Northwestern Pac. Railroad Co. v. Burchwell Co., Inc.

• Decision Date: 23 June 1965
• Docket Number: No. 21642.,21642.
• Citation: 349 F.2d 497
• Parties: NORTHWESTERN PACIFIC RAILROAD COMPANY, Appellant, v. BURCHWELL COMPANY, INC., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

349 F.2d 497 (1965)

NORTHWESTERN PACIFIC RAILROAD COMPANY, Appellant, v. BURCHWELL COMPANY, INC., Appellee.

No. 21642.

United States Court of Appeals Fifth Circuit.

June 23, 1965.

J. Fred Powell and Andrew J. Thomas, Birmingham, Ala., Moore, Thomas, Taliaferro, Forman & Burr, Birmingham, Ala., of counsel, for appellant.

Arnold Drennen, Birmingham, Ala., Drennen, Loeb & Drennen, Birmingham, Ala., of counsel, for appellee.

Before WOODBURY,^* WISDOM, and BELL, Circuit Judges.

WISDOM, Circuit Judge:

The narrow question for decision is whether a consignee who diverts an interstate shipment in transit to another consignee is liable for the freight charges.

The facts are stipulated. Park Loading Company delivered a carload of lumber to Northwestern Pacific Railroad to be shipped from Eureka, California, to Burchwell Company in Eddyville, Kentucky. The uniform straight bill of lading showed Park as consignor and Burchwell as consignee. Park did not execute a non-recourse clause removing Park's liability for the freight. Park directed the carrier to ship the lumber collect, but the carrier erroneously marked the freight waybill prepaid. While the shipment was in transit, Burchwell directed the carrier to deliver the lumber to Lyon County Builders. The order instructed the carrier to collect the freight charges before delivery, but was silent as to liability for freight charges or the ownership of the goods.¹ Northwestern delivered the lumber to Lyon without collecting the freight charges. Lyon became insolvent, and Northwestern sued Burchwell, the original consignee, for the unpaid freight. Burchwell argues that the diversion ended its liability as the original consignee and made the new consignee, Lyon, liable for the freight. On motions for summary judgment by both parties, the district court held for Burchwell. We reverse.

There are two irreconciliable lines of decisions dealing with the question this case presents. New York Central R.R. v. Ross Lumber Co., 1922, 234 N.Y. 261, 137 N.E. 324, 24 A.L.R 1160 is the leading case in a line of decisions holding that if the original consignee diverts a shipment he is liable for the freight charges, because the diversion implies that the consignee is the owner. On the other hand, New York Central Ry. Co. v. Transamerican Petroleum Corp., 7 Cir. 1939, 108 F.2d 994, is the leading case holding that the diversion order does not imply a promise to pay the freight, but is an offer of a new contract terminating the original consignee's liability for the freight. We hold that the Interstate Commerce Act, 49 U.S.C. §§ 3(2) and 3(3), imposes liability for the freight charges on the original consignee unless he notify the carrier that he is not the owner of the goods.²

In its modern form the Interstate Commerce Act dates from 1920. The Act then had no provision relating to liability for freight charges after reconsignment in transit. Section 3(2) of the Act merely provided that "No carrier * * * shall deliver or relinquish possession at destination of any freight * * * transported by it until all tariff rates and charges thereon have been paid * * *" 41 Stat. 479 (1920), 49 U.S.C. § 3(2) (as amended).

As a general rule a consignee binds himself to pay freight charges, if he accepts delivery of a shipment in interstate commerce. Pittsburgh, C.C. & St. L. R.R. v. Fink, 1919, 250 U.S. 577, 40 S.Ct. 27, 63 L.Ed. 1151; Louisville & N. R.R. v. Central Iron & Coal Co., 1924, 265 U.S. 59, 70, 44 S.Ct. 441, 68 L.Ed. 900. Ross applied this general rule to a consignee who diverts the shipment in transit. In Ross, as in the instant case, the consignee diverted the shipment in transit, the new consignee failed to pay for the freight, and the carrier sued the original consignee. The New York court held that the consignee who diverts a shipment in transit is liable for the freight, even if he instructs the carrier not to deliver until the new consignee pays the freight. The critical fact is the consignee's failure to inform the shipper that it was not the owner of the goods:

"As to plaintiff carrier, defendant original consignee stood in the relation of owner of the carload of lumber. The bill of lading designated it as consignee. That fact is in itself evidence of ownership. It does not appear from the agreed facts that the plaintiff had knowledge or notice that defendant was not the owner, or that defendant was not in fact such owner. The Schieck-Johnson Company the new consignee might, for all that appears, have been the agent of defendant whose duty it was to take delivery on its behalf. As defendant was the presumptive owner, if it accepted the freight in the capacity of owner, the law implied a promise on its part to pay the charges * * *" 137 N.E. at 325.

In 1927 Congress again amended the Interstate Commerce Act, adding a lengthy provision to what is now section 3(2) of the Act. The amendment follows the reasoning of the Ross case:

"Where carriers by railroad are instructed by a shipper or consignor to deliver property transported by such carriers to a consignee other than the shipper or consignor, such consignee shall not be legally liable for transportation charges * * * if the consignee (a) is an agent only and has no beneficial title in the property, and (b) prior to delivery of the property has notified the delivering carrier in writing of the fact of such agency and absence of beneficial title, and, in the case of a shipment reconsigned or diverted to a point other than that specified in the original bill of lading, has also notified the delivering carrier in writing of the name and address of the beneficial owner of the property. In such cases the shipper or consignor, or, in the case of a shipment so reconsigned or diverted, the beneficial owner, shall be liable * * * irrespective of any provisions to the contrary in the bill of lading or in the contract under which the shipment was made. * * * If the consignee has given to the carrier erroneous information as to who the beneficial owner is, such consignee shall himself be liable for such additional charges, notwithstanding the foregoing provisions of this paragraph." 44 Stat. 1447 (1927), 49 U.S.C. § 3(2) (As amended). See Miller, Evolution of the Interstate Commerce Act at 49-50 (1930).

The amendment relieves the original consignee of liability for the freight, provided that he notify the shipper that he is only an agent and furnish the shipper the name and address of the beneficial owner. The Ross court, in dictum, had stated that the diverting consignee would not be liable for freight, if he had notified the shipper that he was not the beneficial owner. The 1927 amendment assumed the correctness of Ross and enacted the Ross dictum into law. The amendment goes on to provide that the original consignee is liable, if he gives the shipper false information about the beneficial owner. A fortiori, the original consignee is liable if, as in Ross and the instant case he gives the carrier no information at all.

Several years after Congress adopted the 1927 amendment, the Seventh Circuit followed Ross in Wabash Ry. v. Horn, 7 Cir. 1930, 40 F.2d 905. In that case the consignor consigned the goods to himself as original consignee and, while the goods were in transit, sold the goods to a second consignee and instructed the carrier to deliver to the second consignee. Apparently the carrier knew that the second consignee owned the goods. The second consignee then directed the carrier to deliver to a third consignee. The third consignee failed to pay the freight and the carrier sued the second consignee. As in Ross, the Seventh Circuit reasoned that the second consignee was liable for the freight for failure to inform the carrier that it was not the beneficial owner of the goods:

"Under plaintiff\'s bill of lading, defendants were consignees. As against the Globe Trading Company the third consignees, they retained title. So far as known to plaintiff, defendants were then the owners of the lumber and the Globe Trading Company was their agent. We are of opinion that the obligation of defendants to pay the freight was absolute, and that the provision allowing `all charges to follow the car\', in the reconsignment letter, was of no force." 40 F.2d at 906.

In July 1939 the House Commerce Committee added to the proposed Transportation Act of 1939 an amendment which later, with modifications, became present section 3(3) of the Interstate Commerce Act. The House Amendment in effect codified the Horn case:

"If a shipper or consignor of a shipment of property (other than a prepaid shipment) is also the consignee named in the bill of lading and, prior to the time of delivery, notifies, in writing, a delivering carrier by railroad * * * (a) to deliver such property at destination to another party, (b) that such party is the beneficial owner of such property, and (c) that delivery is to be made to such party only upon payment of all transportation charges * * * and delivery is made by the carrier to such party without such payment, such shipper or consignor shall not be liable * * * for such transportation charges but the party to whom delivery is so made shall in any event be liable for transportation charges * * * if such party is the beneficial owner * * *" See House Report No. 1217, 76th Cong., 1st Sess. 1939 at 11; 49 U.S.C. § 3(3) (As amended).

If the original consignor-consignee diverts in transit, and the carrier knows the new consignee is the owner, the new consignee is liable for the freight. The proposed 1939 version of section 3(3) of the act reads as if it were a headnote for the Horn case. The 1939 version did not pass; the Senate and House disagreed and the Transportation Bill went to a conference committee.

Several months later, in December 1939, the Seventh Circuit decided N.Y. Central R.R. v. Transamerican Petroleum Corp. in which the court refused to follow Ross and the Seventh Circuit's own Horn case. Transamerican...