Story Case

The Minnesota Horse Company delivered two cars of horses to the Northeastern Railway Company, consigned to the agency of the British War Department in Chicago. The bill of lading was a special one covering shipments of stocks, and contained the printed stipulation that the railroad should not be liable for more than $100 for the loss of each horse, should loss occur. This limitation in liability was stipulated to be, in consideration that the company give the shipment express service.

While the horses were in transit, a wreck occurred, due to the negligence of the company's switchman. In a court proceeding that followed, the horse company showed that the British War Department agreed to pay $150 each for the horses on delivery in Chicago. How much should the company recover for the loss?

Ruling Court Case. Ballau Vs. Earle, Volume 17 Rhode Island Reports, Page 441; Volume 33 American Decisions, Page 881

Earle was engaged as a common carrier, and had frequently transported goods for Ballau. The latter had been furnished with blanks issued by Earle. At the top of each blank, there were provisions stating that the carrier was not to be liable in any case, beyond the amount of fifty dollars, unless the shipper shall expressly state that the property is worth more than that. It was also shown that the rates for carriage were greater in proportion to the valuation placed npon the property. Ballau shipped diamonds valued at $579, but remained silent as to the worth of the package. These diamonds were lost in transit, through the negligence of Earle or his agents. Ballau brings this action for $579, the price of the diamonds. He contended that the agreement contained in the blank was void; that it is against public policy to permit a carrier to contract away its liability, in cases arising from its own negligence.

Mr. Justice Tillinghast said: "We do not think that it is competent for a common carrier to stipulate for exemption from loss occasioned by his own negligence, or that of his servants. Such an exemption is not just and reasonable; nor is it necessary for us to hold this, in order to sustain the contract under consideration, for the limitation, as to value, has no tendency to exempt from liability for negligence. It does not induce want of care. It exacts from the carrier the measure of care due to the value agreed upon. The carrier is bound to respond to that value for any negligence; the compensation for carriage is based upon that value. The shipper is estopped from saying that the value is greater; the articles have no greater value for the purposes of the contract of transportation between the parties to that contract, and the carrier must respond for negligence up to that value. It is just and reasonable that such a contract, fairly entered into, should be upheld, and where there is no deceit practiced on the shipper, there is no violation of public policy." Judgment was held that Ballau could recover $50 but no more.

Ruling Law. Story Case Answer

It is well known, of course, that the rates of a carrier depend largely upon the value of the thing shipped. Accordingly, the carrier may inquire into the value of goods shipped and has the right to fix his rates accordingly. From this it follows that the carrier has the right to limit its liability for the loss of goods, according to the charges imposed. If a shipper wished to ship goods of a great value upon lower charges, the company is justified in making an agreement that it will not be liable beyond a certain amount in case of loss, and the shipper, in such a case, has no just cause for complaint.

The Supreme Court of the United States, in passing on the provision in a contract, fixing the value of goods, said: "In general, in the absence of fraud or imposition, a common carrier is answerable for the loss of a package of goods, though he is ignorant of its contents and though its contents are ever so valuable, if he does not make a special acceptance. However, he can always guard himself by a special acceptance, or by insisting on being informed of the nature and value of the articles before receiving them. If the shipper is guilty of fraud or imposition by misrepresenting the nature or the value of the articles, he destroys his claim to indemnity, because he has attempted to deprive the carrier of the right to be compensated, in proportion to the value of the articles and the consequent risk assumed, and his representations have had a tendency to lessen the vigilance the carrier would have otherwise bestowed. It is plain that there would be no justice in allowing the shipper to be paid, after a loss, a large sum for an article he has induced the carrier to take at a low rate of freight, on the assertion that its value is a less sum than claimed. The shipper may be held to his agreement fairly made as to value, even where the loss or injury has occurred through the negligence of the carrier. The limitation as to value has no tendency to exempt from liability for negligence. It does not induce want of care; it exacts from the carrier the measure of care due to the value agreed on. The carrier is bound to respond in that value for negligence. The compensation for carriage is based on that value. The shipper is estopped from saying that the value is greater. There is no violation of public policy; on the contrary, it would be unjust and unreasonable, and would be repugnant to the soundest principles of fair dealing and of freedom of contracting, if a shipper should be allowed to reap the benefit of the contract if there is no loss, and to repudiate it, in case of loss. The distinct ground of our decision is that where a contract limiting the liability of a carrier to an agreed value of the goods carried, signed by the shipper, is fairly made, agreeing on the valuation of the property carried, with the rate of freight based on the condition, that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or damage by the negligence of the carrier, the contract will be upheld as a proper and lawful mode of securing a due proportion between the amount for which the carrier may be held responsible, and the freight he receives, and of protecting himself against extravagance and fancied valuations."

The courts agree as to the right of the carrier to limit its liability, in cases similar to the Ruling Court Case, where there is evidence of deceit practiced upon the carrier, but there is not such uniformity of opinion, where the facts are not characterized by fraud. The weight of authority is in support of the proposition that a valuation mutually agreed upon as furnishing a basis of liability to be assumed by the company, and also as a basis for the rate charge, is valid, although the loss occurs because of the company's own negligence. But this case must be distinguished from the one where the company arbitrarily establishes a limit to its liability, or where the sum agreed on is recognized as less than the value of the goods. In the last two cases, the limitation is valid, in case the loss is not due to negligence, but it is invalid if the loss is caused by the company's negligence.

In the Story Case, it appears that the company arbitrarily established the limit of liability. It appears, also, that no deception was practiced by the shipper, and since the loss was caused by the railroad company's negligence, the horse company can collect in damages the actual value of the horses lost in the wreck.

The Cummins Amendment, enacted by Congress March 4, 1915, covering interstate shipment, makes a vital change of the greatest importance to all shippers. In substance, it recognizes two modes of shipment of interstate commerce. Where these are made on uniform or standard bills of lading, the liability of the carrier may be limited to the declared value. The carrier may, however, charge a higher rate, averaging ten per cent increase, and it will then be liable, as provided by the Common Law, for the full value of the property. The Cummins Amendment is quite broad, in its effect. It has not been judicially construed, but, no doubt, the Interstate Commerce Commission will, at an early date, explain its classifications and limitations.