Who’s holding the bag?
Q We are a carrier that transported a shipment for a consignor that was damaged in transit. The consignee filed a claim for the destination market value. Our cargo insurer refuses to handle the claim, saying that the consignee is not the proper party to file it. Can this declination possibly be right?
A In my opinion, it is not. Although your contract was with the consignor and the bill of lading was marked prepaid, neither the shipper-carrier agreement nor a negotiated bill of lading governs title to the goods nor identifies the beneficial owner for purposes of filing a cargo claim.
Obviously, the shipment in question was actually a so-called “prepay and add” situation in which the selling terms were F.O.B. (freight on board) at origin where title passed to the consignee with the understanding that the consignor would retain the carrier, pay your freight charges and add the cost of transportation to its invoice. This method of conducting business is an established practice. The consignee is a proper party to file a cargo claim under this situation.
Whether a bill of lading is marked ‘prepaid’ or ‘collect’ is important only to determine whether the consignor or the consignee is primarily liable for payment of the freight charges.
Whether a bill of lading is marked “prepaid” or “collect” is important only to determine whether the consignor or the consignee is primarily liable for payment of the freight charges. If a bill is marked “prepaid,” the consignor is expected to pay the freight charges upon invoice, and the consignee’s only liability for freight charges arises upon acceptance of the goods. On the other hand, if the shipment is marked “collect” and Section 7 is signed, the collection obligation belongs to the consignee or to whatever third party contracted the carrier to provide the services.
With respect to cargo claims, which is the issue you face, the carrier, upon accepting a shipment, is liable under the Carmack Amendment for the “full actual value.” In the case where a shipment is sold by the consignor to a customer, that value is most often the delivered invoiced amount for the product.
There is one caveat, though. Where a shipper or intermediary retains the carrier and agrees to limited cargo liability, that limit of liability is enforceable against the beneficial owner of the goods whose recourse, if any, is to the consignor or broker who failed to obtain a full actual value rate. Payment terms for freight charge collection should not be confused with “the person entitled to recover under the receipt or bill of lading” as that term is used in the Carmack Amendment.
Henry Seaton is a transportation lawyer who represents carriers.
Contracts of sale between buyers and sellers are governed by Article 2 of the Uniform Commercial Code (“UCC”) as adopted by individual states.
Unless waived or limited by written contract or otherwise subject to released rate provisions, a motor carrier is liable for cargo loss or damage pursuant to the Carmack Amendment, a federal statute, and must pay the full actual value of cargo lost or damaged in transit.
The terms and conditions of the carrier, a copy of which is available upon request, govern the payment of freight charges unless otherwise set forth in a signed written agreement. The consignor is liable for payment of the freight charges unless it executes Section 7 of the bill of lading.
The consignee becomes liable for payment of the freight charges upon delivery pursuant to 49 U.S.C. 13706.