Q&A: By Whom the Bill Is Paid

Q: I hope you can provide me with some guidance on this.

A carrier has these rules. They do not recognize Section 7 on any bill of lading as stated in the rules tariff. I have encountered situations described in B and C quite a few times, but A not so much.

In these days of deregulation, I realize carriers can set almost any rule they wish and it’s “caveat emptor” for all parties involved, but I’d appreciate your input nonetheless.

“(A) A ‘PREPAID SHIPMENT’ is one for which the charges for transportation services … are to be paid by the consignor. Notwithstanding the consignor’s primary payment responsibility, both consignor and consignee are liable for payment of the carrier’s freight charges under the theory that both the consignor and consignee receive the benefit of the carrier’s services. Thus, if the consignor does not pay the charges within carrier’s payment terms for any reason, including insolvency, the charges may be reversed to the consignee and become the consignee’s responsibility.

“(B) A `COLLECT SHIPMENT’ is one for which the charges for transportation services … are to be paid by the consignee. Notwithstanding the consignee’s primary payment responsibility, both consignor and consignee are liable for payment of the carrier’s freight charges under the theory that both the consignor and consignee receive the benefit of the carrier’s services. Thus, if the consignee does not pay the charges within carrier’s payment terms for any reason, including insolvency, the charges may be reversed to the consignor and become the consignor’s responsibility.

“(C) A `THIRD PARTY PAYOR SHIPMENT’ is one for which the charges for transportation services … are to be paid by a third party … Notwithstanding a third party’s primary payment responsibility, both consignor and consignee remain liable for payment of the carrier’s freight charges under the theory that all parties receive the benefit of the carrier’s services. Thus, if the third party does not pay the charges within carrier’s payment terms for any reason, including insolvency, the consignors and consignees remain liable … This is the case even if the consignor or consignee has already forwarded payment to the third party and the third party fails to pay carrier.”

 

A: I get the feeling you want me to throw up my hands and loudly exclaim “horrors,” and then give you all sorts of legal-sounding reasons why these rules aren’t enforceable.

Sorry, no can do. The rules are basically slightly verbose restatements of the common law, no more. OK, C is the subject of a lot of judicial wrangling, and Section 7 of the B/L overrides B, but you say the carrier disavows Section 7. So the rules are sound.

The main purpose of A, I suspect, is to eliminate a judicial exception. If a consignee, relying on the carrier’s representation of a shipment as “prepaid,” pays the consignor’s bill before the carrier demands its money, the carrier is equitably estopped from collecting. This rule seeks to eliminate that.

In favor, I don’t think it’ll work that way. I doubt any court will regard an obscure rule in a tariff that the consignee will have had no reason to peruse as trumping basic principles of fairness (as by forcing the consignee to pay twice for the same service, once to the carrier and a second time to the consignor).

On the other hand, the consignor is presumptively familiar with the carrier’s tariff, which lends strength to the provisions of paragraphs B and C as they apply to that party. In both cases, I still see arguments that the consignor might raise in disputing liability for the unpaid freight charges. But the rules do raise a presumption in the carrier’s favor.

In general, though, I think the rules are fairly innocuous as going beyond what the law already says. There is no escaping the reality that designations of what party is responsible for payment are a long way from fully binding until and unless that party discharges its obligation. Failure of the nominal paying party to actually make the payment will invariably result in legal confusion and contention.

This is obviously a carrier that is doing its best to ensure that such confusion and contention don’t redound against it. I’m not sure how successful its effort will be if legally tested, but the effort is commendable.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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