Motor Carrier Service Arrangements, "Battle of the Forms"

Date: Apr 27, 2001

From time-to-time we are asked whether shippers may set terms of transportation for motor carriage service by issuing a bill of lading containing commercial terms. The ultimate issue, in the absence of an executed contract, is whose terms prevail in the event of a conflict--the shipper's terms set forth in the bill of lading, or the carrier's terms contained in its schedules--which it is required to provide upon request.

Tyco International asked the Surface Transportation Board a related question, namely whether a motor carrier, by accepting and transporting freight after Tyco provided the carrier with its terms for rendering transportation service, has entered into a contractual arrangement for Tyco in accordance with Tyco's terms and conditions. Tyco argues that in a Uniform Commercial Code context a contract would be deemed to have been formed by virtue that acceptance of the freight would be considered an acceptance of Tyco's contract offer. Notably, several carriers had explicitly rejected Tyco's terms, but nonetheless had handled its shipments. Tyco ships from more than 1000 locations.

While declining to issue a ruling on the efficacy of the Tyco arrangement generally, the STB responded to Tyco that where a carrier has rejected the shipper's T's and C's, the act of subsequently handling freight does not constitute a contractual agreement. Motor carriers have a duty under their common carrier obligation to provide service on reasonable request. 49 U.S.C. 14101(a). Consequently, after a carrier has rejected the shipper's T's and C's, its handling of shipments must be deemed to occur under its common carriage authority, and therefore pursuant to the carrier's terms of service.

The STB did not reach the further issue of whether a contract would exist in the absence of specific comment on the shipper's T's and C's, based solely on the handling of freight after receipt of the shipper's terms of transportation. We believe the STB's rationale could be applied in this situation as well. The ICC Termination Act of 1995 abolished the statutory distinction between common and contract carriage, merging those classes of carriers into the single category of "motor carrier," i.e., a person providing motor vehicle transportation for compensation. The Act preserves the right for shippers and carriers to enter into contractual service arrangements. This takes us to basic contract law, where the essence of a contract is a "meeting of the minds." Consequently, considering the carrier's dual role, unlike in an unregulated commercial context where acceptance can be implied from engaging in the business relationship, the carrier's underlying common carriage duty creates an obligation to handle shipments under terms the carrier by law is required to establish. While the "filed rate doctrine" no longer exists, the shipper nonetheless is on notice that the carrier likely has established its own terms of transportation. Accordingly, a strong argument can be made that there is no meeting of the minds on the shipper's contract terms absent carrier action affirmatively evidencing consent.

The foregoing analysis also is suggested by the statutory language regarding shipper/carrier contracts. 49 U.S.C. 14101(b)(1) provides: "If the shipper and carrier, in writing, expressly waive any or all of the rights and remedies under this part, the transportation provided under the contract shall not be subject to the waived rights and remedies ..." While commercial terms and statutory rights and remedies are not necessarily coextensive, the concept of an express agreement, in writing, likely would support a conclusion that a shipper's motor carriage terms cannot be implied merely by the carrier having handled freight for the shipper. This also is consistent with the statutory provisions adopted to resolved the undercharge situation of the 1980's, whereby an unfiled rate would be recognized and enforced over a tariff rate where the shipper "was offered a transportation rate by the carrier ... [and] tendered freight to the carrier ... in reasonable reliance upon the offered transportation rate ..." 49 U.S.C. 13709 (a)(1). Here, too, the statute requires an express, not implied, manifestation of a meeting of the minds.

The STB's decision in the Tyco matter, and our further analysis, are consistent with our advice to our clients to enter into written contracts with their serving motor carriers.

For more information, contact Martin W. Bercovici at 202-434-4144, or at bercovici@khlaw.com.