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BILL OF LADING, FACTORING, FREIGHT PAYMENT BASICS 3/29/03

IS THERE DOUBLE LIABILITY EXPOSURE FOR SHIPPERS WHO PAY BROKERS WHO DON'T PAY CARRIERS?

 

ASSUMING THAT IN FACT THE SHIPPER HAS PAID THE BROKER, THE CARRIERS ARGUE THAT BROKER WAS THE SHIPPERS "AGENT" AND THAT PAYMENT TO ITS AGENT IS NOT PAYMENT TO CARRIER. IT IS A FACT INTENSIVE ISSUE. IF BROKER WAS TRULY ACTING AS BROKER IE AN INDEPENDENT CONTRACTOR, THEN THERE IS NO "AGENCY" INVOLVED AND SHIPPER WILL NOT BE LIABLE.

 

THE TREND IN COURTS IS TO LOOK AT THE "CREDIT" ARRANGEMENTS. USUALLY THE CARRIER IS PERFORMING ITS SERVICES BASED ON A CONTRACTUAL AGREEMENT WITH THE BROKER WHICH INCLUDES AT LEAST 30 DAYS CREDIT. THERE HAVE BEEN NO "CREDIT" ARRANGEMENTS BETWEEN SHIPPER AND CARRIER....THUS SHIPPER IS NOT LIABLE. COURTS DO NOT LIKE TO IMPOSE "DOUBLE LIABILITY" (EQUITABLE ESTOPPEL)

THERE IS SOME RISK WHICH HAS BEEN DIMINISHING WITH TIME ,OF DOUBLE PAYMENT LIABILITY BUT THE SHIPPER CAN:

SHIPPER PROTECTIONS ARE:

  1. USE REPUTABLE BROKERS

  2. BROKER BOND UP TO $10,000

  3. SIGN SECTION 7 NON-RECOURSE PORTION OF BILL OF LADING;
    (SHIPPER PREPARE AND USE OWN BILL OF LADING AND SIGN SECTION 7)

  4. TREND IN COURTS IS TO APPLY "EQUITABLE ESTOPPEL" TO PREVENT DOUBLE PAYMENT LIABILITY.

  5. GET CONFIRMATION FROM CARRIER THAT IT HAS BEEN PAID BY BROKER.

  6. USE INDEPENDENT 3RD PARTY FREIGHT PAYMENT SERVICE.

  7. USE A SHIPPER/BROKER CONTRACT AND ADDRESS THIS ISSUE DIRECTLY. ARRANGE SOME FORM OF "SECURITY" FOR SHIPPER .

  8. BROKER LISTED AS "CARRIER" ON BILL OF LADING: BAD IDEA FOR BROKER AND DOES NOT HELP SHIPPER. CAUSES CONFUSION OF ROLES.

    1. VIOLATES FED REGS PROHIBITING BROKER FROM "HOLDING ITSELF OUT" (REPRESENTING ) ITSELF AS A CARRIER.

    2. 49 CFR 371.7 (B) "A BROKER SHALL NOT DIRECTLY OR INDIRECTLY REPRESENT ITS OPERATIONS TO BE THAT OF A CARRIER. ANY ADVERTISING SHALL SHOW THE BROKER STATUS OF THE OPERATION."

    3. BROKERS NAME ON BILL OF LADING AS "CARRIER" MAY ALLOW COURT A "REASON" TO HOLD BROKER LIABLE FOR MAJOR LOSSES....DEEP POCKET THEORY.(LARGEST RISK)(C H ROBINSON CASE)

    4. BROKERS NAME ON BILL OF LADING AS "CARRIER"MAY ALLOW A COURT TO FIND BROKER "REPRESENTED ITSELF AS A CARRIER AND THEREFORE IS ASSUMED THE CARRIERS LIABILITIES.(GOOD FOR SHIPPER BUT BAD FOR BROKER)

    5. BROKERS NAME ON BILL OF LADING AS "CARRIER MAY ALLOW A SHIPPER TO CLAIM BROKER MISREPRESENTED ITS STATUS AND THUS HOLD BROKER LIABLE FOR BREACH OF CONTRACT.(THIS MAY NOT BE TRUE WHERE THERE HAS BEEN A LONG TERM RELATIONSHIP BETWEEN A SOPHISTICATED SHIPPER AND BROKER.)

    6. BROKERS INSURANCE CO MAY CLAIM BROKER BREACHED THE INS CONTRACT BY REPRESENTING ITSELF AS A CARRIER AND THEREFORE DENY LIABILITY.

    7. WHERE BROKERS CONTRACTUALLY ASSUME CARRIERS LIABILITY TO SHIPPER BROKER SHOULD GET WRITTEN ACKNOWLEDGMENT FROM INS CO THAT IT WILL PROVIDE COVERAGE FOR THE IDENTIFIED RISKS.(CONTRACTUAL LIABILITY ENDORSEMENT)

    8. SOME BROKERS WERE HELD LIABLE FOR UNDERCHARGES (10 YEARS AGO) BASED ON THEIR "APPEARANCE" ON BILLS OF LADING INCLUDING IN THE "BILL TO SECTION" (HISTORY)

    9. IT IS VERY IMPORTANT FOR A BROKER TO MAKE ITS ROLE CLEARLY DEFINED. IF ON BILL OF LADING THEN ONLY IN " BILL TO" SECTION.
      CONTRACT W/ SHIPPER SHOULD PROHIBIT SHIPPER FROM PUTTING
      BROKERS NAME ON B/L AS "CARRIER" (BROKER DUE DILIGENCE) BROKER SHOULD "POLICE" THE B/L TO MAKE SURE THE SHIPPER IS COMPLYING. IF THERE'S A PROBLEM, VIOLATION, STOP IT!

    10. BROKER CAN WRITE/FAX/ E-MAIL SHIPPER AND REQUEST/DEMAND/ REMIND SHIPPER NOT TO PUT BROKERS NAME ON BILL OF LADING.
      ( BROKER DUE DILIGENCE)

FACTORING

IF CARRIER HAS "FACTORED"/SOLD/ASSIGNED ITS RECEIVABLES:

FACTORING AGREEMENT IS A CONTRACT BETWEEN FACTORING/FINANCE CO AND THE CARRIER.

FACTORING AGREEMENT IN ESSENCE IS A SALE/ASSIGNMENT OR TRANSFER OF ACCOUNTS RECEIVABLE USUALLY RESTRICTED TO THOSE NOT IN EXCESS OF 90 DAYS OLD FOR IMMEDIATE CASH AT A NEGOTIATED DISCOUNT PRICE.

IT IS NOT BINDING ON ANYONE EXCEPT THE CONTRACTING PARTIES, INCLUDING BROKER UNLESS AND UNTIL WRITTEN NOTICE IS RECEIVED.

FACTOR HAS NO CLAIM TO PAYMENTS MADE BEFORE NOTICE IS RECEIVED BY BROKER. PAYMENTS MADE PRE-RECEIPT OF NOTICE ARE NOT SUBJECT TO FACTORING AGREEMENT.

SUGGEST BROKER CONTACT FACTORING CO AND CARRIER TO GET WRITTEN CONFIRMATION OF "FACT" OF SALE/ASSIGNMENT OF ACCOUNTS

RECEIVABLE.(DUE DILIGENCE BY BROKER)

SUGGEST BROKER REQUIRE COPY OF UCC-1 OR OTHER FINANCING STATEMENT CONFIRMING THE TRANSACTION. (DUE DILIGENCE BY BROKER)

OBJECT: BROKER SHOULD PERFORM DUE DILIGENCE TO ASSURE IT'S A LEGITIMATE FACTORING TRANSACTION. GET DOCUMENTATION TO ESTABLISH WHICH FREIGHT BILLS (DATES) ARE COVERED. BE VERY CAREFUL OF DATES AND TIMING.

FACTOR STANDS IN "SHOES" OF CARRIER AND HAS NO GREATER RIGHTS TO COLLECTION OF ACCOUNTS RECEIVABLE THAN THE CARRIER.

FACTORS CLAIMS ARE SUBJECT TO ANY SET OFF RIGHTS OF BROKER.

IF DISPUTE BETWEEN FACTOR AND CARRIER AS TO WHO IS ENTITLED TO PAYMENT: BROKER SHOULD NOT HAVE TO DECIDE WHO IS LEGALLY ENTITLED TO PAYMENT:

 

WHAT TO DO?

  1. MAKE OUT JOINT CHECK TO BOTH FACTOR AND CARRIER.

  2. SET UP ESCROW AGREEMENT W/ NEUTRAL PARTY HOLDING THE MONEY, TO BE RELEASED ONLY UPON WRITTEN AGREEMENT OF THE PARTIES OR A COURT ORDER.

  3. START INTERPLEADER ACTION (START LAWSUIT) AND PAY MONEY INTO COURT AND LET THE OTHERS FIGHT OVER IT.(THIS IS EXPENSIVE BECAUSE YOU HAVE TO START A LAWSUIT TO DO IT.

  4. WAIT UNTIL ONE OF THE PARTIES SUES, THEN PAY MONEY INTO COURT (INTERPLEADER) AND ASK COURT TO DECIDE WHO GETS IT.
    THE ESSENCE OF INTERPLEADER CASE IS THAT THERE IS NO ISSUE OVER THE FACT THAT MONEY IS OWED. THE ONLY QUESTION IS WHO GETS IT. BROKER FILES MOTION TO BE RELEASED FROM THE CASE WHILE THE OTHERS FIGHT OVER IT.

  5. IF YOU DECIDE FOR WHATEVER REASON TO PAY, GET AN INDEMNIFICATION
    AGREEMENT, FROM THE PARTY YOU PAID IN CASE YOU PAID THE WRONG ONE!
    THE INDEMNIFICATION AGREEMENT WILL ONLY HELP YOU IF YOU GET IT FROM A FINANCIALLY SOLVENT PARTY.

BILLING ISSUES:

CHPT 11 BANKRUPTCY

DUE DILIGENCE IS CRITICAL IN THESE CASES;

BKPT HAS 6 MOS TO PREPARE AND FILE A PLAN OF REORGANIZATION. IT MAY BE EXTENDED UP TO ANOTHER 6 MONTHS. IF THE CREDITORS DON'T LIKE THE PLAN THEY HAVE 6 MONTHS TO FILE THEIR OWN PLAN.

IMPORTANT TO FIND OUT AND COMMUNICATE WITH:

TRUSTEE;(IF ONE IS APPOINTED)

ATTY FOR BKPT DEBTOR CO.

CREDITORS COMMITTEE, AND ATTY FOR CREDITORS COMMITTEE.

TRY TO GET REPRESENTATION ON THE COMMITTEE.
OBJECT: GET HIGHEST % FOR YOUR CLAIM WITH PAYMENTS AS POSSIBLE.
DEBTOR MUST ESTABLISH "CLASSES" OF DEBT AND PROPOSE PAYMENT PLAN WHICH DOES NOT HAVE TO BE 100%.

NOTE: IF YOU WERE AN IMPORTANT PLAYER (PREFERRED PROVIDER) IN THE TRANSPORTATION OF ESSENTIAL GOODS FOR THE DEBTOR PRIOR TO FILING OF BKY, AND THE DEBTOR STILL NEEDS YOUR SERVICES IN ORDER TO SURVIVE, YOU MAY BE ABLE TO "NEGOTIATE" PAYMENT (POST PETITION FILING ) IN EXCHANGE FOR AGREEMENT TO CONTINUE TRANSPORTATION SERVICES AT THE SAME RATES WITH PAYMENT DUE EACH 30 DAYS. THE TRUSTEE MAY CLASSIFY THE PRE-PETITION DEBT TO YOU AS AN "ADMINISTRATIVE" COST AND GET THE BKY COURT TO APPROVE PAYMENT TO YOU. IF DEBTOR DOES NOT PAY FOR NEW SERVICES YOU'VE "LOST" 30 DAY REVENUE. NOT A BAD TRADE OFF.

FREIGHT BILLS SHOULD BE PAID ONLY ON PRESENTATION OF AGREED DOCUMENTATION/PROOF OF DELIVERY.

ORIGINAL BILLS OF LADING/ SIGNED BY CONSIGNEE "CLEAN". AND FREIGHT BILLS. IF CARGO DAMAGE INVESTIGATE IMMEDIATELY!

DELIVERY RECEIPTS SIGNED BY CONSIGNEES AND FREIGHT BILLS

CHECK (AUDIT) FREIGHT BILLS FOR ACCURACY OF RATES.

Outline from seminar at TIA meeting March, 2003

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