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Penbrook Hauling Co. v. Sovereign Construction Co.

New Jersey Superior Court, Law Division

Decided: March 19, 1974.


Gelman, J.s.c.


[128 NJSuper Page 180]

Plaintiff Penbrook Hauling Co., Inc. (Penbrook) is a common motor carrier and it instituted this action against Sovereign Construction Co., Ltd. (Sovereign) to recover unpaid freight charges for the transportation of freight received by Sovereign as consignee.

Sovereign was the prime contractor for the construction of a building at the United States Military Academy, West Point, New York. Under date of October 3, 1968, it entered into a subcontract with Dauphin Steel and Engineering Co. (Dauphin) whereby Dauphin was to supply at a fixed price the structural steel required to complete the prime contract. The subcontract price of $520,000 included all delivery charges which were payable by Dauphin. Deliveries of steel by Dauphin commenced in the latter part of 1968 and continued through August 11, 1970. All deliveries were made on bills of lading containing a notation that the freight charges were "prepaid." The steel deliveries were accepted by Sovereign at the job site and were ultimately incorporated into the building under construction.

Dauphin from time to time submitted requisitions for payment to Sovereign, and each requisition contained a certification by Dauphin to the effect that all of Dauphin's suppliers had been paid for the work covered by the requisition. On August 28, 1970, after the last cash payment had been made by Sovereign to Dauphin, a representative of Penbrook called Sovereign's project manager and informed him that Dauphin had not paid freight charges for steel shipments

[128 NJSuper Page 181]

made between May 11 and August 11, 1970. The unpaid freight charges totaled $19,713.19, and Penbrook requested Sovereign's assistance in collecting the account from sums anticipated to be due to Dauphin under the subcontract. Subsequent correspondence between the parties included an acknowledgment by Penbrook that it had "extended Dauphin this credit" and was seeking Sovereign's assistance in effecting collection.

In April 1971 a final settlement was reached on the amount due Dauphin under the subcontract. Because of charge-backs by Sovereign and the United States against Dauphin, and payments made by Sovereign on behalf of Dauphin to Dauphin's creditors, the net result was that Sovereign paid to Dauphin or on its account a sum in excess of the amount due Dauphin under the subcontract.

Dauphin having become insolvent in the meanwhile, Penbrook now seeks recovery of all unpaid freight charges from Sovereign as consignee of the goods shipped by virtue of provisions of the Motor Carrier Act, 49 U.S.C.A. §§ 316(d), 317(b), 323, which in substance require interstate motor carriers to adhere to and collect freight charges in accordance with the filed rates and tariffs and prohibit discriminatory or preferential rate treatment by carriers. It is said that the cited provisions of the Motor Carrier Act impose absolute liability upon a consignee for payment of all freight charges, and that the Congressional policy may not be thwarted by any conduct on the part of the carrier which might otherwise estop it from asserting such liability.

In support of its position plaintiff relies princpally upon Southern Pacfic Co. v. Wheaton Brass Works, 5 N.J. 594 (1950), cert. den. 341 U.S. 904, 71 S. Ct. 614, 95 L. Ed. 1343 (1951). In Wheaton Brass defendant-consignee had received a rail freight shipment under a bill of lading which stated that freight charges were to be paid by the consignee. An invoice accompanying the bill of lading, however, indicated that the freight charges had been prepaid, and plaintiff's agent informed defendant that the shipping

[128 NJSuper Page 182]

charges were in fact prepaid, whereupon the consignee accepted the goods. Subsequently it was determined that the goods had been improperly classified by the shipper, and the carrier instituted suit against the consignee to collect the additional freight charges due under the filed tariffs. Our Supreme Court, relying upon provisions of the Tranportation Act (49 U.S.C.A. § 6), corresponding to those contained in the Motor Carrier Act, supra, upheld the carrier's right to collect the additional charges from the consignee. Justice Burling said:

The foregoing section of the Act has been construed on numerous occasions by the federal courts and it has become well settled that the purpose of the act is to prevent preferences and to enforce compliance with the requirements of the pertinent paragraph that a carrier shall not charge less than the rates specified in his filed schedules, and that it is the right and duty of the carrier to collect the full tariff charges for freight delivered. Nor can any act or omission on the part of the carrier, except the running of the statute of limitations, estop or preclude the carrier from recovering the full amount of the proper charges from a person liable therefor, the parties to the consignment being, as a matter of law, charged with the proper schedule rates. See annotation, Title 49 U.S.C.A., sec. 6, par. (7), p. 284. One of objectives of the act is to prevent discrimination by carriers in their rates in favor of preferred shippers and to stabilize rates beyond the control of the carrier and the persons liable therefor. Failure by a carrier to collect the proper charges cannot release a person liable therefor as this would circumvent the purpose of the act and be in defiance of its provision forbidding a remission "in any manner or by any device any portion of the rates * * * and charges so specified". [5 N.J. at 598-599]

The court in Wheaton Brass cited Pittsburgh, C.C. & St. L.R. Co. v. Fink, 250 U.S. 577, 40 S. Ct. 27, 63 L. Ed. 1151 (1919), for the proposition that

In this case, there is no discernible conflict between the application of equitable principles to bar the carrier's recovery and the statutory proscription against discriminatory treatment of shippers. Requiring double payment of the charge by Admiral would not further the statutory policy of preventing "unjust discrimination or undue preference." [442 F. 2d at 62-63]

In Admiral the court also noted that the carrier's extension of credit to the shipper for a period in excess of seven days was in itself a violation of Interstate Commerce Commission regulations promulgated under the Motor Carrier

[128 NJSuper Page 185]

Act. 442 F. 2d at 60. In the court's view, that violation constituted additional equitable grounds for the denial of recovery to the carrier. The same factual pattern exists in the case at bar, and it was Penbrook's violation of the ICC's credit regulations which occasioned its inability to collect the freight charges from the shipper.

Having found that Sovereign received the shipments here in reliance upon the plaintiff's representations that the freight charges were prepaid and that Sovereign paid Dauphin the freight charges as part of the contract price, I conclude the defense of equitable estoppel is available to Sovereign under federal law and has been factually established under the principles of estoppel recognized in the federal decisions. The fact that our Supreme Court reached a different result on different facts in Wheaton Brass is not dispositive of the issue here. In interpreting and applying federal statutes we are bound by federal and not state decisional law. See Southern Pacific Co. v. Wheaton Brass Works, supra 5 N.J. at 598.

Judgment will be entered dismissing the complaint with costs.


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