United States Court of Appeals,
Eleventh Circuit.
No. 95-6691.
NATIONAL SHIPPING COMPANY OF SAUDI ARABIA, Plaintiff-Appellant,
v.
OMNI LINES, INC., Defendant-Third-Party Plaintiff-Appellee,
Exchange Transportation International, Inc., Third-Party
Defendant-Appellee.
March 6, 1997.
Appeal from the United States District Court for the Southern
District of Alabama. (No. CV94-57-T-C), Daniel Holcombe Thomas,
District Judge.
Before ANDERSON, Circuit Judge, and KRAVITCH and HENDERSON, Senior
Circuit Judges.
KRAVITCH, Senior Circuit Judge:
National Shipping Company of Saudi Arabia ("NSCSA") appeals
the district court's judgment following a bench trial in favor of
Omni Lines, Inc. ("Omni"). NSCSA, as a freight carrier, argued
that where a shipper pays freight charges due under a bill of
lading to a freight forwarder but the forwarder never pays the
carrier, the shipper remains liable to the carrier for the unpaid
freights. The district court rejected NSCSA's contention. On
appeal, we review the district court's factual rulings for clear
error and its legal conclusions de novo. Newell v. Prudential Ins.
Co., 904 F.2d 644, 649 (11th Cir.1990). We reverse.
I.
Acting through a freight forwarder, Exchange Transport
International ("Exchange"), the parties arranged for the carriage
of newsprint from St. John, Canada to Jedda, Saudi Arabia.
Specifically, NSCSA transported the newsprint pursuant to a bill of
lading listing Omni as the shipper. The freight charge on the bill
totaled $67,794.62 and the bill was marked "Freight Prepaid."
Despite marking the bill prepaid, NSCSA claims—and Omni does not
dispute—that the bill was never paid. Although Exchange issued an
invoice to Omni for the freight charges, which Omni promptly paid,
Exchange did not pay NSCSA and instead applied Omni's payment to
its own outstanding debts. Exchange since has gone out of business
and NSCSA's attempts to collect from Exchange have been fruitless.
NSCSA therefore brought the instant action, alleging that Omni
remains liable under the bill of lading for the unpaid freights.
II.
As an initial matter, we note that any result we reach in
this case necessarily will be somewhat inequitable. Neither party
to the instant suit has done other than what it was expected to do;
NSCSA transported the goods as arranged by Exchange, and Omni paid
Exchange when billed. Thus, we must decide whether Omni must be
made to pay twice or whether NSCSA is not paid at all.
Perhaps because of this Hobson's choice, courts have adopted
varying approaches to cases where a carrier issues a "freight
prepaid" bill of lading even though it has not yet been paid, the
shipper pays the freight forwarder, and the forwarder fails to pay
the carrier. Some courts ask whether the use of the term "freight
prepaid," in the specific circumstances of the case, was meant to
act as an extension of credit by the carrier to the forwarder, in
which case the carrier's only recourse is against the forwarder, or
was an extension of credit to the shipper, in which case the
shipper remains liable on the bill.1 Indeed, this court has noted
that such evidence of local custom can create shipper liability.
In Naviera Neptuno S.A. v. All International Freight Forwarders,
Inc., 709 F.2d 663, 665 (11th Cir.1983), we reversed summary
judgment for a shipper and remanded for the district court to
determine whether local custom was to treat the "freight prepaid"
notation as an extension of credit from the carrier to the shipper.
If so, we held, the shipper could be held liable for freight
charges, even though the shipper had paid a freight forwarder in
full.
NSCSA argues that Naviera governs this case, based on its
claim that it introduced, at trial, unrefuted evidence of a local
custom viewing "freight prepaid" as an extension of credit from the
carrier to the shipper. We disagree. NSCSA's proof at trial did
not indicate whether the use of the term "freight prepaid" on the
bill of lading allocated—between NSCSA and Omni—the risk of loss
due to the forwarder's failure to pay the carrier. Rather, NSCSA's
revenue controller, Saniisha Williams, testified that marking a
bill of lading "freight prepaid" is a way of indicating that the
freight will be paid at the point where the cargo is loaded, not
1
See, e.g., Compania Sud Americana de Vapores v. Atlantic
Caribbean Shipping Co.,
587 F. Supp. 410, 413 (S.D.Fla.1984)
(holding that unless carrier produces evidence that "freight
prepaid" means an extension of credit to the shipper, usual rule
is that it is an extension of credit to the forwarder);
Koninklijke Nedlloyd BV v. Uniroyal, Inc.,
433 F. Supp. 121, 128
(S.D.N.Y.1977) (finding that carrier extended credit to
forwarder); Farrell Lines, Inc. v. Titan Industrial Corp.,
306
F. Supp. 1348, 1351 (S.D.N.Y.) (same), aff'd,
419 F.2d 835 (2d
Cir.1969), cert. denied,
397 U.S. 1042,
90 S. Ct. 1365,
25 L. Ed. 2d
653 (1970).
the point of delivery. 2 Consequently, although we recognize our
prior precedent, we conclude that this case is not controlled by
it. We therefore consider the liability rules crafted by other
courts to deal with the situation where a local custom is unproven.
Some courts have "held that the equitable estoppel doctrine
bar[s carriers] from recovering freight charges where [the
shippers] were justified in believing that [the carriers] had been
paid for their services." Olson Distributing Systems, Inc. v.
Glasurit America, Inc.,
850 F.2d 295, 296 (6th Cir.1988). 3 These
courts reason that it would be inequitable to hold a shipper liable
if it justifiably relied on the "freight prepaid" notation, in
2
Ms. Williams's twice referred to the phrase "freight
prepaid" in her testimony:
Freight prepaid—it was marked freight prepaid
because it was to be paid on this side where the cargo
originates, in the country of origin as opposed to
collect where the consignee is responsible for paying
the freight charges.
We have two modes of payment. Either prepaid or
collect. If a bill of lading is prepaid, the shipper
is responsible for paying the charges on this side. If
it's collect, the consignee pays the charge at the time
of delivery.
Freight prepaid means that the shipper of record
is going to pay the charges either directly or through
his agent, that the freight charges are going to be
paid at the country of origin, or the area where the
cargo is loaded.
If a shipment goes freight collect, the consignee
is responsible for paying the charges and the charges
are paid at the time of the delivery of the goods.
R-2 at 22-23.
3
See also Inman Freight Syst., Inc. v. Olin Corp.,
807 F.2d
117, 121 (8th Cir.1986); Mediterranean Shipping Co. v. Elof
Hansson, Inc.,
693 F. Supp. 80, 84-85 (S.D.N.Y.1988).
addition to other objective indications that the carrier viewed the
freight forwarder as ultimately being liable for charges due under
the bill of lading.
By contrast, there are cases leaning towards a semi-strict
liability for shippers. These decisions indicate that unless the
carrier intends to release the shipper from its duty to pay under
the bill of lading, the shipper remains liable to the carrier,
irrespective of the shipper's payment to a freight forwarder. We
find support for this doctrine in dicta from this court's
predecessor:
Of course it makes a lot of difference whether this is really
a suit by the Carrier. If it is a suit by the Carrier, we can
assume that by virtue of its filed tariffs expressly
incorporating its bill of lading contract, conduct by the
Carrier—no matter how inequitable—cannot excuse it from
enforcing collection of freight, nor can harm innocently
suffered by the Shipper—occasioned by the wrongdoing of
another (the Agent)—excuse it from paying the Carrier even
though this means payment twice. That would follow from the
rigorous policy which, to prohibit not only discrimination but
the possibility of it, gives to carrier tariffs the force of
law.
Compania Anonima Venezolana De Navegacion v. A.J. Perez Export Co.,
303 F.2d 692, 695-96 (5th Cir.), cert. denied,
371 U.S. 942,
83
S. Ct. 321,
9 L. Ed. 2d 276 (1962) (footnotes omitted).4
Subsequently, the Fifth Circuit adopted a rule which, although not
as severe as its prior opinion foreshadowed, still views shipper
liability as the default rule. In Strachan Shipping Co. v. Dresser
Indus., Inc.,
701 F.2d 483 (5th Cir.1983), the court held that
bills of lading marked prepaid did not relieve a shipper of
4
See also Bartlett-Collins Co. v. Surinam Navigation Co.,
381 F.2d 546, 549 (10th Cir.1967) (shipper liable on bill of
lading "no matter how inequitable the conduct of the carriers").
liability unless the shipper could demonstrate that the carrier
released it.5
Upon consideration, we believe that the Strachan approach—the
shipper is liable unless released by the carrier—is the best rule.
The district court relieved Omni of liability because it found that
NSCSA, by using the words "freight prepaid," extended credit to
Exchange, not to Omni. We hold that this conclusion was error
because, although an extension of credit from the carrier to the
shipper is one way to make the shipper liable, it is not the only
way. After all, the bill of lading is a contract between the
carrier and the shipper and the carrier has a contractual right to
expect payment pursuant to that bill. Should the shipper wish to
avoid liability for double payment, it must take precaution to deal
with a reputable freight forwarder or contract with the carrier to
secure its release. In adopting the same standard we do today, the
Fifth Circuit noted that there are legitimate policy reasons for
adopting a rebuttable presumption in favor of shipper liability:
[W]e think that our result comports with economic reality. A
freight forwarder provides a service. He sells his expertise
and experience in booking and preparing cargo for shipment.
He depends upon the fees paid by both shipper and carrier. He
has few assets, and he books amounts of cargo far exceeding
his net worth. Carriers must expect payment will come from
the shipper, although it may pass through the forwarder's
hands. While the carrier may extend credit to the forwarder,
there is no economically rational motive for the carrier to
release the shipper. The more parties that are liable, the
greater the assurance for the carrier that he will be paid.
Strachan, 701 F.2d at 490. We find this reasoning persuasive.
We cannot, however, say as a matter of law that NSCSA has or
5
See also Sea-Land Serv., Inc. v. Amstar Corp.,
690 F. Supp.
246, 250 (S.D.N.Y.1988) (following Strachan ).
has not released Omni from its duty to pay. The use of the words
"freight prepaid" appears to point towards release, as does the
fact that NSCSA focused its initial collection efforts at Exchange.
Nevertheless, both of these indications were present in Strachan,
and the Fifth Circuit found that the shipper had not been released.
Weighing against release, NSCSA claims that local custom views
"freight prepaid" as an extension of credit to the shipper. We
also note that the bill of lading itself does not favor finding
release; it states:
Full freight to destination shall be considered completely
earned upon receipt of the Goods at Point of Origin, whether
the freight be stated or intended to be prepaid or to be
collected at destination, and the Carrier shall be entitled to
all freight and charges due hereunder, whether actually paid
or not and to receive and retain them irrevocably under all
circumstances whatsoever.
Bill of Lading at 2, § 15. Thus, we conclude that a factual issue
remains for the trial court's resolution. Upon remand, the court
should consider the foregoing—as well as other evidence—in applying
the standard we have enunciated above.6
III.
Accordingly, we REVERSE the judgment of the district court and
REMAND for further proceedings consistent with this opinion.
* * * * * *
6
We also note that, should the district court find Omni
liable, it must wrestle with the amount of its liability. It
appears from the record that Exchange negotiated a $91.00/ton
freight charge, but NSCSA billed Omni at a rate of $96.00/ton.
