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Montgomery Ward v. Mcbreen & Assocs.

OPINION FILED JUNE 23, 1976.

MONTGOMERY WARD & COMPANY, INC., PLAINTIFF-APPELLEE,

v.

PETER J. MCBREEN & ASSOCIATES, DEFENDANT. — (EASTERN AIRLINES, INC., DEFENDANT-APPELLANT.)



APPEAL from the Circuit Court of Cook County; the Hon. ALLEN HARTMAN, Judge, presiding.

MR. JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT:

Plaintiff, Montgomery Ward & Company, Inc. (Wards), brought this action against Eastern Airlines, Inc. (Eastern), and Peter J. McBreen & Associates (McBreen) to recover the value of certain merchandise lost under a contract for transport. After all appropriate pleadings had been filed, each party filed a motion for summary judgment together with supporting memoranda. On March 17, 1975, the trial court (1) granted summary judgment to Wards against Eastern in the amount of $11,875 plus costs; (2) granted summary judgment to McBreen against Wards; (3) denied summary judgment to Wards against McBreen; and (4) denied summary judgment to Eastern against Wards. This appeal is brought by Eastern in which it seeks to set aside that part of the order denying its motion for summary judgment and entering summary judgment against it.

The record reveals the following uncontested facts. On August 16, 1969, Wards delivered several cartons of furs to Scott Air Freight, Inc. (Scott), an air freight forwarder, for transport to Wards' facilities in Washington, D.C. Scott, who is not a party in this action, issued five bills of lading. Thereafter, Scott consolidated the shipment and delivered the package in its name to Eastern. Eastern's airbill listed Scott as the shipper and Pollard Delivery Service as the consignee. Eastern lost the goods which had an admitted value of $11,875.

On September 24, 1969, Scott notified Eastern of its claim for the missing merchandise. Three weeks later, Scott filed a formal claim in which it indicated that Wards was the owner of the goods. Upon receipt of this claim, Eastern employed McBreen to adjust and settle the matter. McBreen proceeded to investigate the claim and ultimately determined that it should be settled for the full amount of $11,875. Pursuant to this determination, McBreen sent releases to Scott on February 9, 1970, for execution by both Scott and Wards. Scott duly executed the release two days later. The release then was forwarded to Wards who executed and returned it to McBreen on April 7, 1970.

During the period prior to the return of the release by Wards, the matter was further complicated. On February 18, 1970, Mr. C.H. Robus of Eastern wrote Scott and stated that he, Robus, had been authorized to make settlement. Enclosed with the letter was a release to be executed by an officer of Scott. Scott duly executed the release and returned it to Eastern. On March 13, 1970, Eastern issued its check payable to Scott in the amount of $11,875. This was approximately one month before the first release was executed and returned by Wards. Scott promptly cashed the check, but failed to turn over the proceeds to Wards. Apparently, Scott subsequently ceased its operations and went into bankruptcy, which accounts for the fact that it was not a named defendant in this action by Wards. One year later, on March 11, 1971, Wards advised Eastern by letter that its claim for $11,875 had not been satisfied. Eastern's subsequent refusal to issue a second settlement check resulted in this action.

In this appeal Eastern contends that its motion for summary judgment against Wards should have been granted, and that conversely, Wards' motion for summary judgment against it should have been denied. Eastern argues that it was in privity of contract only with Scott, and consequently, full payment to Scott satisfied its obligation. We agree.

• 1 As Eastern points out, the liability of a common carrier for the loss or damage of property received for interstate shipment is governed exclusively by Federal law. (Mirski v. Chesapeake & Ohio Ry. Co., 44 Ill. App.2d 48, 194 N.E.2d 361, rev'd on other grounds, 31 Ill.2d 423, 202 N.E.2d 22.) Of particular importance to this litigation is section 1013 of the Freight Forwarders Act (49 U.S.C. § 1001 et seq.) which subjects a freight forwarder to the provisions of sections 20(11) and 20(12) of the Interstate Commerce Act, commonly known as the Carmack Amendment. (49 U.S.C. § 20(11), 20(12).) In simplest terms the Carmack Amendment can be described as a codification of the common law rule making a carrier liable, without proof of negligence, for all damage to the goods transported by it, subject to certain exceptions. (Secretary of Agriculture v. United States, 350 U.S. 162, 100 L.Ed. 173, 76 S.Ct. 244.) It has been said that the purpose of the Carmack Amendment is to relieve shippers of the onerous burden of searching out a particular negligent carrier from among the often numerous carriers handling an interstate shipment of goods. (Reider v. Thompson, 339 U.S. 113, 94 L.Ed. 698, 70 S.Ct. 499.) But while the amendment was enacted for the benefit of shippers, so too was it passed to accommodate the carrier. As a necessary corollary one must note that the design of the statute is to afford protection to the common carrier against having to pay more than once for any loss or damage for which it may be responsible. Gamble-Robinson Commission Co. v. Union Pacific R.R. Co., 180 Ill. App. 256, 264, aff'd, 262 Ill. 400, 104 N.E. 666.

• 2 As stated above, section 1013 of the Freight Forwarders Act subjects freight forwarders to the provisions of the Carmack Amendment. Section 1013 further provides that "* * * the freight forwarder shall be deemed both the receiving and delivering transportation company * * *." Thus, a forwarder has characteristics of both shipper and carrier. In its relations with carriers, the status of the forwarder is that of a shipper; and in relation to its shipper, the freight forwarder assumes the posture of a carrier. (Chicago, Milwaukee, St. Paul & Pacific R. Co. v. Acme Fast Freight, Inc., 336 U.S. 465, 93 L.Ed. 817, 69 S.Ct. 692.) The effect of this principle on the case at bar is that Eastern is compelled to consider Scott, and not Wards, as its shipper; and consequently, under the provisions of the Carmack Amendment, Eastern's liability runs directly to Scott. We must note also that Wards has an action against Scott, for in its relations with Wards, Scott is a carrier.

In their briefs, both Wards and Eastern make much ado over whether Wards' complaint seeks recovery ex contractu or ex delicto. The controversy in large part stems from the carefully reasoned opinion in Cain-Sloan Co. v. Louisville & Nashville R.R. Co, 221 Tenn. 70, 424 S.W.2d 787 (1968). In Cain-Sloan the court recognized that the combined effect of the Freight Forwarders Act and the Carmack Amendment is to make the freight forwarder an independent contractor which acts for itself when arranging a contract of carriage. The court rejected any notion that the forwarder acts as agent for an undisclosed principal through whom the owner can trace liability to the common carrier. Thus, the court held that a shipper, such as Wards, cannot maintain an action ex contractu for loss or damage to property based upon a bill of lading issued by a carrier to the freight forwarder. Rather, the shipper's action is against its own freight forwarder with whom it solely has a contract of carriage. The court suggested, however, that the owner could maintain an action ex delicto against the common carrier based upon common law principles of negligence.

We are not concerned with whether Wards' complaint should be characterized as seeking recovery ex contractu and thereby is barred under the Cain-Sloan doctrine, or whether in fact the complaint seeks relief ex delicto. In our opinion such a determination only served to obscure the more fundamental legal principles involved.

• 3 The law abounds in the proposition that as between two innocent parties, the less blameful should prevail. Initially, we must note that Wards was the party who chose Scott as its freight forwarder. Had Wards chosen a more responsible contractor, the present action would have been unnecessary. But more importantly, it appears from the record that only after Scott was paid and subsequently went into bankruptcy did Wards assert its separate claim for loss. Shortly after Eastern lost the merchandise, Scott filed its claim for loss. Wards made no objection. Eastern in good faith immediately proceeded to negotiate and settle the claim with Scott, the party to whom it was directly liable, and the only party asserting a claim against it. Eastern paid Scott. Wards now seeks to force Eastern to pay twice for the same loss. We believe that under the circumstances, Wards was obliged to notify Eastern of its claim, if it desired to circumvent the usual course of proceedings and seek recovery directly from Eastern. Absent such notification, Wards is bound to accept the finality and validity of a settlement achieved in accordance with federally prescribed rules.

Wards justified its tardy claim in large part upon the release drafted by McBreen to which it and Scott were parties. Wards contends that since Eastern retained McBreen to settle the loss, it is bound to honor the commitment of its agent. The thrust of Wards' argument is that McBreen settled with Scott and Wards, and that such a joint liability could not be discharged by payment only to Scott. In other words, Wards maintains that Eastern also promised to pay it and that no payment was received. We believe this to be a strained argument.

Under the terms of the release, Wards became a joint payee or obligee. As stated by our Supreme Court in Harding v. Parshall, 56 Ill. 219, 226-27, "That a payer or other obligor may pay to either of several joint payees, and thereby become fully discharged, is a proposition so plain as to require the citation of no authority in its support." (See also Lyman v. Gedney, 114 Ill. 388; Annot., 142 A.L.R. 371 (1943).) Thus, the facts permit only one conclusion. Eastern extinguished its debt under the release by full payment to Scott.

• 4 In sum Wards entrusted its merchandise to Scott and not Eastern. Thus, as between Wards and Scott the relationship of bailor/bailee existed. Eastern lost the goods and made full restitution to the sole party with whom it had dealt and with whom it had a contract. As a general common law rule, either a bailor or bailee may bring an action against a negligent third party for loss or damage to the bailed property; but a recovery by one, through either judgment or settlement, will bar an action by the other. ...


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