CARRIERS WHO ARE PUBLIC SERVICE COMPANIES.—Common Carriers—that is, railroads, express companies, and other persons or corporations who carry goods for hire and hold themselves out to the public as engaged in the business of carrying goods for anybody for hire—are engaged in a public service. A man who owns a tramp steamer and gets cargoes as he can, is not engaged in a public service—he is not a common carrier or public carrier; but a person who has a line of steamers, or even one steamer, regularly engaged in plying between different places and taking goods as offered for hire, is engaged in public service.

DUTIES OF ONE ENGAGED IN PUBLIC SERVICE.—Now, being engaged in public service subjects a person or corporation who is so engaged to some special duties. Such a person cannot make any bargain he pleases with anybody he pleases, and refuse to make bargains with others, as an ordinary person can. It is the duty of any one engaged in a public service to give reasonable service to all who apply, without discrimination, and for reasonable compensation. Of course, carriers are not the only public-service corporations; electric light companies or gas companies or water companies are other illustrations; but common carriers, and especially railroads, are the most prominent public-service corporations.[Pg 345]

RAILROAD COMMISSIONS.—Not only is there this common-law duty to serve all without discrimination and at reasonable prices, but both the States and the United States have established commissions to look after railroads and other carriers to see that they properly perform their duties. The Railroad or Public Service Commission in most States has a great variety of powers for compelling railroads to give proper service. The chief function of the Federal Interstate Commerce Commission originally, was in regard to rates, but its powers have since been enlarged by legislation. The Interstate Commerce Commission has the power concerning interstate commerce to say whether rates and practices are reasonable. A carrier is obliged to file with the Interstate Commerce Commission a schedule of its rates, and regulations concerning rates, and is also required to post these rates publicly in its stations. If anybody objects to the rates they must make complaint before the Interstate Commerce Commission. That is the only form of redress, and sometimes not an easy one for a person who is merely interested in a single shipment, because the expense and delay of proceedings before the Interstate Commerce Commission are such as to be prohibitive, unless the complainant\'s financial interest in the matter is considerable. It is common, therefore, for shippers\' associations to take that sort of question up rather than to leave it for individual shippers. Any contract made by a carrier for either more or less than the scheduled rate is illegal and void.[Pg 346]

CARRIER\'S COMMON-LAW LIABILITY FOR GOODS.—A carrier, at common law, when he receives goods for transportation, is subject to a degree of liability beyond that imposed on any other person. An ordinary person who receives goods—a bailee, as he is called in law—is merely liable for the consequences of his negligence. A carrier, however, while goods are in course of transportation is liable, at common law, as an insurer against all kinds of accidents except those caused by act of God or public enemies. For instance, if goods were struck by lightning in transit that would be an act of God, and the carrier would not be liable; but if goods caught fire from any other cause, as from neglect of an outsider or the act of an incendiary, the carrier would be liable. Carriers, of course, dislike that and try to contract away their liability. They are allowed by law to do so, except that they are not allowed to contract for exemption from the consequences of their own negligence. It is largely this desire of carriers to free themselves from the extreme liability which the common law imposes on them, that induces them to give bills of lading. Bills of lading are often required by law, but carriers are pleased to issue them, as they can in that way contract to exempt themselves from this extreme liability, which lasts while the goods are in transit and until the consignee has had a reasonable time to remove them from the carrier\'s possession. If the consignee fails to remove them with reasonable promptness the carrier then becomes liable, merely as a warehouseman[Pg 347] may, for its own neglect. The extreme liability of the carrier does not extend to damage caused by delay. The carrier is liable for delays in so far as they are caused by its own neglect, but otherwise is not liable. A carrier need not deliver the goods unless freight is paid, as it has a lien for freight charges.

THREEFOLD NATURE OF BILL OF LADING.—A bill of lading issued by a carrier for goods has a threefold character. In the first place it is a receipt. The importance of a receipt is as evidence of just what was shipped. It is important to the shipper as proof that the carrier received goods, of such a quantity and of such a description, in good order. It is important to the carrier as proof of the same thing, to prevent the shipper from claiming that he has shipped different kinds or quantities of goods from those described in the bill of lading. The second aspect of a bill of lading is as a contract. It is not only a receipt but a contract between the parties, the shipper and the carrier. It is as a contract that the stipulations it contains for limitation, of liability are important. Third, it is an order, when properly indorsed and surrendered, for the delivery of the goods.

CARRIERS CAN DELIVER GOODS ONLY TO HOLDERS OF ORDER BILLS OF LADING.—The thing that makes a bill of lading valuable, to buy or lend money on, is the fact that the carrier will hold the goods behind the bill of lading until the bill is itself presented and surrendered. If the carrier were to deliver the goods upon demand to anybody[Pg 348] other than the holder of the bill of lading, it is obvious that there would not be much use in holding the bill of lading. The carriers have made a great contest on this question in the past. They have contended that they fulfill their duty if they deliver the goods to the consignee originally named in the bill of lading, whether that consignee continues to hold the documents or not. But that has been decided against them so far as order bills are concerned (that is, bills, which state that the goods are deliverable not simply to a consignee but to the order of a consignee) and these order bills have printed on them the provision that the bill itself must be surrendered before the goods will be delivered.

CARRIERS MAY DELIVER TO CONSIGNEE OF STRAIGHT BILLS OF LADING.—In a straight or flat bill, however (that is, one without the word "order") the carrier\'s contention has been upheld and the carrier is allowed to deliver the goods to the consignee, even though the consignee does not present the bill of lading and for all the carrier knows is not the owner of the bill of lading or of the goods.

BILLS OF LADING USED TO ENABLE SELLER TO RETAIN HOLD ON GOODS.—The ways in which bills of lading may be used, and are used, in the mercantile world, must be understood before the legal questions which arise, concerning them, can be grasped. The primary and original purpose of using bills of lading as symbols of the goods, was doubtless to secure the seller in his hold on the goods until he received the price, and that is still a[Pg 349] vital purpose in the use of bills of lading. We have learned, in the case of the sale of goods, that unless credit is given, the delivery of the goods and the payment of the price are concurrent conditions. Now, when the parties reside at a distance there is difficulty in working out these concurrent conditions. If the seller ships the goods directly to the buyer, he loses his hold on the goods, and if the buyer does not keep his agreement to pay promptly, the seller will be unable to do anything about it. On the other hand, of course, the buyer does not want to pay in advance. Now, by means of bills of lading, the seller is enabled to keep his hold on the goods until he receives the price, and the buyer is enabled to secure possession of the goods as soon as he pays the price.

STRAIGHT BILLS TO BUYER GIVE THE SELLER NO HOLD ON GOODS.—The bill of lading may be used in various ways. Suppose, first, the seller when he ships the goods takes a straight bill to the buyer. That will not give the seller any hold, for the carrier will be discharged if without demanding the surrender of the bill of lading, he delivers to the consignee named. So we may cross off that as a possible means of protecting the seller.

STRAIGHT BILLS TO THE SELLER.—The second possibility is for the seller to take a straight bill, naming himself as consignee as well as consigner. If that is done the buyer cannot get the goods at once. Suppose the bill of lading was sent forward, even that would not of itself enable the buyer to get the goods, if the carrier wished to be technical, since in a straight[Pg 350] bill the goods are deliverable not to the holder of the bill, but to the consignee named therein. There would have to be attached to the bill of lading an order from the seller, who is named as consignee in the bill, directing the railroad to deliver the goods to the buyer instead of to himself, the consignee named in the bill. That would be a perfectly feasible matter, but this method is not much used, and one reason why it is not much used is because the seller frequently wants to do something else besides keep control of the goods until the buyer pays for them. He oftentimes wants to get money from a bank in the meantime.

USE OF BILLS OF LADING BY SELLER TO OBTAIN LOANS.—When the seller is desirous of borrowing money from a bank, he takes the bill of lading to the bank with a bill of exchange drawn on the buyer, and he asks the bank at his home town to discount the bill of exchange, taking as security the bill of lading. If his home bank does this, it then sends the draft, with bill of lading attached, to its correspondent bank in the buyer\'s city, where the draft is presented to the drawee, who is the buyer, and if the buyer honors the draft then he is given the bill of lading. Now, banks would not do this, ought not to do it (occasionally they have), with a straight bill, even if the bill is drawn naming the seller as consignee, for the bank when it discounts the bill of exchange and gets the bill of lading as security gets no real hold on the goods. The railroad may deliver the goods to the consignee—the seller—without ever seeing the bill of lading, and without the bank, which[Pg 351] holds the bill of lading, ever knowing anything about it; or the railroad may deliver to the buyer or some third person on a written order signed by the consignee. In other words, the railroad does not have to hold the goods until the bill of lading, properly indorsed, is presented to it.

STRAIGHT BILLS OF LADING GIVE NO SECURITY TO BANK.—The first and fundamental requirement, then, for any bank which may deal with bills of lading is never to have anything to do with straight bills. They give no security. A straight bill is readily distinguishable from an order bill on railroads in most parts of the country, at least, because uniform bills of lading are now in use, and the straight bill is always white and the order bill is always yellow. In foreign bills a greater variety of forms are used, and you may have to examine the terms of the bill before you can feel satisfied that it is of a sort that will give security. The vital words in bills of lading, as in negotiable paper, are the words, "order of" or "or order." If those are in a bill of lading it is all right as far as this matter is concerned. Therefore the third and fourth possible ways in which the seller may take the bill of lading to secure himself are the only ones which will enable him to finance the shipment at once.

BILLS OF LADING TO BUYER\'S ORDER.—The third way which the seller may act in order to fulfill his purpose is to take an order bill of lading to the buyer\'s order. Although the bill of lading runs to the buyer\'s order, and although, therefore, title to[Pg 352] the goods will pass to the buyer on shipment, the buyer cannot get the goods without that bill of lading. Therefore, so long as the seller retains the bill of lading nobody can get the goods from the carrier; and though the seller has parted with title to the goods, since he made the bill of lading run to the buyer\'s order, still he has retained control of them. Though it gives a security to the seller, and would give security to the bank, if the bank discounted a bill of exchange drawn on the buyer and took this bill of lading as security, it is not a desirable method for this reason: though the buyer cannot get the goods without the bill of lading, nobody else can get the goods without a lot of trouble, unless he has not only the bill of lading but the buyer\'s indorsement upon it. The bill of lading is drawn to the buyer\'s order, and if the buyer fails to pay and repudiates his contract, the bank or the seller will have trouble in getting back the goods. They will have to prove to the railroad that the buyer really has made default and that he no longer has any real interest in the goods.

BILLS OF LADING TO THE SELLER\'S ORDER.—Accordingly, it is the fourth method which is in general use and which should be exclusively used. The seller takes the bill of lading to his own order and indorses it in blank; then he delivers it to his bank as security for a bill of exchange. If the bill of exchange is paid by the drawee on presentment at his city, he is given the bill of lading at once and he gets what he wants. On the other hand, if the buyer does not pay the draft on presentment, then the bank[Pg 353] can realize on the security at once, if it wants to, because it has a bill of lading in its hands indorsed by the consignee to whose order it was drawn. If the bank proceeds against the seller as the drawer of the draft, when the latter pays and takes up the bill of lading he can similarly realize on the security, or get the goods back, because he will have a bill of lading in his possession which runs to his own order.

BILLS OF LADING TO "ORDER NOTIFY."—A slight modification of this form of bill of lading is made in order to let the buyer know when the goods arrive. When goods arrive at their destination it is a customary courtesy of railroads to notify the consignee; but if goods are consigned to the seller\'s order, the man who is really trying to buy the goods gets no notice, as his name does not appear on the bill of lading. To avoid that difficulty there is generally put on bills of lading, taken out to the seller\'s order when the goods are shipped in fulfillment of some contract or order, the words, "Notify X Y," X Y being the prospective buyer of the goods. Then when the goods arrive the railroad notifies X Y; he learns the goods are there and makes his plans accordingly. These bills of lading are often called "bills to order notify." The person who is to be notified is sometimes incorrectly called the consignee of the bill. The consignee is the person to whom the goods are deliverable, not the person who is to be notified necessarily; and where a bill is to the seller\'s order the goods are, by the terms of the bill of lading, deliverable to the seller and he is the consignee.[Pg 354]

CROPS ARE MOVED BY USE OF BILLS OF LADING.—The various uses of bills of lading by sellers in order to insure concurrent payment by the buyer, and in order, with the aid of banks, to put themselves in funds while the goods are in transit, is a very important function of bills of lading. It is by such means the great crops of the country are moved, especially the cotton crop, which is moved almost wholly in this manner. The southern banks discount bills of exchange, which are customarily secured by bills of lading. The New York banks rediscount these bills of exchange and draw for a great part of the price of the cotton on English bankers. This use by sellers of bills of lading, however, is not the only mercantile use of bills of lading.

BILLS OF LADING TO BANKER\'S ORDER.—Here is another method used, especially common in foreign commerce. A merchant in Boston wants to buy a cargo of goods from Europe, but he has not the money to do it. The seller in Europe does not know him and will not give him credit, so the merchant goes to bankers who have available foreign correspondents and states his case, and if he is in good credit with the bankers they say, "Order the goods from the man in Germany of whom you were planning to order them, and tell him to make the bill of lading out to us, and draw on us or on our correspondents in Berlin or London or Paris. On receipt of those bills of lading naming us as consignee we will pay, or cause to be paid, the bills of exchange attached thereto for the price." In this way the goods are shipped directly to[Pg 355] the banker. In the cases mentioned before, the banker took an indorsed bill of lading, but in this mode of dealing the banker is himself the consignee, and on the faith of the consignment he pays the price of the goods. Then he delivers the bill of lading, indorsed, to the buyer, his customer, on the buyer\'s making a settlement or giving him security.

SURRENDER OF BILLS OF LADING FOR TRUST RECEIPTS.—There is one method of doing business in this connection which causes some risk to the bankers who engage in it. They frequently allow their customer, the buyer, to take the bill of lading, indorsed, for the purpose of entering the goods at the Custom House, or warehousing them, or even for the purpose of selling the goods, so that the buyer will be in funds to enable him to discharge his debt to the banker. The banker takes, when he does this, from the buyer to whom he delivers the indorsed bill of lading, what are called "trust receipts." These receipts state that the buyer has taken these bills of lading, that he holds them as a trustee, that they really belong to the banker, and that the buyer holds them simply for a special purpose, such as to enter them at the Custom House or to resell them and turn the proceeds over to the banker. If the buyer is honest, well and good; but if he should be financially pressed and dispose of that bill of lading, many courts, at least, would not protect the banker, but would protect the bona fide purchaser. What the banker ought to do is to stamp upon the bill of lading, if he delivers it to the buyer, that a trust receipt has been issued[Pg 356] for certain specified purposes. In that case any purchaser of the bill of lading would have notice of the terms of the trust.

CHANGE OF ROUTING.—An analogous problem also may be supposed. A bank holds a draft for collection with bill of lading attached. It sometimes allows the drawee to take possession of the bill of lading and change the routing of the car. That is done because the buyer sometimes sells the goods before he receives them, and to save additional freight bills, he changes the routing on the original bills of lading. What risk does the bank run if it allows him to have possession of the bill of lading indorsed in blank? It runs the same risk as in case of trust receipts. The fact that the purpose was to change the routing of the goods is apparently immaterial. The change of destination does not do the bank any actual harm, except that the goods will be sent elsewhere, and perhaps to a point some distance from their original destination. The great risk involved is in allowing a man to have possession of a document which in effect is negotiable. If the bank does not get back its bill of lading it is in a bad position. If it did get back its bill of lading it would still have its security, only it would be subject to this difficulty, that the goods instead of coming to a place where the bank could conveniently get at them, have perhaps gone to a distant city, where it would be more trouble. If, however, changing the routing and the reselling involve a surrender of the old bill to the railroad and the issuing of a new bill of lading not only on a new[Pg 357] route but with the purchaser from the consignee named as a new consignee, then the bank has thrown away everything, unless it actually obtains possession of the new bill, and even if it does it has only an inferior security.

ACCOMMODATION BILLS.—Let us now enumerate the risks which a purchaser or a lender runs in dealing with bills of lading, even with order bills, and consider how these risks can be obviated and how far they are inherent in the nature of the business. The first risk is that the bill may have no goods behind it, because it was originally issued without any goods. It has been quite a common practice, at some points where there is competition for freight, to accommodate customers by issuing a bill of lading for goods before the goods were received. Suppose a seller in Chicago deals with a man in Boston; what the seller normally ought to do is to buy goods, and ship them, getting a bill of lading, then take the bill of lading to a bank and get money on the faith of that bill of lading. You will see that that method requires the seller to have had money or credit in the first place, in order to buy those goods to ship. It would be very much more convenient for him if he could reverse the order and get the money from the bank first, then buy the goods and then ship them; and the kindness of the railroad agent frequently has enabled him to do that. The railroad agent, trusting to the seller\'s word that he will ship goods to-morrow, issues a bill of lading to him for the goods which the seller promises to ship. The seller dashes around to[Pg 358] the bank, gets money and then buys the goods and ships them. He may carry on business in that way for a long time; no trouble occurs, nobody knows anything about it until the seller either goes bankrupt or becomes dishonest and fails to ship the goods after he has got the bill of lading, and then somebody finds himself with a bill of lading for which no goods have ever been received. Such bills have been called "accommodation" bills of lading, issued by the railroad for the accommodation of the shipper.

FICTITIOUS BILLS OF LADING.—In some cases the whole transaction is a fraud. In the case we have thus far been supposing, the railroad agent believed the seller was going to ship goods, and the seller intended to do so, only he wanted the bill of lading first; but money is so easily obtained, frequently, on bills of lading, that sometimes a shipper and a railroad agent put their heads together and say, "Let\'s make a few bills of lading," and as a pure fraud the agent writes bills of lading. These may be called fictitious bills. They are not exactly forgeries, you will see, since they are drawn by the regular agent of the railroad on the regular railroad form. One who took such a bill as this, however, would be protected if the carrier were liable. Railroads are generally, and other carriers are generally, financially responsible, and therefore the great question that interests the holder of such a bill is, are the railroads liable in damages because no goods are behind the bill of lading? It was held in an English case, seventy-five years ago, that in such a case the carrier was not liable[Pg 359] on the ground that the agent who wrote the bill was acting beyond the scope of his authority in signing a bill of lading when no goods had been received. That decision has been much criticized, and justly criticized, because the carrier has put that agent in a position to determine when bills of lading shall be issued and when not. Of course, the agent ought to exercise his choice properly, but if the carrier has given him the power it ought to be responsible for the results. Nevertheless, in a majority of the States of this country, and in the Supreme Court of the United States, the English case has been followed; and the carrier would be liable neither on an accommodation bill nor a fictitious bill where no goods were shipped. There have been some attempts to change this rule by statutes, and in some States there is a statute, the Uniform Bill of Lading Act, so called, which provides among other things that the carrier shall be liable in the case supposed; but the trouble is that bills of lading dealt with in one State will not generally originate in that State. If a fictitious bill was issued in Chicago, although the bill named as a consignee a person in Boston, and was bought by a Boston bank, the liability of the carrier on that bill of lading would be determined by the law of Illinois. So, unless you have a satisfactory law where the bill originates, you will not be protected. Fortunately, the same statute has been passed in several States, and it is hoped that it will be in more. This, then, is the first risk, and the only way of obviating it is to have the law in satisfactory shape, passing a statute wherever it is necessary,[Pg 360] so as to make the carrier liable for the wrongful act of its agent in issuing a bill of lading when no goods have been received.

GOODS BEHIND BILL OF LADING INFERIOR IN KIND OR QUALITY.—The second difficulty is somewhat analogous to the first. Suppose there are some goods behind the bill of lading but they are not of the quantity, quality or kind that the bill of lading specifies. This is a difficulty that cannot very well be wholly obviated. We may suppose that the goods originally were of defective quality and kind, or that they became so. Suppose, first, that a number of barrels of sand are delivered to a railroad and they are marked barrels of sugar, and the carrier issues a bill of lading for so many barrels of sugar. Now, the purchaser of the bill of lading finds, when he comes to realize on his security, that he has got barrels of sand with a freight bill against them for more than they are worth. What can he do? Of course, he has a right of action against the fraudulent shipper, but perhaps the shipper has run away or is irresponsible. Is the carrier liable here? The answer to this is, no. In the first place, the bill of lading says, "Contents and condition of contents unknown," so ............