Factor Rights Limited to Carrier's

Factor Rights Limited to Carrier's

Copyright 2004, Traffic World, Inc.

Q:

We are a freight broker and received an invoice from a factoring company for service that was done with a particular carrier. The factoring company wants payment in the amount of $2,600.00 for the service that we used.

That carrier also used our services on a prior date; they double-brokered their load by giving it to us, a broker, and then we brokered it out to another carrier. The carrier went out of business (phone disconnected and no new number) leaving us with an unpaid bill of more than $4,000.

We never sign the contracts that factoring companies send us because of various reasons, this being one of them. The factoring company says their sticker on the invoice is all they need to give them full rights to the amount owed.

Is there some kind of law or any kind of protection we have against being held liable to a factoring company that we never knew about until we got their invoice?

A:

Well, it requires a bit more than "their sticker on the invoice" to give the factor any entitlement to collect; you are certainly within your rights to demand proof of that entitlement if you wish.

But I don't really doubt that the factor bought the invoice from this carrier. In doing so, though, it only bought such rights as the carrier itself possessed, which in this case are a little less than "full." Specifically, the carrier's rights to collect this invoice are constrained by your own right to set off against any money it owes you, which exceeds the amount you owe it.

So tell the factoring company you're exercising your right of setoff, and give it a copy of the unpaid invoice to back your decision up. It's unlikely to accept that with good grace, since even if it took your bill "with recourse" - meaning it has the right to go back against the carrier if it can't collect from you - it'll be in the same position as you in trying to chase down this out-of-business carrier. But as I've written here before, such setoff is quite legal; "Transportation Questions & Answers," vol. 31 (Fort Valley, Va.: Loft Press, 2001), pp. 194 et seq.

Chargeback For Missed Appointment

Q:

You recently discussed carrier liability for a consignee chargeback for a missed delivery appointment, and said this was "special" damages for which "notice" must be given to the carrier "at or before [the time that] a shipment is made" (June 28, 2004).

Can you please describe of what proper "notice" consists? Must the notice include specific rates or penalty schedules for "special damages" incurred for service failure(s)?

A:

"Although a few courts have construed this requirement quite liberally, the prevailing view seems to be that the notification must be specific enough to give the carrier a reasonable opportunity to assess its obligations and risks with some degree of accuracy," I wrote in my "Manager's Guide to Freight Loss and Damage Claims," (Fort Valley, Va., Loft Press, 3rd ed., 2003), p. 228.

"That is, a mere notation of 'Rush!' or the like will probably not suffice unless accompanied by some explanation of the reason for the rush and a description of the possible consequences if timely delivery of the goods, in good condition, is not made. ... However, full detail is not required. In West Bros. v. Resource Management Service, 214 So.2d 431, the shipper noted on the bill of lading of a shipment consigned to a port that 'ship sails Tuesday morning, Sept. 14th,' which was considered sufficient notification to the carrier."

But as I go on to point out, "[i]n some cases it has even been held that the shipper should spell out the maximum amount of special/consequential damages, in dollars and cents."

Ordinarily notice should be given in the form of an annotation to the bill of lading. However, as I note in the book, "in some cases it has been held that even oral notice to a carrier's representative suffices to make special damages recoverable. ... St. L. & S. F. R. R. v. Gaba, 97 P. 435 (carrier told goods were needed for performance of 'time contract' carrying penalties for failure to complete job on time); I. C. R. Co. v. Mossbarger, 91 S.W. 1121 (carrier advised shipment of feed needed to prepare cattle for market); Marjan International Corp. v. V. K. Putnam, 1993 WL 541204 (carrier informed Oriental rugs intended for auction on a particular date)."

Which is to say, basically, that there's no clear legal standard for special damages notice. Best thinking in such circumstances is to provide the carrier with as much information as is readily available. If you know a particular consignee will assess penalties for missed delivery appointments, let the carrier know that and give it at least your best guess as to how much such a penalty would be. If you do that, you'll be in a clear position to claim the penalty, should the carrier's failure lead to its assessment.

-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76, Morganton, Ga. 30560; phone, (706) 374-7201; fax, (706) 374-7202; 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.