What happens when a seasonal shipment is so late that it arrives well after the entire season is over? And even worse, what happens when the goods were customized for a single large customer who declines to accept the late shipment?
Let’s look at what we’ll call “The Case of the Late Christmas Cards” — and in this case “late” means four months late. This case ultimately led to a Federal appellate court decision, and raised a number of issues important to both shippers and carriers — so much so that the decision is now being referenced in carrier/shipper disputes over late deliveries.
In this case, the court held that the carrier had to pay the shipper’s claim — an amount that would’ve made Scrooge see a few more ghosts.
The decision dealt with the continuing problem of how damages should be measured when a carrier fails to deliver the cargo on time.
According to the court’s opinion, the problem began after The Paper Magic Group Inc., a maker of greeting cards and seasonal paper goods, arranged with truckload carrier J.B. Hunt Transport Inc. to deliver a load of boxed Christmas cards and related holiday merchandise to a particular store operated by retail giant Target Corp. The invoice value of the goods was well over $100,000.
One issue was that Paper Magic’s bill of lading did not specify a delivery time and did not indicate that the goods were time-sensitive in nature. The court, however, did not treat this as a major problem. It observed that such shipments were usually delivered within two or three days, which would have gotten them to their destination in plenty of time for the Christmas season.
The cards and related goods were lost by the motor carrier and not located until nearly four months after the delivery should have occurred and long past December 25. J.B. Hunt offered to deliver them, but both the consignor and consignee refused to accept delivery, contending the goods were now worthless. (The cards bore Target’s private label, and so could not be sold to anybody else.)
Paper Magic demanded the full invoice price of the goods. J.B. Hunt refused to pay this sum, contending that the measure of damages was the salvage value of the goods.
The whole matter came down to a long-standing issue in delay claim disputes — how are damages to be measured? The general rule — which traces its roots back to an 1854 English court ruling — is that a shipper cannot recover special or consequential damages. This includes things such as lost profit. The shipper can only receive general damages unless it has notified the carrier of the specific nature of the goods and that they needed special handling. This common law standard is incorporated into the Carmack Amendment, which generally governs claims for loss or damage.
In the Christmas card case the Court of Appeals held that the shipper was not seeking “special” damages, but was seeking to recover its actual damages. To Paper Magic, it was not a claim for lost profits due to the late delivery, but for the value of the goods at what should have been the date of delivery. The court said that under Carmack the measure of damages was the difference between the market value of the goods at the time of delivery and the time when they should have been delivered, and this amounted to the full invoice price.
The Christmas card decision presents several issues for both shippers and carriers to consider. Most important is the nature of any agreement relating to how damages will be measured. A contract between a shipper and a carrier may indicate how a shipper will be compensated if the goods are lost or damaged or there is a delay in delivery. This in fact was the situation with respect to the Christmas cards. The transportation contract set the damage calculation as “the price charged by the shipper to its customers.”
In general, if a shipper can show that it tendered the cargo in good condition to the carrier, that the cargo was delivered damaged or not delivered at all, and the amount of its damages, it has met its burden of proof. It then becomes the obligation of the carrier to prove it was somehow not negligent, i.e., the damage was caused by an Act of God (such as a flood) or some other excusable factor such as war, government action or the inherent nature of the goods (e.g., fresh produce will spoil).
Many shippers assume everything will go right when they make transportation arrangements and usually there are no significant problems. When problems do develop, there are often no specific contract provisions to cover situations related to compensation. Planning ahead can help avoid litigation. LT
James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.