Question
Help!
My carrier/shipper contract says my liability as a carrier for freight damage or loss is limited to $1,000,000.00 but the Bills of Lading say my liability as a carrier is limited to $1.00.
Is my limitation $1,000,000.00 or $1.00?
Can I split the difference?
What do I do?
Answer:
It depends.
This article explores certain case law developments interpreting the above-illustrated Contract v. Bill of Lading contentions and disputed terms.
With the recent substantial increase in the number of carrier/shipper contracts across all modes of transportation, these kinds of questions seem to be arising more and more often.
There can be conflicts between the terms of a transportation contract in the “classic” sense of a multipage document and the terms of the Bills of Lading serving as contracts of carriage.
Ultimately, transportation contracts are bargained-for in order to shift the relative risk of loss compared to the freight rate charged on a per volume basis. Of course, these are business decisions for carriers and shippers of all types. There is no single right answer whether a carrier (or shipper for that matter) should enter into a contract for transportation services. Legal issues aside, bargaining power is probably the single most important factor for any business entity in making a decision whether to enter into a contract and on what terms. In this sense, entering into a transportation contract is naturally an economic decision – one which only the reader can answer based on all of the facts, conditions and circumstances.
Besides a contract in the sense of a multipage notarized document with all the legal bells and whistles, we all know the Bill of Lading is a contract of carriage. Many such Contracts state (or try to state) they supersede Bills of Lading.
When confronted with this Contract v. Bill of Lading issue, we suggest the following:
First, read the Contract.
When Contracts are negotiated (and depending, of course, on the level of negotiation and the relative sophistication of the parties) they are generally designed to create a platform to cover all issues and potential future events. This way, both sides can plan ahead and govern their risk for a long-term strategy. Ideally, both sides to the Contract should be in a position to price risk and sustain that price for that risk.
Nevertheless, without a robust institutional corporate internal knowledge, it is possible that those currently in positions of responsibility may not (at least at first blush) know or recall that a Contract governs the situation as it presents itself.
Accordingly, when such a matter arises, and you have checked your internal procedures and located the Contract – it is important to read it.
And I mean really read it; with scrutiny.
For example,
Does it apply to the route at issue?
Does it apply to the type of freight at issue?
Was the freight charge based on the Contract?
Does it apply over the Bill of Lading?
Read and re-read the Bill of Lading exclusionary language in the Contract.
Do your facts fit within an exception to the Bill of Lading exclusionary language in the Contract?
Does the Contract state it also contemplates the use of Bills of Lading?
Does the Contract require the carrier to participate in the National Motor Freight Classification?
Is the Contract an effective waiver of the carrier liability provisions of the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706?
Does the Contract incorporate 49 CFR § 1005, which are the Federal regulations governing motor carrier liability under the Carmack Amendment?
These are just a few of the kinds of questions to be considered at least at an early stage.
Second, after you finish reading (and I mean really reading) the Contract, read the Bill of Lading.
The Bill of Lading has to have the specific information.
Where do we pick up?
Where do we deliver?
What is the description of the freight?
What is the weight?
What is the Class designation?
What other specific handling instructions appear on the Bill of Lading, such as, “do not freeze,” maintain a certain temperature range, “do not double stack?”
Who prepared the Bill of Lading?
Did the shipper’s agent (a warehouse or an NVOCC or the like) prepare the Bill of Lading and thus bind the shipper to the Bill of Lading?
Is the Contract identified or referred to in the Bill of Lading?
Is there a separate Contract between the Shipper and the Shipper’s Agent (such as its warehouse or NVOCC)?
Without the specific information in the Bill of Lading, there is no way the carrier and shipper can effectively communicate and no way the carrier can perform its job. Because Contracts have the more general information, the Bills of Lading, of necessity, must contain the more specific information. In this sense, a Contract provision that the Bills of Lading do not apply (other than as a receipt) can be subject to varying degrees of interpretation. After all, the Bills of Lading have to serve a purpose of some sort by providing the specific information to the carrier. The Bill of Lading constitutes the contract of carriage and its terms and conditions are binding on the Shipper, the Shipper’s Agent and the carrier. Albany Ins. Co. v. M/V “Sealand Uruguay,” 2002 WL 1870289 (S.D.N.Y. 2002) and Grace Line, Inc. v. Todd Shipyards Corp., 500 F.2d 361 (9th Cir. 1974).
Taking some of the aforementioned Bill of Lading terms to their logical extreme, if the Contract says the Bills of Lading are only receipts, is the carrier liable if the freight freezes, or the temperature range is exceeded or if the freight was cross-docked and “double stacked” by the carrier? Can we ignore routing obligations if the Bill of Lading says the freight is a “HAZMAT” but the Contract says the Bill of Lading does not apply?
O.K., you really, really read the Contract and really, really read the Bill of Lading. Now what?
Then really, really read the case law (or really, really call your lawyer and have your lawyer read the case law).
The Court addressed this contract v. Bill of Lading analysis in Penske Logistics, Inc. v. KLLM, Inc., 285 F.Supp.2d 468 (D.N.J. 2003). Interpreting a Contract against the Bill of Lading, the Court found the specific bill of lading limitation terms applied instead of the more general Contract – despite the fact the Contract (imperfectly) stated the Bill of Lading did not apply.
The Penske Logistics Court began by stating that a carrier can limit its liability by “written agreement” or “written or electronic declaration.” Id. at 473. The “written declaration” can be a Bill of Lading. Id.
As the Court further explained:
The bill of lading “operates as both the receipt and the basic transportation contract between the shipper/consignor and the carrier, and its terms and conditions are binding.” EF Operating Corp. v. American Bldgs., 993 F.2d 1046, 1050 (3d Cir.1993).
Penske Logistics, Inc. at 473.
In Penske Logistics, the parties presented the Judge with a Contract on the one hand calling for full value liability of $59,283.03 and on the other hand with a specific Bill of Lading prepared by the shipper with a specifically stated declared value of $1.50/lb., which amounted to $6,859.50. Id.
The Judge reviewed both the contract and the Bill of Lading and found the Bill of Lading applied and granted summary judgment to the carrier and limited the damages as per the Bill of Lading to $6,859.50. Id.
The Contract in Penske Logistics provided for full value carrier liability and it attempted to waive the Carmack Amendment through clauses entitled “Cargo Loss,” “Contract Carriage” and “Indemnification.” Id. The contract also referenced Bills of Lading as serving merely as “receipts” and provided that in the event of an inconsistency, the contract would control over the Bill of Lading. Id.
Moreover, the Court ruled the shipper was bound to the specific terms of the Bill of Lading where the shipper or its agent prepared the Bills of Lading.
As the Court aptly put it:
where a shipper, rather than the carrier, drafts the bill of lading and chooses the release rate, the limitation of liability rate found on the bill of lading will be enforced against the shipper. Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1274 (11th Cir.2001) and American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 314 (3d Cir.1992).
Penske Logistics, Inc. at 473.
In Penske Logistics, the shipper prepared the Bill of Lading and put the specific released rate valuation on the face of the Bill of Lading and provided it to the carrier with the freight.
The Court rejected the plaintiff shipper’s arguments and ruled the contract in that case was not an effective waiver of the Carmack Amendment under 49 U.S.C. § 14706.
In an interesting ruling, the Court went further holding that the plaintiff was bound by the limitation of liability whether the lawsuit was “construed as one of classic contract interpretation or as within the provisions of the Carmack Amendment.” Penske Logistics at 474.
Accordingly, pursuant to the law set down in Penske Logistics, a shipper may not be able to simply point to the Contract and demand $1,000,000.00 from the carrier under the contract (as per our example above). Depending on the Contract terms and the Bill of Lading terms and the facts and circumstances of your case, it is entirely possible the shipper may be limited to $1.00 (as per our example above) in the Bill of Lading.
In another contract v. Bill of Lading case, Calchem Corp. v. Activsea USA LLC, 2007 WL 2127188, at *1 (E.D.N.Y. 2007), the District Court considered the application of diametrically opposed forum selection clauses; one contained in a written contract and the other contained in the Bill of Lading.
After reviewing the contract, the Bill of Lading and the law, the Court ruled that the terms of the Bill of Lading controlled. The Bill of Lading was issued after the contract was drafted and thus served as an amendment to the contract. See Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 19, 125 S.Ct. 385, 160 L.Ed.2d 283 (2004) (describing a bill of lading as “essentially, a contract … [which] records that a carrier has received goods from the party that wishes to ship them, states the terms of carriage, and serves as evidence of the contract for carriage”). Calchem Corp. v. Activsea USA LLC, 2007 WL 2127188, at *1 (E.D.N.Y. 2007). Also, the Bills of Lading were issued well after the Contract was written and thus, the Court considered the Bills of Lading as specific amendments to the more general Contract.
As such, the Bills of Lading controlled over the Contract.
In TMC Co. Ltd. v. M/V Mosel Bridge, 2002 WL 1880722, at *1 (S.D.N.Y. 2002) (another “contract v. Bill of Lading” case) the Court found “the forum selection clause in the way bill, which postdated and is flatly inconsistent with that in the service contract, would have superseded the latter with respect to the cargo at issue.” In TMC Co. Ltd., the court held that under circumstances where the “second contract of a later date,” (i.e., the Bill of Lading), “containing the same subject matter” as the earlier Contract, but with “terms inconsistent” with the earlier Contract, the second contract (the Bill of Lading) will “supersede the former contract even though there is no express agreement that the” later “contract shall have that effect.” Calchem Corp., at * 3 quoting TMC Co. Ltd., supra at * 1.
In Burnell v. Butler Moving & Storage, 826 F.Supp. 65 (N.D.N.Y. 1993), the Court held the shipper was bound to the actions of its agent when its agent prepared a Bill of Lading with terms differing from the Contract language. The Burnell Court held the carrier had a right to assume the shipper’s agent had the authority to bind the shipper to the terms of the limitation of liability which the shipper’s agent put on the bill of lading. As such, the Court enforced the bill of lading with respect to the motor carrier and limited the carrier’s liability to $0.10/lb. as per the Bill of Lading.
Spray-Tek, Inc. v. Robbins Motor Transport, Inc., 426 F. Supp. 2d 875 (W.D. Wis. 2006) presents an interesting carrier rate quote contract v. tariff limitation question.
In Spray-Tek, the shipper manufacturer of certain industrial drying equipment entered into a contract with Niro, Inc. (the Plaintiff/Consignee) to sell a piece of equipment with a price of $1,161,500.00 and a replacement cost of $233,100.00. While being transported in interstate commerce, the freight hit an overpass and was destroyed. The Plaintiff/Consignee sued for the replacement cost of $233,000.00. Among other defenses, the Defendant carrier asserted the tariff limitation which amounted to $32,500.00
The sales contract with the shipper was FOB point of manufacture. As such, title to the subject freight transferred to the consignee, Niro, once the freight was loaded on the Defendant motor carrier’s trailer. Prior to loading, Niro contacted the motor carrier and obtained a freight rate quote contract. The rate quote contract was silent on value and did not reference the carrier’s tariff or any limitation of liability. At deposition, the carrier’s representative who prepared the freight rate quote contract testified the value of the freight was not a consideration in setting the freight rate. That testimony is interesting inasmuch as Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1268 (11th Cir. 2001) has held the freight rate charge is “indissolubly” bound up with the value of the freight being transported.
Despite that admission, the Court seems to focus correctly on the tariff as controlling over the quote contract. After all, the tariff was incorporated by reference through the Plaintiff’s preparation of the Bill of Lading.
So far, so good.
Nevertheless, the Court in Spray-Tek seems to detour into the forest and the question whether the tariff offered a “reasonable opportunity to choose between two or more levels of liability.” Id. at 885. On that point, the Court punts and finds there are questions of fact and denies motions for summary judgment.
This case prominently illustrates two points: (i) the most important consideration in determining the freight rate is the value of the freight and (ii) as a carrier, if you have not done so already, you may want to review your tariff and confirm that it clearly provides for and meets the “magic words” of having “two or more levels of liability,” which, of course will affect the freight rate.
To that end, you may even want to put a “plain language” statement on page one of the tariff to the effect that the tariff offers shippers different releases rate limitations concomitant with different freight rates. This way, as lawyers, we may be in a position to show the Judge right up front on page one of the tariff in plain language, the carrier advised the plaintiff of the existence of relative choices for a higher freight rate.
As a carrier, we are pricing risk when we set a freight rate.
The value of the risk IS the value of the freight.
Not every case says that the Bills of Lading control over a Contract.
Thus, Eastern Fish Company v. South Pacific Shipping Co., 105 F. Supp. 2d 234, 236 (S.D.N.Y. 2000) applied a contract clause related to arbitration (instead of a bill of lading clause on arbitration). That case is rather unusual because no bill of lading was ever issued in that case. The freight was immediately stolen before a Bill of Lading was even issued. There was no bill of lading in that case which could have been interpreted by the court. As such, Eastern Fish Company is not a typical Contract v. Bill of Lading case.
After the rate quote contract was agreed upon between Niro and the carrier, Niro then filled out and prepared the Bill of Lading.
Have Some Class.
The National Motor Freight Classification (“NMFC”) designation on a Bill of Lading is a choice of limitation of liability. As such, shippers and carriers need to review and consider the Class designation on the Bill of Lading and how that choice relates under the context of the Shipper/Carrier Contract.
In Siren, Inc. v. Estes Express Lines, 249 F.3d 1268 (11th Cir. 2001), the District Court awarded judgment to the plaintiff shipper in the amount of $46,982.16. Siren is a limitation of liability case in a Bill of Lading as opposed to a “Contract v. Bill of Lading” case but the overall analysis would seem to apply to our situation. On appeal, the United States Court of Appeals for the Eleventh Circuit reversed and entered judgment for the released rate limitation on the Bill of Lading in the amount of $8,309.00. Id.
The Court recognized that the shipper filled out the Bill of Lading and put NMFC “Class 85” on the Bill of Lading. The Court held that the shipper’s use of such “industry specific terminology” as “Class 85” was itself a limitation of liability as to the motor carrier and which appeared on the face of the Bill of Lading when the carrier received the freight. Id.
As the Eleventh Circuit explained with respect to the impact of the “released rate” on the Bill of Lading, “assuming [the shipper or its agent] did not actually know that it was limiting [the carrier’s] liability, [the shipper or its agent] certainly should have known.” Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1273 (11th Cir. 2001) (emphasis in original).
This may be especially appropriate where the Court is confronted with a sophisticated shipper.
Moreover, in American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 314 (3d Cir. 1992) the Court enforced the limitation of liability where the “released value was specifically on [the shipper’s] own form of bill of lading”). Much like Siren, American Cyanamid is not a “Contract v. Bill of Lading” case but the reasoning may apply to a matter involving the application of specific Bill of Lading terms over more general Contract terms.
The fact the shipper (or its agent) prepared the Bill of Lading and the motor carrier did not was a critical fact for the Court’s reasoning. As the Siren Court put it, “[t]his Court does not deem it proper or necessary to protect shippers from themselves.” Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1271 (11th Cir. 2001).
Applying the limitation of liability in the Bill of Lading, the Siren Court relied on Third Circuit precedent, American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310 (3rd Cir. 1992) and stated:
we hold that when a shipper drafts a bill of lading, incorporating language which is universally understood throughout the motor carrier industry to limit the liability of the carrier, said shipper will be bound by the terms of the contract, irrespective of whether the shipper had actual knowledge of the limiting aspect of those terms.
Siren, at 1274.
The Shipper’s Agent’s Secret (or the Shipper’s “Secret Agent”).
The United States Supreme Court has already applied limited liability terms based on the terms entered into through agents. Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 125 S. Ct. 385, 160 L.Ed. 2d 283 (2004). The Court’s decision in Kirby was based on the long-standing precedent of Great Northern R. Co. v. O’Connor, 232 U.S. 508, 34 S. Ct. 380, 58 L.Ed. 703 (1914).
As quoted by the Kirby Court, the ruling in Great Northern is very straightforward and makes sense, as follows:
In Great Northern, an owner hired a transfer company to arrange for the shipment of her goods. Without the owner’s express authority, the transfer company arranged for rail transport at a tariff rate that limited the railroad’s liability to less than the true value of the goods. The goods were lost en route, and the owner sued the railroad. The Court held that the railroad must be able to rely on the liability limitation in its tariff agreement with the transfer company. The railroad “had the right to assume that the Transfer Company could agree upon the terms of the shipment”; it could not be expected to know if the transfer company had any outstanding, conflicting obligation to another party. Id., at 514, 34 S.Ct. 380. The owner’s remedy, if necessary, was against the transfer company. Id., at 515, 34 S.Ct. 380.
Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 33, 125 S.Ct. 385, 398 (2004). The shipper’s agent can bind the shipper with respect to the carrier.
Your facts may be similar (or different) in the event the shipper’s agent filled out the Bill of Lading. Thus, “[w]ithout the owner’s express authority” (and indeed perhaps contrary to the specific terms of the Contract) “the transfer company” (i.e., the shipper’s agent) “arranged for . . . transport at a . . . rate (in the Bills of Lading) that limited the carrier’s liability . . ..” Id.
As the Court concludes, the “owner’s remedy, if necessary, was against the transfer company” (i.e., the shipper’s agent).
Also, in Orion Insurance Company, PLC v. M/V “Humacao”, 851 F. Supp. 575 (S.D.N.Y 1994), the Court reviewed agency principals and found the shipper’s agent, which agent issued the Bill of Lading, bound plaintiff to the limitation under concepts of apparent authority. The plaintiff’s agent issued an Ocean Bill of Lading with a limitation of liability of $500.00. The ocean carrier moved to limit the damages to $500.00 as per the express terms of the Bill of Lading. The Court granted the motion and limited the amount of the damages. Id.
Moreover, in Jackson v. Brook Ledge, Inc., 991 F. Supp. 640 (E.D. Ky. 1997), the Court held the freight owner’s agent, who issued the Bill of Lading, bound the freight owner to a $1,000.00 limitation of liability.
As the United States Court of Appeals for the Third Circuit aptly stated:
the long-standing principle that a shipper is deemed to be aware of, and agrees to be bound by, the tariff under which it is shipping, and that before carriage can begin, the parties enter into a contract of carriage embodied in a bill of lading.
National Small Shipments Traffic Conference, Inc. v. U.S., 887 F.2d 443, 446 (3d Cir. 1989).
Although a tariff may or may not be involved in your particular fact pattern and depending on the term of the Contract, the Third Circuit’s reasoning could apply to matters addressing the Contract v. Bill of Lading contention.
Overall, shippers and carriers must be well aware that their agents can bind them and to commitments that may not have been contemplated – especially by the shipper if it has a traditional Contract with the carrier but the shipper’s agent bound the shipper (through the Bill of Lading) to terms contrary to the Contract.
Specific over General.
Specific terms (as per Bills of Lading) may trump and supersede more general terms of Contracts.
Thus, it is a fundamental rule of contract construction that “specific terms and exact terms are given greater weight than general language.” Restatement (Second) of Contracts § 203(c) (1981). Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir. 2001).
Additional case law interpreting the issue has found that the Bills of Lading are the specific contracts of carriage that govern the transaction. Mafcote Industries, Inc. v. Milan Express Co., Inc., 2011 WL 3924188 (D. Conn. 2011).
Either the Bills of Lading should be considered in whole or not considered at all.
As set forth in Mafcote Industries, an argument could be made (depending of course on the facts of your case) that some terms of the Bills of Lading cannot be parsed out leaving others in. Either the full terms of the Bills of Lading are applicable or none of them are. This follows logically, because the Bills of Lading naturally contain the more specific terms for each transportation including location, quantity, size, description and value. On the other hand, the Contract can contain only general terms.
Either all of the terms of the Bills of Lading have meaning or none of them do. Either there can be no liability for “double stacking” if that appears on the Bill of Lading or if there is liability for breaching that term of the Bill of Lading, is it capped at $1.00 in our example?
Applying terms of a Contract, the Mafcote Court concluded that the Bills of Lading applied (in lieu of a separate contract) because the Bills of Lading were not barred by Contract. Further, use of Bills of Lading was specifically contemplated by the separate Contract.
CONCLUSION
Read your Contracts and scrutinize them. Read your Bills of Lading with any eye toward practicality and the “real world” of the industry. Act proactively and get all of the information as quickly as you can to your legal department to have them review.
As the cases illustrate, a “Contract v. Bill of Lading” dispute can be very fact sensitive.
The answer to the question should we pay $1,000,000.00 under the Contract or $1.00 under the Bill of Lading remains, “it depends.”
Otherwise, if all else fails just write that check for $1.00 and mail it to the shipper and see if they accept it.
CONTRACT LIMITATIONS V. BILL OF LADING LIMITATIONS
Question:
Help!
My carrier/shipper contract says my liability as a carrier for freight damage or loss is limited to $1,000,000.00 but the Bills of Lading say my liability as a carrier is limited to $1.00.
Is my limitation $1,000,000.00 or $1.00?
Can I split the difference?
What do I do?
Answer:
It depends.
This article explores certain case law developments interpreting the above-illustrated Contract v. Bill of Lading contentions and disputed terms.
With the recent substantial increase in the number of carrier/shipper contracts across all modes of transportation, these kinds of questions seem to be arising more and more often.
There can be conflicts between the terms of a transportation contract in the “classic” sense of a multipage document and the terms of the Bills of Lading serving as contracts of carriage.
Ultimately, transportation contracts are bargained-for in order to shift the relative risk of loss compared to the freight rate charged on a per volume basis. Of course, these are business decisions for carriers and shippers of all types. There is no single right answer whether a carrier (or shipper for that matter) should enter into a contract for transportation services. Legal issues aside, bargaining power is probably the single most important factor for any business entity in making a decision whether to enter into a contract and on what terms. In this sense, entering into a transportation contract is naturally an economic decision – one which only the reader can answer based on all of the facts, conditions and circumstances.
Besides a contract in the sense of a multipage notarized document with all the legal bells and whistles, we all know the Bill of Lading is a contract of carriage. Many such Contracts state (or try to state) they supersede Bills of Lading.
When confronted with this Contract v. Bill of Lading issue, we suggest the following:
First, read the Contract.
When Contracts are negotiated (and depending, of course, on the level of negotiation and the relative sophistication of the parties) they are generally designed to create a platform to cover all issues and potential future events. This way, both sides can plan ahead and govern their risk for a long-term strategy. Ideally, both sides to the Contract should be in a position to price risk and sustain that price for that risk.
Nevertheless, without a robust institutional corporate internal knowledge, it is possible that those currently in positions of responsibility may not (at least at first blush) know or recall that a Contract governs the situation as it presents itself.
Accordingly, when such a matter arises, and you have checked your internal procedures and located the Contract – it is important to read it.
And I mean really read it; with scrutiny.
For example,
Does it apply to the route at issue?
Does it apply to the type of freight at issue?
Was the freight charge based on the Contract?
Does it apply over the Bill of Lading?
Read and re-read the Bill of Lading exclusionary language in the Contract.
Do your facts fit within an exception to the Bill of Lading exclusionary language in the Contract?
Does the Contract state it also contemplates the use of Bills of Lading?
Does the Contract require the carrier to participate in the National Motor Freight Classification?
Is the Contract an effective waiver of the carrier liability provisions of the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706?
Does the Contract incorporate 49 CFR § 1005, which are the Federal regulations governing motor carrier liability under the Carmack Amendment?
These are just a few of the kinds of questions to be considered at least at an early stage.
Second, after you finish reading (and I mean really reading) the Contract, read the Bill of Lading.
The Bill of Lading has to have the specific information.
Where do we pick up?
Where do we deliver?
What is the description of the freight?
What is the weight?
What is the Class designation?
What other specific handling instructions appear on the Bill of Lading, such as, “do not freeze,” maintain a certain temperature range, “do not double stack?”
Who prepared the Bill of Lading?
Did the shipper’s agent (a warehouse or an NVOCC or the like) prepare the Bill of Lading and thus bind the shipper to the Bill of Lading?
Is the Contract identified or referred to in the Bill of Lading?
Is there a separate Contract between the Shipper and the Shipper’s Agent (such as its warehouse or NVOCC)?
Without the specific information in the Bill of Lading, there is no way the carrier and shipper can effectively communicate and no way the carrier can perform its job. Because Contracts have the more general information, the Bills of Lading, of necessity, must contain the more specific information. In this sense, a Contract provision that the Bills of Lading do not apply (other than as a receipt) can be subject to varying degrees of interpretation. After all, the Bills of Lading have to serve a purpose of some sort by providing the specific information to the carrier. The Bill of Lading constitutes the contract of carriage and its terms and conditions are binding on the Shipper, the Shipper’s Agent and the carrier. Albany Ins. Co. v. M/V “Sealand Uruguay,” 2002 WL 1870289 (S.D.N.Y. 2002) and Grace Line, Inc. v. Todd Shipyards Corp., 500 F.2d 361 (9th Cir. 1974).
Taking some of the aforementioned Bill of Lading terms to their logical extreme, if the Contract says the Bills of Lading are only receipts, is the carrier liable if the freight freezes, or the temperature range is exceeded or if the freight was cross-docked and “double stacked” by the carrier? Can we ignore routing obligations if the Bill of Lading says the freight is a “HAZMAT” but the Contract says the Bill of Lading does not apply?
O.K., you really, really read the Contract and really, really read the Bill of Lading. Now what?
Then really, really read the case law (or really, really call your lawyer and have your lawyer read the case law).
The Court addressed this contract v. Bill of Lading analysis in Penske Logistics, Inc. v. KLLM, Inc., 285 F.Supp.2d 468 (D.N.J. 2003). Interpreting a Contract against the Bill of Lading, the Court found the specific bill of lading limitation terms applied instead of the more general Contract – despite the fact the Contract (imperfectly) stated the Bill of Lading did not apply.
The Penske Logistics Court began by stating that a carrier can limit its liability by “written agreement” or “written or electronic declaration.” Id. at 473. The “written declaration” can be a Bill of Lading. Id.
As the Court further explained:
The bill of lading “operates as both the receipt and the basic transportation contract between the shipper/consignor and the carrier, and its terms and conditions are binding.” EF Operating Corp. v. American Bldgs., 993 F.2d 1046, 1050 (3d Cir.1993).
Penske Logistics, Inc. at 473.
In Penske Logistics, the parties presented the Judge with a Contract on the one hand calling for full value liability of $59,283.03 and on the other hand with a specific Bill of Lading prepared by the shipper with a specifically stated declared value of $1.50/lb., which amounted to $6,859.50. Id.
The Judge reviewed both the contract and the Bill of Lading and found the Bill of Lading applied and granted summary judgment to the carrier and limited the damages as per the Bill of Lading to $6,859.50. Id.
The Contract in Penske Logistics provided for full value carrier liability and it attempted to waive the Carmack Amendment through clauses entitled “Cargo Loss,” “Contract Carriage” and “Indemnification.” Id. The contract also referenced Bills of Lading as serving merely as “receipts” and provided that in the event of an inconsistency, the contract would control over the Bill of Lading. Id.
Moreover, the Court ruled the shipper was bound to the specific terms of the Bill of Lading where the shipper or its agent prepared the Bills of Lading.
As the Court aptly put it:
where a shipper, rather than the carrier, drafts the bill of lading and chooses the release rate, the limitation of liability rate found on the bill of lading will be enforced against the shipper. Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1274 (11th Cir.2001) and American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 314 (3d Cir.1992).
Penske Logistics, Inc. at 473.
In Penske Logistics, the shipper prepared the Bill of Lading and put the specific released rate valuation on the face of the Bill of Lading and provided it to the carrier with the freight.
The Court rejected the plaintiff shipper’s arguments and ruled the contract in that case was not an effective waiver of the Carmack Amendment under 49 U.S.C. § 14706.
In an interesting ruling, the Court went further holding that the plaintiff was bound by the limitation of liability whether the lawsuit was “construed as one of classic contract interpretation or as within the provisions of the Carmack Amendment.” Penske Logistics at 474.
Accordingly, pursuant to the law set down in Penske Logistics, a shipper may not be able to simply point to the Contract and demand $1,000,000.00 from the carrier under the contract (as per our example above). Depending on the Contract terms and the Bill of Lading terms and the facts and circumstances of your case, it is entirely possible the shipper may be limited to $1.00 (as per our example above) in the Bill of Lading.
In another contract v. Bill of Lading case, Calchem Corp. v. Activsea USA LLC, 2007 WL 2127188, at *1 (E.D.N.Y. 2007), the District Court considered the application of diametrically opposed forum selection clauses; one contained in a written contract and the other contained in the Bill of Lading.
After reviewing the contract, the Bill of Lading and the law, the Court ruled that the terms of the Bill of Lading controlled. The Bill of Lading was issued after the contract was drafted and thus served as an amendment to the contract. See Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 19, 125 S.Ct. 385, 160 L.Ed.2d 283 (2004) (describing a bill of lading as “essentially, a contract … [which] records that a carrier has received goods from the party that wishes to ship them, states the terms of carriage, and serves as evidence of the contract for carriage”). Calchem Corp. v. Activsea USA LLC, 2007 WL 2127188, at *1 (E.D.N.Y. 2007). Also, the Bills of Lading were issued well after the Contract was written and thus, the Court considered the Bills of Lading as specific amendments to the more general Contract.
As such, the Bills of Lading controlled over the Contract.
In TMC Co. Ltd. v. M/V Mosel Bridge, 2002 WL 1880722, at *1 (S.D.N.Y. 2002) (another “contract v. Bill of Lading” case) the Court found “the forum selection clause in the way bill, which postdated and is flatly inconsistent with that in the service contract, would have superseded the latter with respect to the cargo at issue.” In TMC Co. Ltd., the court held that under circumstances where the “second contract of a later date,” (i.e., the Bill of Lading), “containing the same subject matter” as the earlier Contract, but with “terms inconsistent” with the earlier Contract, the second contract (the Bill of Lading) will “supersede the former contract even though there is no express agreement that the” later “contract shall have that effect.” Calchem Corp., at * 3 quoting TMC Co. Ltd., supra at * 1.
In Burnell v. Butler Moving & Storage, 826 F.Supp. 65 (N.D.N.Y. 1993), the Court held the shipper was bound to the actions of its agent when its agent prepared a Bill of Lading with terms differing from the Contract language. The Burnell Court held the carrier had a right to assume the shipper’s agent had the authority to bind the shipper to the terms of the limitation of liability which the shipper’s agent put on the bill of lading. As such, the Court enforced the bill of lading with respect to the motor carrier and limited the carrier’s liability to $0.10/lb. as per the Bill of Lading.
Spray-Tek, Inc. v. Robbins Motor Transport, Inc., 426 F. Supp. 2d 875 (W.D. Wis. 2006) presents an interesting carrier rate quote contract v. tariff limitation question.
In Spray-Tek, the shipper manufacturer of certain industrial drying equipment entered into a contract with Niro, Inc. (the Plaintiff/Consignee) to sell a piece of equipment with a price of $1,161,500.00 and a replacement cost of $233,100.00. While being transported in interstate commerce, the freight hit an overpass and was destroyed. The Plaintiff/Consignee sued for the replacement cost of $233,000.00. Among other defenses, the Defendant carrier asserted the tariff limitation which amounted to $32,500.00
The sales contract with the shipper was FOB point of manufacture. As such, title to the subject freight transferred to the consignee, Niro, once the freight was loaded on the Defendant motor carrier’s trailer. Prior to loading, Niro contacted the motor carrier and obtained a freight rate quote contract. The rate quote contract was silent on value and did not reference the carrier’s tariff or any limitation of liability. At deposition, the carrier’s representative who prepared the freight rate quote contract testified the value of the freight was not a consideration in setting the freight rate. That testimony is interesting inasmuch as Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1268 (11th Cir. 2001) has held the freight rate charge is “indissolubly” bound up with the value of the freight being transported.
Despite that admission, the Court seems to focus correctly on the tariff as controlling over the quote contract. After all, the tariff was incorporated by reference through the Plaintiff’s preparation of the Bill of Lading.
So far, so good.
Nevertheless, the Court in Spray-Tek seems to detour into the forest and the question whether the tariff offered a “reasonable opportunity to choose between two or more levels of liability.” Id. at 885. On that point, the Court punts and finds there are questions of fact and denies motions for summary judgment.
This case prominently illustrates two points: (i) the most important consideration in determining the freight rate is the value of the freight and (ii) as a carrier, if you have not done so already, you may want to review your tariff and confirm that it clearly provides for and meets the “magic words” of having “two or more levels of liability,” which, of course will affect the freight rate.
To that end, you may even want to put a “plain language” statement on page one of the tariff to the effect that the tariff offers shippers different releases rate limitations concomitant with different freight rates. This way, as lawyers, we may be in a position to show the Judge right up front on page one of the tariff in plain language, the carrier advised the plaintiff of the existence of relative choices for a higher freight rate.
As a carrier, we are pricing risk when we set a freight rate.
The value of the risk IS the value of the freight.
Not every case says that the Bills of Lading control over a Contract.
Thus, Eastern Fish Company v. South Pacific Shipping Co., 105 F. Supp. 2d 234, 236 (S.D.N.Y. 2000) applied a contract clause related to arbitration (instead of a bill of lading clause on arbitration). That case is rather unusual because no bill of lading was ever issued in that case. The freight was immediately stolen before a Bill of Lading was even issued. There was no bill of lading in that case which could have been interpreted by the court. As such, Eastern Fish Company is not a typical Contract v. Bill of Lading case.
After the rate quote contract was agreed upon between Niro and the carrier, Niro then filled out and prepared the Bill of Lading.
Have Some Class.
The National Motor Freight Classification (“NMFC”) designation on a Bill of Lading is a choice of limitation of liability. As such, shippers and carriers need to review and consider the Class designation on the Bill of Lading and how that choice relates under the context of the Shipper/Carrier Contract.
In Siren, Inc. v. Estes Express Lines, 249 F.3d 1268 (11th Cir. 2001), the District Court awarded judgment to the plaintiff shipper in the amount of $46,982.16. Siren is a limitation of liability case in a Bill of Lading as opposed to a “Contract v. Bill of Lading” case but the overall analysis would seem to apply to our situation. On appeal, the United States Court of Appeals for the Eleventh Circuit reversed and entered judgment for the released rate limitation on the Bill of Lading in the amount of $8,309.00. Id.
The Court recognized that the shipper filled out the Bill of Lading and put NMFC “Class 85” on the Bill of Lading. The Court held that the shipper’s use of such “industry specific terminology” as “Class 85” was itself a limitation of liability as to the motor carrier and which appeared on the face of the Bill of Lading when the carrier received the freight. Id.
As the Eleventh Circuit explained with respect to the impact of the “released rate” on the Bill of Lading, “assuming [the shipper or its agent] did not actually know that it was limiting [the carrier’s] liability, [the shipper or its agent] certainly should have known.” Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1273 (11th Cir. 2001) (emphasis in original).
This may be especially appropriate where the Court is confronted with a sophisticated shipper.
Moreover, in American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 314 (3d Cir. 1992) the Court enforced the limitation of liability where the “released value was specifically on [the shipper’s] own form of bill of lading”). Much like Siren, American Cyanamid is not a “Contract v. Bill of Lading” case but the reasoning may apply to a matter involving the application of specific Bill of Lading terms over more general Contract terms.
The fact the shipper (or its agent) prepared the Bill of Lading and the motor carrier did not was a critical fact for the Court’s reasoning. As the Siren Court put it, “[t]his Court does not deem it proper or necessary to protect shippers from themselves.” Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1271 (11th Cir. 2001).
Applying the limitation of liability in the Bill of Lading, the Siren Court relied on Third Circuit precedent, American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310 (3rd Cir. 1992) and stated:
we hold that when a shipper drafts a bill of lading, incorporating language which is universally understood throughout the motor carrier industry to limit the liability of the carrier, said shipper will be bound by the terms of the contract, irrespective of whether the shipper had actual knowledge of the limiting aspect of those terms.
Siren, at 1274.
The Shipper’s Agent’s Secret (or the Shipper’s “Secret Agent”).
The United States Supreme Court has already applied limited liability terms based on the terms entered into through agents. Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 125 S. Ct. 385, 160 L.Ed. 2d 283 (2004). The Court’s decision in Kirby was based on the long-standing precedent of Great Northern R. Co. v. O’Connor, 232 U.S. 508, 34 S. Ct. 380, 58 L.Ed. 703 (1914).
As quoted by the Kirby Court, the ruling in Great Northern is very straightforward and makes sense, as follows:
In Great Northern, an owner hired a transfer company to arrange for the shipment of her goods. Without the owner’s express authority, the transfer company arranged for rail transport at a tariff rate that limited the railroad’s liability to less than the true value of the goods. The goods were lost en route, and the owner sued the railroad. The Court held that the railroad must be able to rely on the liability limitation in its tariff agreement with the transfer company. The railroad “had the right to assume that the Transfer Company could agree upon the terms of the shipment”; it could not be expected to know if the transfer company had any outstanding, conflicting obligation to another party. Id., at 514, 34 S.Ct. 380. The owner’s remedy, if necessary, was against the transfer company. Id., at 515, 34 S.Ct. 380.
Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 33, 125 S.Ct. 385, 398 (2004). The
shipper’s agent can bind the shipper with respect to the carrier.
Your facts may be similar (or different) in the event the shipper’s agent filled out the Bill of Lading. Thus, “[w]ithout the owner’s express authority” (and indeed perhaps contrary to the specific terms of the Contract) “the transfer company” (i.e., the shipper’s agent) “arranged for . . . transport at a . . . rate (in the Bills of Lading) that limited the carrier’s liability . . ..” Id.
As the Court concludes, the “owner’s remedy, if necessary, was against the transfer company” (i.e., the shipper’s agent).
Also, in Orion Insurance Company, PLC v. M/V “Humacao”, 851 F. Supp. 575 (S.D.N.Y 1994), the Court reviewed agency principals and found the shipper’s agent, which agent issued the Bill of Lading, bound plaintiff to the limitation under concepts of apparent authority. The plaintiff’s agent issued an Ocean Bill of Lading with a limitation of liability of $500.00. The ocean carrier moved to limit the damages to $500.00 as per the express terms of the Bill of Lading. The Court granted the motion and limited the amount of the damages. Id.
Moreover, in Jackson v. Brook Ledge, Inc., 991 F. Supp. 640 (E.D. Ky. 1997), the Court held the freight owner’s agent, who issued the Bill of Lading, bound the freight owner to a $1,000.00 limitation of liability.
As the United States Court of Appeals for the Third Circuit aptly stated:
the long-standing principle that a shipper is deemed to be aware of, and agrees to be bound by, the tariff under which it is shipping, and that before carriage can begin, the parties enter into a contract of carriage embodied in a bill of lading.
National Small Shipments Traffic Conference, Inc. v. U.S., 887 F.2d 443, 446 (3d Cir.
1989).
Although a tariff may or may not be involved in your particular fact pattern and depending on the term of the Contract, the Third Circuit’s reasoning could apply to matters addressing the Contract v. Bill of Lading contention.
Overall, shippers and carriers must be well aware that their agents can bind them and to commitments that may not have been contemplated – especially by the shipper if it has a traditional Contract with the carrier but the shipper’s agent bound the shipper (through the Bill of Lading) to terms contrary to the Contract.
Specific over General.
Specific terms (as per Bills of Lading) may trump and supersede more general terms of Contracts.
Thus,
it is a fundamental rule of contract construction that “specific terms and exact terms are given greater weight than general language.” Restatement (Second) of Contracts § 203(c) (1981).
Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir. 2001).
Additional case law interpreting the issue has found that the Bills of Lading are the specific contracts of carriage that govern the transaction. Mafcote Industries, Inc. v. Milan Express Co., Inc., 2011 WL 3924188 (D. Conn. 2011).
Either the Bills of Lading should be considered in whole or not considered at all.
As set forth in Mafcote Industries, an argument could be made (depending of course on the facts of your case) that some terms of the Bills of Lading cannot be parsed out leaving others in. Either the full terms of the Bills of Lading are applicable or none of them are. This follows logically, because the Bills of Lading naturally contain the more specific terms for each transportation including location, quantity, size, description and value. On the other hand, the Contract can contain only general terms.
Either all of the terms of the Bills of Lading have meaning or none of them do. Either there can be no liability for “double stacking” if that appears on the Bill of Lading or if there is liability for breaching that term of the Bill of Lading, is it capped at $1.00 in our example?
Applying terms of a Contract, the Mafcote Court concluded that the Bills of Lading applied (in lieu of a separate contract) because the Bills of Lading were not barred by Contract. Further, use of Bills of Lading was specifically contemplated by the separate Contract.
Read your Contracts and scrutinize them. Read your Bills of Lading with any eye toward practicality and the “real world” of the industry. Act proactively and get all of the information as quickly as you can to your legal department to have them review.
As the cases illustrate, a “Contract v. Bill of Lading” dispute can be very fact sensitive.
The answer to the question should we pay $1,000,000.00 under the Contract or $1.00 under the Bill of Lading remains, “it depends.”
Otherwise, if all else fails just write that check for $1.00 and mail it to the shipper and see if they accept it.
Thomas C. Martin, Esq.
Partner,
Price, Meese, Shulman & D’Arminio, P.C.
