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Bill of Lading Defines Relationship Among Shipper, Broker, and Carrier

Thomas W. Hartmann
The Hartmann Law Firm LLC
TheHartmannLawFirm.com;
[email protected]; 908 769 6888

Because of its ports, lengthy shore, and excellent growing conditions, New Jersey, the Garden State, is a center of commerce, shipping, and transport. The key document in shipping and transport is the bill of lading.

In a case just released, Direct Coast to Coast, LLC and Selective Transportation v. Door to Door Courier Service v. Empire Specialty Foods and Sun Grove Foods, N.J. Super. App. Civ. (per curiam), April 12, 2018, 11-2-6108, the New Jersey Court of Appeals explained the importance of the bill of lading and the relationship among the shipper (or product owner), a carrier or common carrier, and a shipping broker (who connects shipper and carrier).

The Direct Coast to Coast case is about a shipper who paid the broker and thought that satisfied the payment to the carrier. But it did not. The carrier then sued broker and shipper to recover.

Summary: Shippers regularly retain brokers to arrange for transportation of goods. Often, shippers pay the broker with the understanding that the broker will pay the carrier. Payment to the broker, however, does not relieve the shipper of primary liability for transportation charges to the carrier absent an agreement either in the bill of lading or in a separate document, which specifies that the carrier must look to the broker for payment rather than to the shipper. A shipper cannot assume that just because it uses a broker, it is insulated from the carrier -- unless the parties include a provision on this in the bill of lading or in a separate agreement.

Detailed Explanation: Here is a more detailed explanation of the case.

Direct Coast to Coast and Selective Transportation are common carriers and will be called C.
Empire Specialty Foods and Sun Grove Foods are the shippers and will be called S.
Door to Door Courier Service is the broker and will be called B.

S used B to arrange for the transportation of produce by C. C successfully transported shipments for S. Each shipment was accompanied by a bill of lading issued by S. The bill of lading did not have any unique provisions and, particularly important here, did not have a "non-recourse" provision that said if S paid B, then S did not have to pay C, so C would have to look to B for payment.

Under the original shipping arrangements, if C was paid within 30 days, C allowed B to pay a substantially discounted rate. If payment was after that, payment was more than 10 times higher. S paid B the discounted rates that C offered B. However, B did not pay C.

C sued S and B. B settled with C at the discounted rates -- but C then continued the lawsuit against S for the full amount due, not the discounted rates (though there was a credit for the discounted amounts paid by B to C in the settlement).

The Court concluded that the bills of lading did not excuse S from having to pay C the remainder of the full shipping rates because the bill of lading did not have a signed provision saying the carrier would look to the broker for payment. There was no separate agreement on this, either.

The Court noted that a bill of lading is "'is the basic transportation contract between shipper-consignor and the carrier' for the interstate shipment of goods, and the shipper and all connecting carriers are bound by its terms." The Court went on to note that "the shipper is primarily liable to the carrier for payment for the shipping services" unless the parties put a provision in the bill of lading or in a separate agreement that says the carrier looks to the broker for payment and shipper pays the broker. The Court added: "Often, shippers will pay the broker with the understanding that the broker will pay the carrier. Payment to the broker, however, does not relieve the shipper of primary liability for transportation charges to the carrier."

S tried to argue that C was "equitably estopped" from demanding money from S because C had been paid by B. The court disagreed because there was no misrepresentation or lying.

Be Clear. The key is for shippers, brokers and carriers to be very clear in the bill of lading and any related documents about who is paying whom. Otherwise, the courts impose obligations on the parties based on principles of law that may be contrary to the parties' expectations.

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