Commentary | Viewpoint

Understanding Warehouseman’s Liens

Tags: Warehousing

Ronald Leibman is Counsel; Riker, Danzig, Scherer, Hyland, & Perretti LLP, 973-451-8513

When a warehouse operator believes it is owed storage and handling charges from a customer, it will often assert that it holds a “warehouseman’s lien” over the customer’s goods stored in the warehouse. By asserting such a lien, the warehouse operator is attempting to prevent the customer from shipping or otherwise making use of any of such goods, while providing the warehouse operator a right to sell the goods if it is not paid. But does the warehouse really hold such a lien? The answer to this question depends on whether the lien was properly created and the type of lien obtained.

Contrary to popular belief, the mere possession of a customer’s goods does not automatically provide a warehouse operator with a warehouseman’s lien. Instead, under Section 7-209 of the Uniform Commercial Code (the UCC), versions of which have been adopted in all 50 states, a warehouse operator must issue a warehouse receipt as a predicate to its having a valid warehouseman’s lien on goods it is storing. A warehouse receipt generally does need not be in any particular form, but it must contain certain information.

In particular, it must state:

  • The location of the warehouse and the place where the goods are stored.
  • The date when the receipt was issued.
  • The storage rate or handling charges.
  • A description of the goods or how they are packed.
  • The signature of the warehouseman or its agent.

 

In some states, a warehouse receipt may be pieced together from information found in several different documents, such as e-mails and other electronic records, as long as these documents collectively contain the required information.

If a proper warehouse receipt has been issued, the warehouse will hold the right to either a specific or general lien. Which type it is depends on the language used either in the warehouse receipt or, in certain states, in the written warehouse services contract between the parties.

Warehouseman’s liens will be presumed to be specific unless the parties expressly state otherwise. In states that follow the pre-2003 version of Article 7 of the UCC, a general lien can only be created by language within the warehouse receipt specifying that the lien is general. In states that have adopted the 2003 revision to Article 7, the necessary language may be placed in a warehouse services contract.

If a warehouse operator holds only a specific warehouseman’s lien, then its lien is limited to the customer’s goods remaining in the warehouse at the time the warehouse operator demands payment, and then only for the warehouse’s fees relating specifically to those goods. Unpaid charges relating to goods already shipped are no longer secured. If, however, the warehouse operator holds a general warehouseman’s lien, then its lien will attach to any goods of its customer in the warehouse operator’s possession, regardless of whether the charges claimed due relate to those goods.

With a valid warehouseman’s lien, the warehouse operator can detain and, thereafter have a right to sell, the goods it is holding up to the value of the claimed outstanding charges. Regardless of the state, the parties to a warehouse agreement are free to contractually waive any of the warehouseman’s lien rights – even those found in a properly issued warehouse receipt.

Understanding these lien law concepts is important in evaluating warehouse disputes. A dispute over the warehouse’s fees could cause the warehouse operator to assert a lien and to detain its customer’s goods and possibly sell them, regardless of how important or unique those goods may be. In addition, the very existence of a lien – let alone the sale of goods – might constitute an event of default under the customer’s financing agreements with its lenders. At the same time, a warehouse operator who wrongfully asserts a warehouseman’s lien risks civil liability for conversion of its customer’s goods and for the damages caused by such actions.

Obviously, it is in the best interest of a warehouse operator to seek the broadest lien rights and to utilize documents that assure these rights are enforceable. Conversely, parties storing goods in warehouses need to be alert to liens on their goods. Both parties to a warehousing agreement need to understand their rights and the documents that cover their transactions to avoid surprises and to be able to negotiate deals that fairly reflect both parties’ needs.


Nothing in this article should be relied upon as legal advice in any particular matter. Two members of the Riker, Danzig, Scherer, Hyland, & Perretti LLP litigation group – Julian Wells, partner, and Joshua Bratspies, associate – also contributed to this article.