the documents due to discrepancies? Here’s Mr. Old Man’s take — plus practical tips for both the beneficiary and the issuing bank on how to win if things end up in court.

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QUESTION

Dear Mr. Old Man,

Good day.

If an issuing bank endorses the original bill of lading (BL) to release goods but does not hand over the documents to the applicant, and later cancels the endorsement and returns the documents to the beneficiary’s bank due to valid discrepancies — what legal action can the beneficiary take against the issuing bank?

On the other hand, how can the issuing bank protect itself if the beneficiary accuses it of handing over the documents and then taking them back?

Note: The goods are defective as described in the BL.

Best regards,

Chanchal

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ANSWER

Hi Chanchal,

Thank you for your question.

It is worth noting that when presented documents are discrepant and the issuing bank decides to refuse them, it must return the documents exactly as received, without alteration, and should avoid endorsing the BL — even when the BL is made out to the order of the bank.

If the bank mistakenly endorses the BL before deciding to refuse and later cancels that endorsement, could the beneficiary sue? In my view, if valid discrepancies exist and the issuing bank issues its refusal notice within 5 banking days of receipt (UCP 600 Article 16), the beneficiary would likely not succeed in court — unless they can prove the applicant took delivery of the goods by using the endorsed BL or a shipping guarantee issued by the bank.

Such an endorsement may be treated as a mistaken endorsement and cancelled, provided no delivery occurred.

Neither UCP nor ISBP governs this exact situation. The outcome will depend on the applicable local law and the court’s interpretation.

Tips – How to Win

Beneficiary’s Side

1. Prove delivery occurred: Show evidence that the applicant took delivery using the endorsed BL or a shipping guarantee from the issuing bank.
2. Challenge validity of cancellation: Argue that once an endorsement is made, rights in the BL are transferred and cannot be unilaterally cancelled.
3. Leverage goods defect issue: If the BL description reflects defective goods, claim the bank’s endorsement facilitated delivery of non-conforming goods.
4. Argue implied acceptance: Endorsement before refusal could imply the bank intended to honour.

Issuing Bank’s Side

1. Rely on UCP 600 Article 16 compliance: Show notice of refusal was sent within 5 banking days and that valid discrepancies existed.
2. Prove no delivery occurred: Demonstrate the endorsed BL never left the bank’s control or was used to claim goods.
3. Invoke “mistaken endorsement” principle: Under local law, a mistaken endorsement can be cancelled if no third-party rights have vested.
4. Separate goods condition from liability: Under LC rules, banks deal with documents, not goods.
5. Point to local law: Emphasize the court should apply domestic commercial/maritime law that may recognise valid endorsement cancellation.

Best regards,

Mr. Old Man