What's a Broker to Do?

Q: A broker paid a carrier for freight moved for one of the broker’s customers. The customer is in financial trouble and is refusing payment to the broker.

Can the broker go to the consignee for payment of freight?

What does one do in a case like this?

A: I liked the subject title you gave your e-mail so much that I used it as the headline for this article, because it’s a real problem, albeit a rather refreshing one.

The more common question I receive deals with the customer having paid the broker and the broker, itself being in financial trouble, failing to pay the carrier.

That can be a nasty problem for the customer. See, most recently, Oak Harbor Freight Lines v. Sears, Roebuck & Co., 513 F.3d 949 (U.S.C.A.9, 2008), in which the shipper (Sears) had to double-pay a carrier for charges it had already paid a broker.

To get back to your question, however, this time the broker is the one getting stiffed, and the law is considerably less settled and, I’m afraid, less favorable to the broker’s problem.

Sure, you — I gather you’re the broker here — can go after the consignee for your charges. I consider the likelihood that it will pay you voluntarily to be, however, vanishingly small, and you have no legal standing to pursue it in court.

If you were the carrier instead of a broker, matters would be a little better, although only marginally. Consignees are deemed in law to accept the bill-of-lading contract under which a shipment moved when they accept delivery of the shipment, and therefore to become liable to the carrier for freight charges if the shipper doesn’t pay (Corpus Juris Secundum, 13 C.J.S. Carriers Section 478).

But if the shipment was billed as prepaid and the consignee, relying on that, has already paid the shipper’s invoice (in an amount presumably including reimbursement for freight charges) before the carrier demands its money, that’s invalidated. That is, the consignee doesn’t have to double-pay the carrier in such cases.

That would probably leave you unable to collect from the consignee even if you were a carrier. But since you’re not, and therefore have no bill-of-lading contract to back you up, you have no sustainable claim against the consignee, with whom you have no relationship and who probably doesn’t know you from Adam.

Can you sue your shipper for the unpaid charges? You said it’s “in financial trouble,” but not that it’s bankrupt, so if you could prevail in court, you might be able to collect a judgment. But I’m afraid even that’s iffy.

This is where the sloppy documentation that prevails in the transportation industry can jump up and bite you. In particular, most brokers have only the most casual written agreements with their shipper customers, if indeed any at all.

It’s not a fatal flaw to your case, but you need to develop a body of evidence proving that:
--The shipper arranged this movement through you.
-- It agreed to pay for the service.
-- Agreement encompassed the specific amount you’re claiming.

Your own internal documentation, while helpful, won’t necessarily satisfy that burden if the shipper simply disowns you and refuses to recognize any relationship with you (at least as to this shipment).

In sum, the answer to your question about “what does one do in a case like this” is probably, not very much. The reality is that you’re probably going to have to eat this one.

But there are lessons you can take from the experience and apply to future dealings with customers.

The first is to make sure your relationships with customers are properly documented. A lot of brokers make sure their shipper customers sign written agreements, so at least there’s a generalized contract establishing the existence of the relationship and defining basic terms. If you don’t currently do this, now would be a good time to rectify that omission.

Then you should set up some kind of standard form you interchange with your customers, detailing each individual shipment you handle for them. It need not be anything elaborate, but it sets up the basis for you to get paid.

Finally, try to keep reasonably current on the economic status of each customer. Credit checks are valuable tools; use them. Don’t let your first inkling of a customer’s financial woes be its failure to pay you.

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 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.

 

For the full story: Log In, Register for Free or Subscribe