Question: When is a shipper and/or consignee liable for freight charges and when are they relieved from liability?
Answer: The recent case of Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008), provides a guide for when a shipper and consignee are liable for the payment of freight charges and when they are relieved from liability.
In Oak Harbor, Sears was required to pay freight charges twice. Sears initially paid freight charges to its broker, NLC. However, NLC did not pay Oak Harbor and went out of business. Oak Harbor sued Sears. The court held that Sears was required to pay Oak Harbor $227,202.50 even though it already had paid that amount to NLC.
In reaching its decision, the court outlined the default liability rules. As one court stated, under the default liability rules, “the bedrock rule of carriage cases is that, absence malfeasance, the carrier gets paid.” Excel Transportation Services, Inc. v CSX Lines LLC, 280 F.Supp.2d, 617, 619 (S.D. Texas 2003). Those rules are as follows:
- The shipper/consignor is primarily liable unless the “nonrecourse” provision, also referred to as “Section 7,” is executed;
- The consignee is liable unless the bill of lading is marked “prepaid” and the consignee already has paid the shipper/consignor;
- The consignee is liable if the bill of lading is marked “collect”;
- The shipper/consignor and the consignee are jointly liable unless the provisions of 1, 2 or 3 apply;
- The default rules can be modified by contract and only apply if the parties have not agreed to an alternative arrangement.
The court did not excuse Sears from paying twice, in part, because Sears was the party that chose to use and pay NLC and, as such, should bear the risk of NLC not paying Oak Harbor.
A major concern these days is that there is no uniform or standard form of bill of lading used throughout the industry. Every carrier, shipper, broker, freight forwarder and other party involved in transportation seems to have their own form of bill of lading. Many of these bills of lading are deficient because they do not contain a nonrecourse provision (or any terms and conditions for that matter), a Section 7 box, or places to mark if the shipment is “prepaid” or “collect.” Transportation contracts generally avoid these problems by demoting bills of lading to receipts. Parties also must take care in preparing their own form of bill of lading and using it whenever there is no contract. Finally, parties must know how to protect themselves if a different deficient bill of lading is used.
Please do not hesitate to contact us if we can assist you in reviewing, revising or preparing your contracts and bills of lading. We also can explain methods you can use to protect your business from unanticipated liabilities.