James F. Mahoney, Attorney

Trucking Attorney

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April 2017

Confusion Reigns in Cargo Refusals

Denial of cargo by consignee is becoming more common because of concern about the viability of the freight itself.

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But that’s not always the motor carrier’s fault – in fact the motor carrier generally has no fault for the condition of the lading.

If the consignee refuses the lading tendered by a carrier or if the carrier is unable to deliver the lading because of fault or mistake of shipper or the consignee, or if the shipper advises and instructs carrier to stop movement of the lading and to hold it in transit, what is a carrier’s liability?

The carrier has a lien upon the goods for its lawful charges, arising when it picks up the freight. The lien is discharged when the carrier is paid for the goods. This discharge contemporaneously entitles the consignee to the goods.  A carrier loses its lien when it voluntarily delivers the goods or unjustifiably refuses to deliver. Importantly, a carrier does not have the right to lien and withhold delivery of cargo because of a shipper’s failure to pay freight charges on separate, different and unrelated prior shipments. The Uniform Straight Bill of Lading (at §4(a)(2)) provides that if the property is not accepted by the consignee, the carrier may store the property subject to its lien for all freight and other lawful charges, including reasonable storage charges. If not retrieved and paid for, the carrier may then sell the property at public auction in certain circumstances, and apply the proceeds of the sale to the payment of freight, demurrage, storage and other lawful charges

Under the Bill of Lading Act and all state’s Uniform Commercial Code (Section 7-307) the carrier has a lien on goods covered by a bill of lading for freight charges. The usual language in the accepted bills of lading confirms the carrier’s lien rights with language noting that “nothing herein shall limit the right of the carrier to require at time of shipment the prepayment or guarantee of the charges.”

Under common law, if a shipper delivered goods covered by a bill of lading to a common carrier for transport, the carrier had a lien on such goods so long as (i) the freight charges were not paid by the shipper and (ii) the goods remained in the carrier’s possession. In addition to common law rights, carriers have been protected by statutory law. For example, certain states have enacted various carrier lien statutes and all states have adopted Section 7-307 of the Uniform Commercial Code (the “UCC“). UCC Section 7-307 provides a carrier with a lien on goods and the proceeds thereof so long as the carrier maintains possession of the goods or proceeds.  The UCC lien covers transportation charges and expenses and is effective against the consignor or any person entitled to the goods; provided, however that a carrier loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.

The carrier immediately becomes a warehouseman with obligations limited to ordinary negligence. The carrier must use only ordinary care (as opposed to the liability under Carmack rules) to keep the lading in a safe or suitable place or to store the lading properly.

Thereafter, the carrier shall (a) attempt to give shipper notice as soon as possible  and, (b) place the lading in public storage, if available, unless the carrier receives contrary disposition instructions from the shipper within twenty-four (24) hours, and (c) if disposition instructions are not given by the shipper within ten (10) days of carrier’s initial notification to the shipper (the “10 day on-hand” notice), the carrier may offer the cargo for public auction or best offer among salvors.

In the case of perishable cargo, the carrier may dispose of the freight at a time and in a manner that the carrier deems appropriate. The shipper will be responsible for storage costs and reasonable costs that the carrier incurs in acting as a warehouseman.

To the extent any sale or disposal revenues exceed the storage costs and the costs the carrier incurs as a warehouseman and freight charges, the motor carrier shall remit the balance to the shipper.

If the shipper had given the carrier timely disposition instructions within the 10 days, then the carrier shall use any commercially reasonable steps to work within those instructions. That said, the shipper shall pay the carrier’s freight costs and additional costs incurred in doing so.

The 10-day notice should be in writing (email) to the shipper or the party noted on the BOL to receive notice. To be safe, notify all parties to the Bill.

Storage charges, based on most carriers’ tariff, shall start no sooner than the next business day after the 10 days. Storage may be, at carrier’s option, in any location that provides reasonable protection against loss or damage. Public storage companies work well because it’s at the owner’s expense and without liability to the carrier.

The proceeds of the sale shall be first applied to the carrier’s invoice for transportation, secondly for the storage and other lawful charges. The owner of the cargo is responsible for the balance of charges not covered by the sale of the goods. If there is a balance remaining after all charges and expenses are paid, that balance will be paid to the owner of the property, upon receipt of proof of ownership.

If the carrier attempts to follow the procedure above, but the situation becomes impossible to accomplish, there’s no regulation or rule to stop the carrier, at its option, to sell the property in a salvage bid manner.

Obviously fresh produce or other perishables may not have a shelf life of ten days sitting in storage, so if the cargo is refused at destination, and disposition is not given within a reasonable time, the carrier may dispose of the perishables to the best advantage, i.e. to salvage or consignment sale.