ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, August 31, 2007

Customers as TPBs of Business Contracts

Aa A pending dispute in Oregon raises some interesting issues. The Willamette & Pacific Railroad leased a stretch of rail line from the Union Pacific Railroad in 1993. The lease apparently requires the W&P to maintain the line in the same condition as it was then. But the line has deteriorated and recently suffered five derailments in five weeks. The W&P now wants to abandon the line and eliminate service to the 11 shippers that the line serves.

The shippers are suing to prevent the closure and seeking an injunction to have the line repaired, claiming (as recounted in the Corvallis (Ore.) Gazette:

Breach of contract. . . As continuous users of the line, the plaintiffs are intended beneficiaries of the lease agreement and so should be covered by it.

Breach of implied contract.  When the state appropriated funds for emergency repairs to the line, the Willamette & Pacific imposed a $49-per-carload surcharge on the shippers to pay for ongoing maintenance. The surcharge created a new obligation for the W&P to maintain the track in a safe condition, which it has failed to do, according to the lawsuit.

Promissory estoppel. The railroad told the shippers the surcharge would enable it it keep the line open. Based on those promises, the shippers entered into contracts promising to deliver or receive goods via rail. The embargo has forced the shippers to violate those contracts.

[Frank Snyder]

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