Don’t bank on brokers

Q My company is a motor carrier. A broker that has filed for bankruptcy owes us money. We signed a standard broker agreement with this broker. What are our options for getting our money back? Can we go after the shipper or the consignee now?

A It appears from your question that you have, to this point, relied solely on the broker and asserted no claim of payment from the shipper or consignee. That party will argue, no doubt, that it paid the broker in good faith and that, because you did not give it fair notice that you expected payment, it should not be required to pay twice. Some courts have accepted this “promissory estoppel” argument as barring carrier recovery where the facts support the shipper’s point of view. Even so, if you have not misled the shipper, you may have a strong argument for shipper liability.

Ordinarily, the bill of lading is a written contract among the carrier, the consignor and consignee. If your name appears as the carrier of record – as it should – the shipper or consignor normally will be liable to you for the payment of your freight charges. Exceptions would be if the bill of lading clearly indicates otherwise or if you have, by written contract or a course of dealing, led the consignor to believe otherwise.

A broker arranges for transportation for compensation as an “agent” or as an “independent contractor.” As an agent, it is not responsible for the acts of its principal, be that principal a carrier or a shipper, unless it affirmatively assumes those responsibilities by guaranteeing them.

In entering a broker-carrier agreement, you should think, “As a carrier, am I dealing with a broker as the agent for its customer? Am I looking to the broker to guarantee payment in case the broker’s customer does not pay it? Or am I willing to agree to give up recourse to the consignor and consignee and look solely to the broker for payment?”

In New Prime v. PLN, 28 S.W. 3d 899, the court held that the bill of lading governs the services between the carrier and the shipper. In the absence of an agreement to the contrary, the carrier has no recourse to the broker in the event the broker does not receive payment of charges from the carrier.

In National Shipping Co. of Saudi Arabia v. Omni Lines, 106 F.3d 1544 (11th Cir. 1997), the court noted that intermediaries have few assets and that carriers have a contractual right to expect payment from the shipper under the bill of lading. It found:

“Carriers must expect payment will come to the shipper, although it may pass through the [intermediary’s] hands. While the carrier may extend credit to the [intermediary] there is no economical and rational motive for the carrier to release the shipper. The more parties that are liable, the greater the assurance the carrier will be paid.”

The Court’s language above offers carriers good guidance. Your carrier-broker contract should provide that the broker is the agent of its shipper/customer. In most cases, that’s truly the relationship. The shipper gives the broker the freight, and the broker then looks for the carrier. To avoid confusion and the possibility of disputes, follow these steps:

  1. Provide in the contract that the broker will comply with federal regulations that require it to segregate funds and bill and transmit payments. If you wish to make the broker liable for freight charges, in the event it does not collect from its customer, provide that the broker is a guarantor for payment.
  2. Make sure that all bills of lading show the actual carrier’s name as the party in possession of the goods. Broker regulations preclude a broker from representing itself as a carrier, and so the broker’s name should not appear on the bill of lading as the carrier of record. If the nonrecourse provision of the bill of lading is signed or if the bill in any other manner indicates that the consignor will not pay the carrier, then you should understand that the risk of nonpayment by the broker has been shifted to you.
  3. Prepare a general rules circular that should be applied to all shipments you handle. Place the rules on your website and incorporate them by reference in each contract you sign. Include a provision that recourse under the bill of lading is preserved and that brokers and other intermediaries will be invoiced for the convenience of the shipper.
  4. Send all invoices to the party liable under the bill of lading contract in care of the intermediary as a further acknowledgment that the broker or intermediary acts in an agency capacity. If proof of delivery is required and the document is in any way ambiguous, use a P.O.D. stamp on the document that states that this proof of delivery is provided as evidence of service provided by your company.
  5. Finally, if you expect a property broker to act as a conduit in transmitting funds and you do not receive timely payment, you can, under the regulations, demand an accounting. If the broker doesn’t respond, immediately place the shipper on notice that you have not been paid and are preserving your recourse to the shipper.