The Need for Privity of Contract

John Anderson Cargo Liability, Contracts, Q & A, Transportation

A broker asks: If a broker tenders a shipment to a carrier and the carrier subcontracts the shipment to another trucker, how much information does the broker need to obtain regarding the subcontracted trucker?

Response: A broker needs to have privity of contract with its carrier, which it obtains by having a written Broker-Carrier Contract. However, a broker and its carrier’s subcontractor do not have a contractual relationship and are not in privity. This means that the broker cannot go after the subcontractor for breach of contract if and when something goes wrong. Rather than searching for some other recourse against the subcontractor, the broker can look directly to its carrier if the Broker-Carrier Contract prohibits the carrier from “brokering” and subcontracting. The broker will have a breach of contract claim against the carrier since there is privity of contract between them.

However, the question suggests that the broker knows that its carrier uses subcontractors. I recommend that you not allow this, but if you do, then your Broker-Carrier Contract needs to state that if the carrier uses subcontractors, the subcontractors must meet certain specified requirements. The contract needs to spell out in detail the requirements each subcontractor must meet. Further, the Broker-Carrier Contract needs to make it clear that even if the carrier uses a subcontractor the carrier remains fully responsible and liable for the shipment under the terms of the Contract. If something goes wrong, you need to be able to look to the carrier you have a contract with, that is, with whom you are in privity. An even better solution would be for the broker to enter into a direct contractual relationship with the subcontractor and avoid the three party relationship altogether (i.e., broker-carrier-subcontractor), so that the subcontractor becomes the broker’s carrier.

(Note: Although the question and response were from the perspective of a broker, the same situation would apply to a shipper hiring a carrier. In that case, the Shipper-Carrier Contract should prohibit “brokering” and subcontracting.)