By Casey Myers

This month, we’re sharing information from a recent warehouse lien webinar we hosted. Our presenter was Gregg Garfinkel of Stone | Dean LLP, who is an experienced transportation attorney and a nationally recognized expert in the field of business litigation and transportation law.

The information below is an overview of the rights of warehouses under Uniform Commercial Code (UCC) Section 7210, how to properly enforce them and avoid common pitfalls. It is an overview. The nuances in the statute and process pose traps for the uninformed. If in doubt, consult your attorney.

What Does a Warehouse Lien Attach To?

UCC Section 7209 provides warehouses a lien against the depositor for storage or transportation, warehouse labor, expenses necessary for preservation of the goods and charges reasonably incurred in selling the goods pursuant to law to satisfy the warehouse’s lien, including advertising, auction costs and legal fees.

Who Does the Lien Apply To?

The warehouse lien is a general lien. It may be enforced against any or all of the debtor’s goods in storage, regardless of whether such charges are owed for storage of the goods against which enforcement is sought. The lien continues against the proceeds of the goods after their sale.

As a best practice, have your staff issue a non-negotiable warehouse receipt. Failing to issue a one deprives your company of valuable rights and legal defenses which may include best evidence of items tendered to the warehouse, limitation of liability provisions and claims filing defenses.

How the Lien May be Lost

A warehouse lien is a possessory lien. It is lost when goods are voluntarily delivered, or delivery is unjustly refused.  For example, if goods are released upon partial payment or you wrongfully refuse to deliver them, you may lose your right to enforce the lean. Consult your attorney when in doubt because it will depend on the specific case.

Enforcement of the Lien

The most frequently litigated process is lien enforcement which depends on the type of goods stored – commercial or household. Avoid statutory conversion lawsuits by following the letter of the law. They are not usually covered by insurance. Notice (a.k.a. Preliminary Notice of Lien) must be provided to all persons known to claim an interest in the goods.

Notice of Lien

Notification may be made by mail, personal service or verifiable email and must include:

• An itemized statement of the amount due as of the notice date.
• A description of the goods subject to the lien.
• A demand that the claim be paid within a specified time not less than 10 days after receipt of the notice.
• A conspicuous statement that unless the claim is paid within the specified time, the goods will be advertised for sale and sold at auction.

When notice has not reached the depositor, the warehouse should attempt by any reasonable means to notify all parties. For example, if you receive a return notice stamped, “addressee unknown,” you must make additional attempts to find the depositor. Consult legal counsel for further guidance.

Advertising the Sale

Once the notice payment term has expired, the sale of goods must be advertised at least once a week for two consecutive weeks in the local general circulation newspaper. The sale can be held 15 days after the date of original publication.

If there is no newspaper, an ad must be posted at least 10 days before in at least 6 conspicuous places around the sale site.

The advertisement must contain a description of the goods to inform interested parties likely to offer a reasonable price, the name of the person for whom the goods are held and the exact time and place of the sale. This information should exactly match the notice sent to the depositor.

The Sale

The sale must conform in all respects to the terms of the notification. Keep an inventory of each lot, recording the item, name and address of the purchaser and sale price. The warehouse may bid on and purchase any sale items. Please note: the statute expressly provides that the warehouse can pursue the depositor even after the lien sale.

Additional Considerations

There may also be extenuating circumstances, like customer bankruptcy, death of the depositor, the Servicemen’s Civil Relief Act or debtors making partial payments. Items in storage may contain personal memorabilia such as personal papers (with social security numbers or other sensitive information), letters and family photographs. Take a proactive approach and prepare in advance for these exceptions by developing contingency plans to address them, including working with your attorney and other stakeholders who should be involved in the decision-making process for warehouse management.