Court Opinion

ID: 71551
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:19:51+00
Date Added: 2024-06-11T14:58:52.078133
License: Public Domain

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.