Fraser-Smith Co. v. Chicago, Rock Island & Pacific R. Co.

• Decision Date: 27 January 1971
• Docket Number: No. 20276.,20276.
• Citation: 435 F.2d 1396
• Parties: FRASER-SMITH COMPANY, Farmers Elevator Company of Traer, Iowa, and Johnson Feed and Grain Company, Appellees, v. CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

435 F.2d 1396 (1971)

FRASER-SMITH COMPANY, Farmers Elevator Company of Traer, Iowa, and Johnson Feed and Grain Company, Appellees, v. CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Appellant.

No. 20276.

United States Court of Appeals, Eighth Circuit.

January 5, 1971.

Rehearing Denied January 27, 1971.

A. James Dickinson, Stringer, Donnelly, Allen & Sharood, St. Paul, Minn., for appellant.

James H. Malecki, Gislason, Alsop, Dosland & Hunter, New Ulm, Minn., for appellees.

Before MATTHES, Chief Judge, and LAY and BRIGHT, Circuit Judges.

LAY, Circuit Judge.

This is an appeal by a common carrier, the Chicago, Rock Island and Pacific Railroad from judgments in favor of Fraser-Smith Company (a grain broker) and Farmers Elevator Company of Traer, Iowa, and in favor of Fraser-Smith Company and Johnson Feed and Grain Company in the respective sums of $5,018.14 and $2,567.82 both with interest and costs. The issues are significant. Jurisdiction is premised under 49 U.S. C.A. § 9.

The claims arise from the shipping of three carloads of freshly shelled corn in November 1966, by the plaintiff grain companies, two from Traer, Iowa, and the other Montezuma, Iowa, to themselves as consignees in Davenport, Iowa, via the Chicago, Rock Island and Pacific Railroad. The method of shipment followed an established business practice between the parties. The grain was sold on contract by bill of lading and sight draft to Fraser-Smith, a grain brokerage company, having its principal place of business in Cedar Rapids, Iowa. Upon arrival at its destination Fraser-Smith was to be notified and, upon acceptance of the grain, the sight drafts would be honored. Fraser-Smith in turn would sell the grain under open contracts which it had with various parties. Upon arrival in Davenport, the corn was inspected by a licensed grain inspector who graded the shipments as follows:

1. D & H car 17825: sample grade yellow corn, 52.5 lbs. per bu., 21.5% moisture, 8.3% damaged kernels, 1.0% broken corn and foreign material.

2. GTW car 515319: sample grade yellow corn, 52 lbs. per bu., 20% moisture, 4.8% damaged kernels, 2% broken corn and foreign material.

3. Milw. car 23062: sample grade yellow corn, 53 lbs. per bu., 21.5% moisture, 4% damaged kernels, 1% broken corn and foreign material.

An added description on each report reads, "odor-sour" and "heating." The corn shipped from Traer was delayed in transit ten days and the corn shipped from Montezuma was delayed six days. The evidence supports the trial court's finding that the delay was a contributing factor to the corn heating and turning sour.

The grading reports were then phoned to Mr. Smith of Fraser-Smith in Cedar Rapids. Smith immediately called the shippers and recommended that they reject the shipments. Both shippers agreed to abide by Smith's recommendation and Smith was given the authority, as their agent, to notify the railroad. Smith wired the railroad to this effect and also gratuitously offered to help the railroad sell the damaged corn. The evidence showed that the railroad did not respond to Smith's offer and some 15 days later sold the corn for salvage in Oskaloosa, Iowa. Each carload was sold for less than $500. The present suit sought recovery for the fair market value of the corn as shipped, less freight charges, plus interest from the dates of rejection.

Two basic issues are presented: (1) whether the shippers were obligated to give special notice to the carrier that the corn contained a high moisture content when shipped, and (2) whether the shippers-consignees wrongfully rejected the corn. Fraser-Smith paid the sight drafts and the evidence showed that it considered the money advanced on the drafts (less than the total contract price) to be in the form of a loan. Both grain companies acknowledged this indebtedness to Fraser-Smith.¹

The district court sitting as a trier of fact found that the corn "did not contain an inherent vice of a magnitude greater than that ordinarily possessed by a substantial number of shipments of corn at that time of year and the carrier as well as the shipper knew or should have known the possible moisture content of said shipment." There exists sufficient evidence to support this conclusion. Once it was proven that the corn was in a damaged condition upon its arrival in Davenport, the railroad had the burden of proving that the damage was caused by the inherent nature of the goods rather than its own admitted delay of transit. See Missouri Pac. R. R. v. Elmore & Stahl, 377 U.S. 134, 138, 84 S.Ct. 1142, 12 L.Ed.2d 194 (1964). It is well settled that a carrier is not responsible for damage to a shipment caused solely by the operation of natural laws upon it. Trautmann Bros. Co. v. Missouri Pac. R. R., 312 F.2d 102 (5 Cir. 1962); Austin v. Seaboard Air Line R. R., 188 F.2d 239 (5 Cir. 1951); Scott County Milling Co. v. Thompson, 255 S.W.2d 121 (Mo.App.1953). Where the peculiar nature of the shipment has an inherent vice which the carrier cannot be held to normally anticipate or foresee, the rule is fundamental that the carrier cannot be liable for any damage which may have ensued peculiar to that vice. Illustrative is the case of Gardner v. Mid-Continent Grain Co., 168 F.2d 819 (8 Cir. 1948). This court held that soybeans being unnaturally damp from water used to extinguish a fire in a warehouse where they had been stored was a fact requiring special notice and knowledge to the carrier before liability could be imposed upon it for spoilage. The rule of Gardner is similar to the law requiring notice to predicate liability for special damages growing out of a breach of contract. Cf. Meyer v. Thompson, 284 S.W.2d 384 (Tex.Civ. App.1955); Czarnikow-Rionda Co. v. Federal Sugar Refining Co., 255 N.Y. 33, 173 N.E. 913, 88 A.L.R. 1426 (1930).

The facts here establish, however, that the corn shipped was no different than many other similar shipments of wet corn in the fall of the year. The railroad agents were fully aware that corn shipped at this period of time contained a higher percentage of moisture than usual but had not specifically inquired concerning it and did nothing about it. See Missouri Pac. R.R. v. Elmore & Stahl, supra, 377 U.S. at 143-144, 84 S. Ct. 1142. The evidence supports the finding that the damage to the shipment, upon its late arrival in Davenport, although caused by the operation of natural laws upon it, would not have occurred if the carrier had not negligently delayed its shipment. Here the decay of the grain was not a "cause"; it was an "effect."²

This then brings us to the more troublesome issue concerning the rejection of the goods and the damages that were found against the carrier. The law is well settled that where goods are shipped by common carrier and become damaged in transit, the consignee nevertheless has the duty to accept the shipment. Under such circumstances the consignee's obligation is not affected by the fact that the goods have been injured or damaged during transit, unless they are considered to be "totally worthless." Sunset Motor Lines, Inc. v. Lu-Tex Packing Co., 256 F.2d 495 (5 Cir. 1958); Strickland Transp. Co. v. American Distrib. Co., 198 F.2d 546 (5 Cir. 1952); Robinson v. Georgia Sav. Bank & Trust Co., 106 F.2d 944 (5 Cir. 1939); Clifford v. Merritt-Chapman & Scott Corp., 57 F.2d 1021 (5 Cir. 1932). See also Biltmore Mfg. Co. v. Overnite Transp. Co., 157 F.Supp. 891 (W.D.N.C. 1958); Miller's Law of Freight Loss and Damage Claims, ch. 5 § E (3rd ed. 1967) (hereinafter cited as Miller's). There are many practical and sound reasons which buttress this rule. For one, it has long been recognized that a common carrier's liability as such ceases upon delivery of a shipment to the consignee. See Secretary of Agriculture v. United States, 347 U.S. 645, 647, 74 S. Ct. 826, 98 L.Ed. 1015 (1954); Republic Carloading and Distrib. Co. v. Missouri Pac. R. R., 302 F.2d 381 (8 Cir. 1962); 13 C.J.S. Carriers § 185 (1939). Additionally, it is generally considered that a consignee (in this instance the consignee and shipper are the same entity) is in a much better position to dispose of the damaged merchandise than the carrier who is not in the business of buying and selling the product involved. See Kennedy & Kratzer, Inc. v. Chicago, B. & Q. R.R., 245 N.E.2d 910 (Ill.App.1969). This is consonant with the fact that unless the goods are worth only "salvage value" at their point of delivery (cf. Atlantic Coast Line R. R. v. Tifton Produce Co., 179 Ga. 624, 176 S.E. 624, 96 A.L.R. 772 (1934)), the carrier could be at the mercy of low bidding on the product by a consignee or third parties. Under such circumstances there exists no justification to make a carrier a forced buyer by a forced contract. All of these principles stem from the common law recognition that every party must use every reasonable means to lessen the damage caused by another. Restatement of Contracts § 336(1); 11 Williston, Contracts § 1353 (3d ed. 1968); and 5 Corbin, Contracts § 1039 (1964).

The instant proceedings are governed by the Carmack Amendment which has merely codified the above common law principles governing the liability of a carrier to a shipper. 49 U.S.C.A. § 20(11). See Missouri Pac. R.R. v. Elmore & Stahl, 377 U.S. 134, 140 n. 12, 84 S.Ct. 1142 (1964). It is significant that the language of the statute limits the liability of the carrier to "the full actual loss, damage * * * caused by it." (Emphasis ours.) Where damage arises from the fault of the shipper or consignee the carrier has no liability under the express language of the statute. Cf. F. J. McCarty Co. v. Southern Pac. Co., 289 F.Supp. 875, 881 n. 32 (N.D.Cal.1968).

Within these principles, we review the present facts. The district court found that the corn was "of such depreciated quality" that the plaintiffs had a right to reject the whole shipment. The trial court based its conclusion on the finding that the shipments, undamaged having a gross value...