Collecting freight charges owed to the motor carrier is challenging in the transportation industry and throughout the court and legal process.

The legal authorities below are aimed to give the motor carrier and its legal counsel an advantage in obtaining a successful outcome with a transportation collection matter.

COLLECTING FREIGHT CHARGES FOR THE MOTOR CARRIER

Shipper Liability:

BILLS OF LADING IS THE CONTROLLING CONTRACTUAL DOCUMENT PROVIDING THE CONTRACTUAL OBLIGATIONS BY AND OF THE PARTIES

The United States Supreme Court ruled more than three decades ago that the Bills of Lading are the controlling contractual document setting forth the duties and obligations of the Shipper/Consignor, Receiver/Consignee, and the Delivery Motor Carrier(s). Southern Pac. Transp. Co. Vs Commercial Metals Co., 456 U.S. 336.

LIABILITY FOR PAYMENT OF MOTOR CARRIER FREIGHT CHARGES TO PARTICIPATING CONSIGNOR/SHIPPER, CONSIGNEE/RECEIVER, AND/OR BROKER OWED TO THE MOTOR CARRIER(S).

Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008) is the controlling law in California on this payment issue as well as consignor and consignee liability, since 2008. The court also ruled that regardless if the shipment was earmarked Prepaid or Collect, the consignee along with the shipper and broker are liable to the motor carrier for unpaid transportation fees.

Courts have determined that a shipper/consignor and/or receiver/ consignee bear the risk when it chooses to pay for freight charges through a broker rather than directly to the carrier.  Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008).  Regardless of the brokers they choose shippers and/or receivers, remain bound to pay the carrier directly for services rendered per the bill of lading.  The carrier has right to expect payment pursuant to the bill of lading regardless of any separate contract between the shipper and the broker. Id. The Bedrock Rule of Cartage is that the Motor Carrier always gets paid. Id.  Payment to a third party other than to the motor carrier does not extinguish the debt owing to the motor carrier. Id. To date the Oak Harbor decision has been cited favorably 32 times by courts across the country. See also, Southern Pacific Transportation Co. v. Commercial Metals Co., 456 U.S. 336 at 342 (1982)

The Bedrock Rule of Carriage sets forth the Rule of Law that “absent malfeasance, the carrier gets paid.”. Excel Transportation Services, Inc. vs. CSX Lines, LLC, 280 F.2d 617, 619 (S.D. Tex. 2003).

CAVEAT: SECTION 7 OF THE BILL OF LADING:

One caveat to the shipper’s liability is where the motor carrier agrees to a Non-Recourse proviso and waives its right collect freight charges against the Shipper. This Non-Recourse provision must be executed specifically within the Section 7 Box on the Bill of Lading. Absent the specific independent signature in the Section 7 box makes such Non-Recourse Provision to be ineffective and unenforceable.

Another issue pertaining to the Section 7 & Non-Recourse provision arises when the Bill of Lading is marked Prepaid, Shipper guaranteeing payment of freight charges by operation of law, but the Shipper also independently executes the Section 7 Non-Recourse provision precluding the motor carrier to come back to Shipper for payment of freight charges upon the Consignee fails to pay.

Under the above scenario, does this mean the Shipper can escape liability for payment of freight charges, due to the Non-Recourse Provision, even though the Shipper has designated payment terms to be Prepaid ?. No. Since both of these terms, Prepaid and Non-Recourse would be contradictory terms. The Prepaid payment term must be paramount. Otherwise, the Shipper would be able to simply escape/shield liability and payment by merely executing the Section 7 Non-Recourse Section 7 of the bill of lading.

CAVEAT: Shipper’s Modified Language to the Bill of Lading to Shield Liability:

Because of the established judicial rulings set forth in Oak Harbor vs. Sears, Id., for requiring Double Payments by Shippers, Consignees, and Brokers where the freight charges has been paid to third parties other than the delivery Motor Carrier, Shippers have modified the language set forth in and on the Bill of Lading to shield liability and payment of the freight charges due and payable to the delivery motor carrier by operation of law.

One such attempt is to insert on the bottom of the Bill of Lading language stating that “ payment to an intermediary is payment to the motor carrier”. First, this payment term statement would be against the Rule of law and Public Policy that the only party entitled to payment of freight charges is the delivery Motor Carrier. Oak Harbor Vs. Sears, Id. . Secondly, there would be also a legal issue as to whether a truck driver would have the authority from its officers, directors, or managers of the trucking company to accept and bind this additional payment term different from that was agreed upon, prior to pick up of the load, as between the shipper and motor carrier. Thirdly, this modified language on the bottom of the Bill of Lading constitutes different and material terms requiring acceptance only by an owner, member of the board of directors, or company manager. Absent such acceptance from persons of company or corporate authority, this would make this additional payment term to be of no legal consequence and ineffective under operation of law.

Consignee Liability:

LIABILITY FOR PAYMENT OF MOTOR CARRIER FREIGHT CHARGES TO PARTICIPATING CONSIGNOR/SHIPPER, CONSIGNEE/RECEIVER, AND/OR BROKER OWED TO THE MOTOR CARRIER(S).

Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008) is the controlling law in California on this payment issue as well as consignor and consignee liability, since 2008. The court also ruled that regardless if the shipment was earmarked Prepaid or Collect, the consignee along with the shipper and broker are liable to the motor carrier for unpaid transportation fees.

Courts have determined that a shipper/consignor and/or receiver/ consignee bears the risk when it chooses to pay for freight charges through a broker rather than directly to the carrier.  Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008).  Regardless of the brokers they choose, shippers and/or receivers remain bound to pay the carrier directly for services rendered per the bill of lading.  The carrier has right to expect payment pursuant to the bill of lading regardless of any separate contract between the shipper and the broker. Id. The Bedrock Rule of Cartage is that the Motor Carrier always gets paid. Id.  Payment to a third party other than to the motor carrier does not extinguish the debt owing to the motor carrier. Id. To date the Oak Harbor decision has been cited favorably 32 times by courts across the country. See also, Southern Pacific Transportation Co. v. Commercial Metals Co., 456 U.S. 336 at 342 (1982

Notwithstanding the Oak Harbor case, there are an abundance of cases that supports liability against the receiver/consignee for their mere acceptance and receipt of a shipment for which said receiver/consignee had received a benefit of the motor carrier’s services and for which the consignee received an economic  benefit.  Without the services of the carrier, both the consignor and/or consignee would not have earned and enjoyed said economic benefit and profit.

Notwithstanding the Oak Harbor Judicial Findings and Rulings, Federal statutory law renders a consignee independently liable to a carrier for freight charges upon his acceptance and delivery of the goods,” citing 49 U.S.C. 13706(a). The United States Supreme Court has held that this statute imposes liability for shipping costs upon the consignee of an interstate shipment of goods when the Consignee accepts the shipment from the carrier. Under this rule, a consignee accepting the shipment as the owner “becomes liable, as a matter of law, for the full amount of the freight charges whether they are demanded at the time of delivery, or not until later.”

Common Defenses to Collection of Freight Charges:

1. Already Paid Freight Charges to Broker or Third Party:

This is a very common defense for those familiar or unfamiliar with transportation rules of law. The Defense will claim that shipper or consignee are simply Victims and the Doctrine of Equitable Estoppel should not be require them to pay twice for the same shipment.

Oak Harbor Vs. Sears, Id., characterized the collection of freight charges cases as “Double Payment” Cases. All of which entitling the Motor Carrier to be paid for services rendered in spite of the fact that the freight charges were paid to a third party. The Oak Harbor court ruled that the responsibility for payment falls upon the Shipper or Consignee and requires a second payment to make sure the motor carrier gets paid for services rendered. Oak Harbor Vs. Sears, Id. The Oak Harbor Court also ruled that payment to a third party other than the delivery Motor Carrier does not extinguish the debt owed to the delivery Motor Carrier. Oak Harbor Vs. Sears, Id.

1. Lack of Motor Carrier’s Name on the Bill of Lading:

Another frequent common defense to collection of freight charges is the defense that Delivery Motor Carrier is not designated as the assigned motor carrier on the Bill of Lading.

The argument here is that the Unites States Supreme Court ruled over 40 years ago that the Bill of Lading is the Controlling Contract binding shippers, consignees, and motor carriers. If there is the lack of the designation of the motor carrier on the Bill of Lading, then the argument is that Motor Carrier lacks privity of contract, legal capacity to collect, lack of standing to sue for collection of freight charges.

Many Courts have held that even when the Carrier’s name is not designated on the Bill of Lading, collection is not problematic and/or precludes relief requested by the motor carrier. Rather, courts look to other factors to establish privity of contract and right to compensation and damages. Examples of this may be an examination of the trucker’s log books to evidence pick up and delivery of shipments, shippers acknowledgement of releasing the shipment to the motor carrier upon pick up, and acknowledgement of receipt on the Bill of Lading executed by the Consignee at time of delivery. Court have also looked to Rate-Load Confirmations to evidence that motor carrier named on these confirmations is the same carrier who seeking collection of unpaid freight charges.

Sometimes, it may be argued and accepted by the court that there may be justification for the motor carrier not designated on the Bill of Lading. This often occurs where the freight broker appears in the Carrier Section. It can be simply explained that the Broker’s Name appears in place of the Carrier’s Name, due to the fact at the time of the generation of the Bill of Lading by the shipper, the shipper simply did not know the identity of the assigned motor carrier at that time.

A counter argument to the Non Designation of the Motor Carrier on the Bill of Lading should always be that the party named in the carrier section of the Bill of Lading is not a Motor Carrier with FMCSA authority. If such third party is not a motor Carrier with FMCSA authority, then it is factually and legal impossible for the third party named in the carrier section to have acted as a motor carrier and provided motor carrier services entitled to payment of transportation services and precludes the delivery carrier from payment.

1. Third Party Freight Charges Bill To:

Another common defense employed is the defense that the Bill of Lading neither marked Prepaid or Collect, but rather marked Third Party and designates a Third Party for purposes of having freight charges bills(s) sent to a third party. Generally, the third party designated is a third-party logistic entity. The argument being advocated is the only responsible party for payment is the designated 3PL, releasing the Shipper and/or Consignee from the legal obligation for paying freight charges to the delivery Motor Carrier.

This fatal argument has no support in fact or law. Most importantly, absent language on the Bill of Lading to the contrary, the delivery Motor Carrier is free pursue lawfully the Shipper or Consignee for payment. The motor carrier can expect to be paid freight charges due to the Bill of Lading entered into and binds all parties named in the Bill of Lading. Oak Harbor Vs. Sears, Id.

1. Broker-Carrier Agreements:

As Brokers are more frequently insisting that their motor carriers execute Broker-Carrier Agreements, these are being utilized often as a tool in defense of the collection of freight charges pursued by the Motor Carrier.

Further, a Shipper or Consignee will attempt to step in the shoes of the 3PL/Broker, in place of the Broker, to enforce Broker-Motor Carrier Agreement to preclude collection of freight charges by the motor carrier. The argument is similar to an Intended Third Party Beneficiary.

This too is a fatal argument. It is an attempt to enforce a Broker-Carrier Contractual Term which limits recovery of collection of freight charges only against the Broker, not their customer (Shipper or Consignee).

First, an ancillary agreement not naming specifically the Shipper, Consignee, and motor carrier set forth in the Bill of Lading has no legal effect of binding and altering or modifying the default payment terms stated in the Bill of Lading. Oak Harbor Vs. Sears, Id.

The Broker-Carrier Agreement will also be utilized as an offset to preclude successful collection of freight charges. The Broker-Carrier Agreement most often provides a contract term(s) that allows the broker to offset freight claims in an unrelated shipment and freight charges against freight charges being currently pursued by the delivery Motor Carrier.

CONCLUSION:

It has been our hope that this written material has been helpful for those who in the pursuit of the Collection of Freight Charges.

Best wishes for a successful collection of freight charges and good hunting in the recovery of unpaid freight charges.

Double Payment Holdings

1. Southern Freight v. LG Elec., U.S.A., Inc., No. 05-A-13469-3 [2005-2007 Fed. Carr. Cases] held that the secondary carrier could independently seek recovery against the shipper under the presumption of shipper liability.
2. Ranger Transportation v. Wal-Mart Store, 903 F.2d II85 (8th Cir. 1990) held 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.
3. Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008) held that an agreement between a broker and carrier did not absolve the shipper of liability under the bills of lading even where the broker expressly agreed to be liable for the shipper’s freight charge
4. Harms Farms Trucking v. Woodland Container , 2006 WL 3483920 at *3 (D. Neb. 2006) the court held the consignee (Kawasaki) liable to the motor carrier for the entire remaining balance of freight charges, even though Kawasaki had already paid $27,000 to the shipper.
5. Excel Transportation Services, Inc. vs. CSX Lines, LLC , 280 F.2d 617, 619 (S.D. Tex. 2003) the court held that when the shipper paid the forwarder, but the forwarder did not pay the carrier. the shipper fell under none of the legally-recognized exceptions to the obligation to pay the carrier and was liable for the carrier's unpaid charges.
6. Spedag Americas, Inc. v. Peters Hospitality and Entertainment Group LLC. et al., 2008 WL 3889551 (SD Fla. 2008). Spedag entered into a contract with freight forwarder Transworld Freight Systems whereby Transworld agreed to pay carrier. Transworld agreed to bill and collect freight charges from Peters and Polaroid and to forward such payments to Spedag. Peters and Polaroid promptly paid the freight charges to freight forwarder Transworld, however, after a time the freight forwarder stopped remitting payment to Spedag. Eventually Transworld filed for bankruptcy having collected some $850,000 from Peters and Polaroid which Transworld had not remitted to freight carrier Spedag. The District Court granted summary judgment in favor of Spedag on the issue of "double liability", holding both consignees liable to the carrier for freight charges and leaving only the question of the amount of damages which Peters and Polaroid must pay to a jury.
7. Missouri Pacific Railroad Co. V. Center Plains Industries, Inc., 720 F.2d 818, 819 (5th Cir. 1983) held that payment of freight charges is the original responsibility of the shipper. The responsibility may be shifted to a third party, generally the consignee of the shipment. But the transfer of this responsibility must be clearly established by agreement between the parties or circumstances surrounding the receipt and transportation of the goods.
8. Strachan Shipping Co. v. Dresser Industries, Inc., 701 F.2d 483 (5th Cir. 1983) the court held that bills of lading marked prepaid did not relieve a shipper of liability unless the shipper could demonstrate that the carrier released it. The shipper could not prove this and had to double pay.
9. Contship Container Lines, Inc. v. Howard Industries, Inc., 309 F.3d 910 (6th Cir. 2002) held that a contract does exist between shippers and carriers and that a shipper may be liable even though it has paid the broker already. Contship also makes it clear that putting the broker's name on the bill of lading instead of the actual carrier's name does not absolve the shipper from liability to the carrier for the freight charges.
10. Hawkspere Shipping Company, Ltd. V. Intamex, S.A., 330 F.3d 225 (4th Cir. 2003) concluded that shippers are responsible for payment to the actual motor carrier transporting the freight when (for whatever reason) the freight intermediary fails to pay the motor carrier.
11. National Shipping Co. Of Saudi Arabia v. Omni Lines, 106 F.3d 1544 (11th Cir. 1997) held the shipper liable for double payment. The court explained that that the bill of lading is a contract between the carrier and the shipper and the carrier has a contractual right to expect payment pursuant to that bill. Should the shipper wish to avoid liability for double payment, it must take precautions to deal with a reputable [intermediary] or to contract with the carrier to secure its release.
12. Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008) held that where the shipper paid the third party but the third party never paid the carrier. Ultimately the shipper was responsible to pay the carriers even though they had proof of payment to the third party. They were ruled to make double payment on these freight charges.
13. Central States Trucking Company v. J.R. Simplot Company, 965 F.2d 431 (7th Cir. 1992) held that a member of a not-for-profit shippers' association (which was a broker) was liable for freight charges to a carrier where the association (broker), which contracted with that carrier and which has already received payment from the shipper became insolvent before paying the carrier. The court struck down the shipper’s estoppel argument and held that the shipper failed to prove that the carrier made any misrepresentation on which it relied to its detriment.
14. LLR Logistics LLC v. K & R Transp. Logistics, Inc. United States District Court, C.D. California. October 14, 2010, Not Reported in F.Supp.2d 2010 WL 4116903 held consignee is liable for freight charges to carrier even though it had already paid broker; bills of lading not marked prepaid and so consignee on notice that it was liable for freight charges.
15. Direct Coast to Coast LLC and Selective Transportation Corp vs Empire Foods Inc and Sun Grove Foods. Superior Court of New Jersey No. L-4336-15 Decided April 12, 2018, Choosing to tender payment through a broker instead of directly to the carrier for shipping charges does not estop a carrier from collecting full payment from the shipper. (Oak Harbor,513 F.3d at 958) finding that a shipper assumes the risk of non-payment when it retains a broker to tender payment to the carrier). In short, neither the governing contract––here, the bills of lading––nor principles of equitable estoppel excuse Empire and Sun from their obligations to pay Direct and Selective for the shipment of their goods.
16. Thunderbird Moto Freight Lines Inc v. Seaman Timber Co, Inc., 734 F.2d 630 at pp. 631-632 (11th Cir. 1984) (Shipper that dealt only with 2 broker required to pay carrier and incur double payments due to not placing mark on the nonrecourse clause of the Bill of Lading); Illinois Steel Co. v. Baltimore & Ohio Railroad Co. 320 U.S. 508, 513 (1944)]
17. Bartlett-Collins Co. v. Surinam Navigation Co., 381 F. 2d. 546, 549 (10th Cir. 1967) (shipper liable on bill of laden "no matter how inequitable the conduct of the carriers")].
18. If Bills of Laden that are signed by the carrier's driver but the carrier's name is not stated on the Bills of Laden, the same scenario will occur with the Shipper and the consignee being jointly and severally liable. Southern Pacific Transportation Co. v. Commercial Metals Co. (1982) 456 U.S. 336, 343; Oak Harbor Freight Lines, Inc v. Sears Roebuck & Co (9th Cir. 5 2008) 513 F.3d 949;
19. See also Atlantic Coast Line Railroad v. Clinichfield Fuel Co., 94 F. Supp. 992, 994 (W.D.S.C. 1954) (Bill of Laden is an implied contract as between shipper, consignee and carrier)];
20. Dal-Tile Corporation and Red Arrow Freight Lines, Inc., No. 40437, 1990 I.C.C. LEXIS 350 (I.C.C. May 15, 1990). A common carrier brought suit against a shipper seeking payment of freight charges. The shipper had already paid an unlicensed broker for these same deliveries. Both litigants agreed to refer the case to the ICC for a determination of whether it was an "unreasonable practice" for a carrier to collect freight charges from a shipper who had already paid a broker for the deliveries. The ICC determined that it was not an "unreasonable practice" for carriers to collect double payments from shippers.