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FARRELL LINES, INC. v. AMERICAN MOTORISTS INS. CO.

June 2, 1983

FARRELL LINES, INC., Plaintiff,
v.
AMERICAN MOTORISTS INSURANCE CO., Defendant



The opinion of the court was delivered by: BRODERICK

MEMORANDUM ORDER

 VINCENT L. BRODERICK, U.S.D.J.

 I.

 Plaintiff, an ocean freight carrier, carried three shipments of goods for which it has not been paid. The bills of lading for these three shipments were marked "ocean freight prepaid." The independent freight forwarder was bonded by defendant surety, in accordance with the surety bond requirements of 46 C.F.R. § 510.15. The freight forwarder, Al W. Lacy, Jr., not a party to this action, received full payment from the shippers with respect to the shipments. The freight forwarder also received commissions from plaintiff carrier with respect to these shipments. Freight forwarder Lacy never remitted the payments from the shippers to the plaintiff, and subsequently went bankrupt. Plaintiff now sues defendant surety for the unpaid shipping charges. Before me are cross-motions for summary judgment.

 Plaintiff claims that it is entitled to payment for the freight from defendant surety under the independent freight forwarder's bond which is required by Section 44 of the Shipping Act of 1916, 46 U.S.C. § 841b(c), and 46 C.F.R. § 510.15(a).

 Defendant claims that the benefit of the bond does not run to the carrier; that the bond is intended solely for the benefit of the shipper. Defendant also argues that by marking the bills of lading "prepaid" when it had not yet received payment, plaintiff had, in effect, extended credit to the freight forwarder without the approval of the surety. Defendant asserts that plaintiff is estopped from recovery since the surety did not approve the extension of credit. Alternatively, defendant argues that the credit arrangement constitutes a separate unrelated agreement between carrier and forwarder and thus takes it out of the purview of the statutory bond requirements.

 For the reasons which follow, plaintiff's motion for summary judgment is granted, and that of defendant is denied. Since the issue presented is one of first impression and the arguments asserted by defendant are not frivolous, plaintiff's request for an award of attorney's fees is denied.

 II.

 The legislative scheme set forth in the Shipping Act of 1916, specifically 46 U.S.C. §§ 812, 814-817, was designed to insure collection of full freight charges by a carrier. The responsibility of payment is not statutorily imposed on any particular party: "As long as someone is liable for the full amount of the freight, so that there is no overcharge or undercharge, the public interest is protected and the statutes are satisfied." Farrell Lines Inc. v. Titan Industrial Corp., 306 F. Supp. 1348, 1349 (S.D.N.Y. 1969) (footnote omitted), aff'd per curiam, 419 F.2d 835 (2d Cir. 1969), cert. denied, 397 U.S. 1042, 25 L. Ed. 2d 653, 90 S. Ct. 1365 (1970).

 The 1969 Farrell Lines case, supra, has certain parallels to this case. The plaintiff is the same. In that case and here Farrell allowed extension of credit to a freight forwarder; the freight forwarder was paid by the shipper; the freight forwarder failed to remit payment to Farrell; and the freight forwarder subsequently went bankrupt.

 In the 1969 Farrell case, plaintiff chose to sue the shipper for recovery of the full freight charge, and was unsuccessful. The court pointed out that collection from the shipper who already paid would amount to absolute liability and double payment. The carrier had accepted the forwarder as the principal on the freight contract and had advanced credit to the forwarder, and could not, because the forwarder became insolvent, recast the transaction:

 
Thus, the carrier accepted the forwarder as the principal and obligor on the freight contract. Allowing the carrier to recast the transaction in a different mold because of the forwarder's insolvency would be most unjust . . . .
 
We find that the carrier made a full and proper charge for the ocean freight and that it extended credit to, and looked for payment from, the forwarder by stamping the bills of lading "Freight Prepaid" and accepting in return the forwarder's signature on the due bills.

 Farrell, supra at 1351 (footnotes omitted).

 Thus in the 1969 Farrell case the court used the specific fact of extension of credit to show that the carrier anticipated payment from the forwarder, and thus forwarder was the proper party from whom to seek recovery. It would be ironic if Farrell Lines, having learned the lesson of its unsuccessful 1969 suit, was ...


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