| A shipper/consignor or receiver/consignee, who having paid an
independent broker, who in turn has failed to pay the motor carrier for transportation
services, is generally not liable and obligated to pay a second time, in either contract
or common carriage. Background
The double payment issue involves claims for nonpayment of freight charges made by
carriers providing actual transportation, but who have not been paid for their services.
Generally, the carrier looks to the third party for payment of freight charges, which
the third party has obligated itself to pay. The third party is usually designated to act
as the carriers agent for purposes of collection of freight charges, and thus once the
third party has been paid, the carrier is deemed paid as well and must look to the third
party.
Third parties have both legal and market obligations to pay freight charges. If the
third party fails to pay the carrier after being paid by the shipper, however, the shipper
is generally not obligated to pay a second time.
Discussion
Written contracts which govern the transaction, customarily contain the express mutual
agreement that the broker agrees to be liable for timely payment of freight charges, and
the carrier agrees to look to the broker for payment of the freight charges. Credit is
thus extended to the broker. In addition, the agreement usually provides that the carrier
designates and appoints the broker as its agent for purposes of billing and collecting
freight charges, and is the party to whom all documents necessary for that purpose will be
sent.
The broker's liability for freight charges is, therefore, established by mutual
agreement, and generally considered as added to, or substituted for, the liability of the
shipper/consignor or receiver/consignee. Moreover, the carrier's express designation of
the broker as its agent for collection further establishes that the carrier looks to the
broker for payment of freight charges collected for the carrier's services. Under the
general principles of agency and by operation of law, payment to an agent is deemed
payment to the principal.
The shipper or receiver's payment of freight charges to the broker, therefore, is
payment to the carrier. The obligation of the shipper/consignor or receiver/consignee is
satisfied and terminated by payment to the broker as the agent of the carrier.
In situations in which the parties do not execute a written contract, the result is the
same. An express agreement for broker payment and the broker's designation as agent of the
carrier found in contract carriage is, however, missing in common carriage. Nevertheless,
in most circumstances, the conduct of the parties results in the legal conclusion that an
implied agency is created between the broker as agent, and the carrier as principal. As a
result, the shipper's payment to the broker is deemed payment to the carrier.
Additionally, the courts find that the equities favor the party who has already paid
the freight charges to the designated recipient to whom credit was extended by the
carrier. Thus, the courts generally find that the carrier is stopped from making claim for
a second payment from the shipper or receiver when payment has already been made to the
one held out by the carrier as being eligible to receive payment on its behalf. The
shipper/consignor may also protect itself by executing the no recourse option in Section 7
of the bill of lading. A receiver/consignee who has prepaid the transportation will not be
held to pay again. Section 7 cannot be used in prepaid transactions.
In both situations, the motor carrier has essential control and responsibility. The
carrier, while in possession of the goods for deliver, controls the situation. The carrier
chooses to deliver and give up its possessory lien rights in favor of an extension of
credit and collection arrangement. It is the carrier who chooses to submit the necessary
billing documentation (bills of lading, invoices, etc.) for collection to the broker,
rather than to the consignor or consignee directly. The carrier's control and choice
result in judicial conclusions that the broker is the entity the carrier looks to for
payment, and has been chosen and appointed the carrier's agent. In such circumstances, the
payment of a shipper or receiver to the broker satisfies the obligation to the carrier,
and the carrier is stopped from making additional claims.
Case Law
A review of relevant motor carrier cases generally confirms the points just
described. A few cases can be found supporting the proposition that carriers can collect
freight charges from the shipper when the broker has not paid the carrier on the grounds
that the broker was acting as an agent for the shipper. These cases, however, are very
fact specific and are quite unusual to the normal shipper-broker-carrier transaction or
are quite distinguishable because of certain actions by the parties Cases Finding
Shipper/Consignor Liability
In Ranger Transportation v. Wal-Mart Store, 903 F.2d II85 (8th Cir. 1990), the court
concluded that Wal-Mart would have to pay Ranger the amounts it had already paid to a
third party after Ranger had notified Wal-Mart not to pay the third party since that party
was not paying Ranger. Despite the notice from Ranger, however, Wal-Mart continued to make
payment to the third party. In those circumstances the court held Wal-Mart liable.
In Dal-Tile Corp. and Red Arrow Freight Lines, No. 40437, 1990 I.C.C.Lexis 350 (I.C.C.
May 15, 1990), the Interstate Commerce Commission found that the unlicensed broker was not
an agent for Red Arrow with authority to establish negotiated rates for that carrier and,
therefore, was a agent for the shipper.
In Moller Steamship Co. v. Woodville Co., (S.D.N.Y. April 8, 1981), No. 79 Civ. 3832
(JMC), the court found that the shipper, Woodville, had never paid transportation charges
to either the steamship company or the ocean freight forwarder. The court ordered the
shipper to pay the unpaid transportation charges due and also the unpaid freight
forwarding fees to the forwarder.
Cases Finding No Double'Shipper/Consignor Liability
In ANR Freight System v. Weldbend Corp., 1993 U.S. Dist. LFMS 3558 (N.D. IL. 1993), the
court denied the carrier recovery against the shipper/consignor which had previously paid
the licensed broker, which in turn failed to pay the carrier. In reviewing precedent and
the circumstances of the case, the court found that "time honored principles of
equitable estoppel bar ANR's claim." Central to the holding was the carrier's
continued reliance on the broker for billing and collection, no notice to the shipper as
to non-payment, and the violation of credit regulations. In Olson Distributing Systems v.
Glasurit, 850 F.2d 295 (6th Cir. 1988), the carrier was denied recovery against the
shipper which had paid the broker. Again, the court in the circumstances found that the
shipper could reasonably believe and rely upon the fact that payment to the broker
resulted in payment to the carrier without problem. The absence of notice and failure to
comply with credit regulations effectively estopped the carrier from recover.
In Southern Refrigerated Transportation Co., Inc. v. R.L.N. Traffic Unlimited, 1985 WL
941 (N.D. IL. 1985), the determinative issue was "whether R.L.N. (a third party
farmers cooperative), was acting as the shipper's agent or as an independent
contractor." The court concluded, as a matter of law, that R.L.N. was not an agent,
but an independent contractor, and equitable estoppel placed responsibility on the
carrier, not shipper who had already paid. The carrier's recovery was thus denied.1
In Glosson Enterprises, Inc. v. Recesl Co., 1984 CCH Fed. Carr. Cas. 83137 (D. Mass.
1984), the court denied recovery to the motor carrier against the
shipper which had paid the broker. It was concluded that there was no
contract between the carrier and the
shipper, and the broker was an independent contractor not the agent of the shipper. Of
significance was the fact that the broker had been identified as the carrier on the bill
of lading, and the party to which the carrier looked to for billing and collection.
In Consolidated Freightways Corp. v. Admiral, 442 F.2d 56 (7th Cir. 1971), the carrier
was denied recovery against the consignee which had paid an unlicensed broker which, in
turn, failed to pay the carrier. Emphasizing the carrier's responsibility and lax credit
extension, the court held that equitable estoppel barred the carrier's claim. The court
also found that the broker was an independent contractor, not an agent of the consignee.2
This latter case has been reviewed and cited with approval by the Supreme
Court in So. Pacific Transp. Co. v. Commercial Metals Co., 456 U.S. at 346-348.
Other Issues
Carrier Brokerage: there is also an unknown third party activity which a
shipper may encounter when the carrier, to whom the shipment has been tendered, also is or
acts as a broker, and without notice engages another carrier to provide the actual
transportation. If the second carrier does not get paid, it may attempt to claim against
the shipper. The shipper's payment to the first carrier to whom the load was originally
tendered defeats the second carrier's claim against the shipper for payment. The second
carder is likely to be deemed a carrier engaged in an "interline of convenience"
for the first carrier.
Co-Brokerage: the co-broker situation also givesriseto both the
"knowing" and "unknowing" involvement of third parties for shippers
and third parties. When a co-broker arrangement is knowingly entered into between third
parties, the double payment issue arises if one of the third parties fails to pay either
(1) the other third party or (2) the transporting carrier. In the first instance, the
defaulting third party generally leaves the obligation to the other third party to pay its
carrier customer, i.e., the transporting carrier. The third party asking payment may then
seek to recover from the shipper. Having already paid, the shipper's defenses are the same
as in other cases. In the latter situation, the transporting carrier may seek payment from
either the shipper or the third party. Again, having paid, the shipper and the third party
have the same legal defenses of equal merit against the carrier's claims.
Factoring: with the increased factoring of accounts receivable, the
factor is introduced as a new party in the transportation transaction. Faced with
aggressive collection efforts of accounts receivables for freight charges due, shippers
and third parties are frequently making payment to the factor of an entity that does not
pay the transporting carrier. Again, although equitable defenses are available, security
in the accounts receivable may be legally flawed. Rather than being the arbiter of whom to
pay, the easiest solution, as it always is when faced with competing claims for payment
not yet made,,istoissuejointchecksorinterplead(deposit)themoneydue. And,ifpaymenthasbeen
made before notice, carrier efforts to recover a second payment will generally be denied.
Conclusion
In these cases, although the decisions are fact-specific, it is evident there is a
continuing trend of courts to deny, under equitable principles, imposing on the innocent
party an obligation to pay a second time. The critical element common to all these cases
appears to be the degree of control the carrier has in choosing with whom it does
business, how it make delivery, to whom it looks for payment, extends credit, and sends
its invoices, statements, and delivery receipts necessary for payment. All transaction
documents should adequately and accurately reflect the transportation transaction, and be
reduced to writing.
1 In the shipper agent-shipper association category
of cases, the prevailing rule seems to be that the individual shipper members of a
shipper's association may be liable for
freight charges unpaid by the association. See, Southern Pacific Transp. Co. v.
Continental Shipper Assn., 642 F.2nd 236 (8th Cir. 198 1); Central States Trucking
Co. v. I.R. Simplot Co., 1992 CCH Fed. Carr. Cas. 83751 (7th Cir. 1992).
2 A consignee who has prepaid the freight charges to
the consignor may raise equitable estoppel against a carrier's claim. See, So. Pacific
Transp. Co. v. Campbell Soup Co., 455 F.2d 1219 (8th Cir. 1972). If the consignor in turn
pays a broker, estoppel may again apply in favor of consignor against carrier's
claim. |
