LIMITATIONS OF LIABILITY

THE CASE OF THE MISSING GOLF BALLS

Reproduced with the Permission of Miles L. Kavaller

Is nothing sacred?  Steal what you will but don’t make off with my golf balls. And further, don’t add insult to injury by limiting the forwarder’s liability to just $50.

But the United States Court of Appeals for the 9th Circuit (whose rulings cover the states of California, Arizona, Nevada, Oregon, Washington, Alaska, Hawaii and the territories in the Pacific islands including Guam) did just that in the suit brought by Dunlop Slazenger Corp. against NNR Aircargo Service (USA) in a case decided on February 4.[1]

Dunlop, a manufacturer and distributor of sporting goods, contracted with  NNR on 47 separate previous occasions for services related to the importation golf balls and other goods by ocean carriage. The services consisted of freight forwarding, customs brokering, transit from the Port of Long Beach to its warehouse and palletizing. The theft of the 1350 cartons of golf balls at issue from NNR’s warehouse occurred in February, 1996, just before they were to be transported to their final destination in South Carolina. Two weeks after the theft Dunlop received NNR’s 48th invoice for its services which dated back three years to 1993. The front of the invoice stated that “NNR handles shipments subject to the terms and conditions set forth on the reverse side of this invoice.” Paragraph 8 on the reverse side contains a limitation of liability term:

“Limitation of $50. Per Shipment. The Customer agrees that the Company shall in no event be liable for any loss, damage, expense or delay to the goods resulting from the negligence or other fault of the Company for any amount in excess of $50 per shipment (or the invoice value, if less) and any partial loss or damage for which the Company may be liable shall be adjusted pro rata on the basis of such valuation. The Customer has the option of paying a special compensation to increase the liability of the Company in excess of $50 per shipment in case of any loss, damage, expense or delay from causes which would make the Company liable, but such option can be exercised only by specific written agreement made with the Company prior to shipment, which agreement shall indicate the limit of the Company’s liability and the special compensation for the added liability by it to be assumed subject to 19 CFR Part 111.44."

INA, Dunlop’s insurer, contested the validity of the limitation contending that it was not part of the oral contract between the parties. The court rejected that argument relying on the prior course of dealing between the parties stating:

“Today we rule that invoice terms and conditions may supplement shipping agreements if there has been a sufficient course of dealing and thereby, find that INA is subject to the terms and conditions of the invoice for the stolen golf balls.[2]

The decision also explained that a course of dealing is “a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis for understanding for interpreting their expressions and other conduct.”[3] Applying this definition, the court ruled that Dunlop’s receipt of 47 identical invoices was sufficient to constitute a course of dealing. In doing so, the court referred to its analyses with respect to bills of lading “...because like invoices, they can serve the dual purpose of billing customers and stipulating terms and conditions.” And, a course of dealing can be based on the receipt of three or four bills of lading with the identical liability limitation terms.[4]

Other grounds for disregarding NNR’s $50 liability limitation were also rejected. Most interestingly, the court found that the Carmack Amendment[5] which subjects common carriers, including forwarders to strict liability for a shipper’s actual loss was inapplicable since there was no evidence to indicate that NNR was to have any role in the inland transit of the goods from the warehouse.

The lesson of the stolen golf balls is plain: Shippers must be familiar with the terms and conditions of the invoices and bills of lading of the carriers with whom they deal. Shippers must obtain these materials before they tender freight to carriers and carriers are obligated to provide it to them upon request.[6] 


[1]Insurance Company of North America v. NNR Aircargo Service (USA), Inc.,___F.3___(9th Cir. 2000), 2000 Daily Journal D.A.R. 1405. Dunlop was paid $257,285.34 by INA which was subrogated to the claim for which suit was brought.

[2]Other federal appeals courts have enforced liability limitations under similar circumstances. See e.g. Capitol Converting Equip. Inc. v. LEP Trans., Inc., 965 F.2d 391 (7th Cir. 1992); Calvin Klein Ltd. v. Trylon Trucking Corp., 892 F.2d 191 (2d Cir. 1989); Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758 (10th Cir.1983); Alcoa Steamship Co. v. Charles Ferran & Co., 383 F.2d 46 (5th Cir. 1967), cert. denied, 393 U.S. 386 (1968).

[3]See California Commercial Code Section 1205(1).

[4]See Royal Ins. Co. v. Sea-Land Serv. Inc., 50 F. 3d 723 (9th Cir. 1995).

[5]See 49 U.S.C. Section 14706.

[6]See 49 U.S.C. Section 13710 (a)(1).