Cargo isn’t always in transit. During various parts of the process, it’s holed up in warehouses awaiting successive intermodal legs of transit, or laid away pending orders from owners as to where they want it sent. If transportation and logistics may be collectively defined as global inventory management, then warehousing and distribution constitute almost as large and significant a part of the process as does movement by land, sea or air. The evolution of transportation and logistics, with the establishment and implementation of deregulation, has trended toward integration of the components parts.

With increasing frequency, this is accomplished via a single company’s ownership of brokerage, forwarding, transportation, storage, customs or ancillary service divisions, or by way of integration through multi-service contracts that utilize a series of third-party providers. Such dynamics lead to efficiency, convenience and corporate profits, but like so many other aspects of transportation and logistics, they also produce confusion about law and legal implications, as well as the necessity of revised documentation practices. Federal and state laws governing the different transportation modes with respect to regulation and licensing, cargo liability, financial responsibility requirements, taxation and other subjects address similar concerns and are aimed at similar goals, but in many respects, that law is just different enough to mislead or confound industry players, and unfortunately, sometimes lawyers and judges. Problems frequently arise when industry tries to combine the steps into a single transaction subject to a single contract and/or multi-application shipping documents.

Volumes have been written about the law of warehousing, and only a bit less to its application to distribution logistics contracts. This two-part article addresses in summary fashion legal concepts which govern warehousing, with attention to factors which contrast with transportation law. It focuses on warehousing contracts as part of the logistics aspect of distribution relationships, and how provisions of law governing this sector mesh, or sometimes collide, with statutes and interpretative case law applicable to transportation. It begins with a general review of legal concepts governing warehousing, and expands to application of warehousing law to distribution logistics contracts, including the difficulties encountered when preferences for operational practices disregard the realities of applicable law.

Summary of UCC-7 Warehousing Law

Legal principles governing storage aren’t quite as old as those pertinent to transportation, but many concepts are similar and rooted in the same antiquity as aspects of maritime law. A primary difference between the laws of warehousing and interstate water and surface transportation is that the former, by and large, isn’t governed by a federal statute or international treaty with preemptive effect over state and common law, unless the parties contract otherwise.1 Rather, the bailment relationship created by a warehousing contract is founded on commercial law principles that are codified within state statutes, largely through adoption of provisions of Article Seven of the Uniform Commercial Code (UCC-7).2

This usually is with state-specific modifications. In reading the following, one should bear in mind that UCC-7 in and of itself isn’t the law of any jurisdiction. One must become familiar with the particulars of a given jurisdiction with regard to any point this section addresses. For that reason, this analysis in this article is conceptual, and by way of background with respect to statutory provisions which might differ in a relevant jurisdiction.

UCC-7 is the longest and most detailed UCC section. It’s also among the most stable, having seen very little amendment since its promulgation.3 Moreover, individual state treatment of its terms has been comparatively uniform in statutory application and judicial interpretation. Per its title, it broadly covers “Documents of Title,” which include the related and often integrated subcategories of warehouse receipts and bills of lading pertinent to intrastate transportation. While UCC-7 terms usually are preempted by federal law during interstate and international transit,4 state commercial law governs most aspects of distribution logistics arrangements.

Warehouse Receipt

At the heart of the bailment relationship created by logistics customer’s tender of property to a warehouseman for storage is the warehouse receipt.5 No UCC-7 provision actually mandates issuance of a warehouse receipt, although some state statutes require it (in some jurisdictions it’s actually a crime not to). However, UCC-7-202 holds warehousemen liable for any resulting damages if they don’t issue warehouse receipts containing certain stated provisions, and UCC-7- 209 requires issuance of a warehouse receipt for a warehouseman to enforce its rights against its customer and third-party members of the public. As implied by UCC-7-202, the warehouse receipt is a receipt; a document of title; a memorialization of the storage terms, including storage fees; commercial negotiable paper, i.e., the stored property’s “alter ego” for documentation purposes; and an opportunity for the parties to it to state specific terms not necessarily imposed by law. It must designate whether the warehouseman will release the stored property to the bearer, a named person, or to order, and is the warehouseman’s opportunity to limit its liability and to impose parameters on claims. Put simply to those more accustomed to the transportation industry, it’s the bill of lading’s analog.


One significant difference between statutes governing interstate/international carriage and UCC-7 regards liability for lost/damaged/destroyed property. Unlike the near strict liability regimes imposed by federal statutes on surface and water carriers,6 UCC-7-204 holds:

A warehouse liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances. However, unless otherwise agreed, the warehouse is not liable for damages that could not have been avoided by the exercise of that care.

The clause “under similar circumstances” has been interpreted to raise the bar slightly from that imposed by ordinary tort law, i.e., by increasing the level of duty from that owed by “the reasonably prudent person” to that of “the reasonably prudent warehouseman.”7 However, it’s nothing like the “ping pong” shifting burdens of proof COGSA and Carmack create, one which a plaintiff shipper initially satisfies merely by showing good order and condition on tender; short, destroyed or damaged order and condition on delivery; and damages. UCC-7 still contemplates a tort-based analysis of liability.

However, UCC-7-204 contains mechanisms for warehousemen to limit their liability in ways substantially similar to those COGSA and Carmack allow:

(b) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable. Such a limitation is not effective with respect to the warehouse’s liability for conversion to its own use. The warehouse’s liability, on request of the bailor in a record at the time of signing such storage agreement or within a reasonable time after receipt of the warehouse receipt, may be increased on part or all of the goods covered by the storage agreement or the warehouse receipt. In this event, increased rates may be charged based on an increased valuation of the goods.

Just as other liability regimes require carriers to offer shippers an opportunity to opt for full liability in a warehouse receipt (or incorporated terms and conditions, master contract, etc.), so does this UCC-7 provision require that bailors be able to require full liability subject to typically higher storage rates.

Extension of Carrier Liability Regimes to Warehousemen

It has long been the practice of ocean carriers, through standardized Himalaya and Paramount Clauses in their bills of lading, to extend the rights they enjoy under the U.S. Carriage of Goods by Sea Act (COGSA) to their subcontracting service providers.8 These include limitation of liability for lost/damaged freight. The theory is that subs of ocean carriers operate under the same contractual terms as do the carriers, as the latter have entered into global service agreements with their shipper customers.

In most circumstances, this extension of the ocean carrier liability regime applies to transit in storage, as opposed to the commercial distribution storage described below. Still, when ocean transportation is involved, one should always be on the lookout for arguments that COGSA, and not a state’s adopted version of UCC-7, applies.

Protection of Warehousemen

UCC-7 contains two lengthy provisions specifically directed at protecting warehousemen’s commercial interests, albeit within certain defined parameters.

The first, and one frequently of concern to warehouse contract parties, is the warehouseman’s lien under UCC-7-209. The warehouse receipt defines the existence, nature and extent of a warehouseman’s lien.9 Per this provision, “charges for storage or transportation, including demurrage and terminal charges, insurance, labor, or other charges, present or future, in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their sale pursuant to law.” However, the lien in this regard is “on the goods covered by a warehouse receipt or storage agreement or on the proceeds thereof in [the warehouseman’s] possession.” Thus, the lien is premised on issuance of a valid warehouse receipt,10 and is possessory only, meaning it’s extinguished when the warehouseman releases the stored property.11

Per the statute, however, a warehouseman can’t simply enforce a lien on any item of property that happens to be in its possession whenever a payment dispute arises. For example, if a warehouseman releases to its owner or designated deliveree Unit 1 of goods without receiving payment, and later receives for storage Unit 2 of goods from the same customer, the warehouseman cannot refuse to release Unit 2 based on nonpayment of fees due for Unit 1. However, warehousemen are free to insist that their customers contractually agree to a “general lien” or “cross lien” by which a lien arises on any property in the warehouseman’s possession at any time. Customers obligated to their own contract partners often resist general liens, and as is the case with most any other negotiated contract term, their success in doing so usually is directly proportionate to the volume of their business.

While “[a] warehouse receipt need not be in any particular form” (UCC-7-202(a)), one containing specified terms must be issued for a statutory warehouse lien to arise. As discussed below, many providers offering ranges of services issue “bills of lading” which they intend to provide multipurpose functions, including documentation of the warehousing aspect of the relationship. This practice often proves adequate in the event of dispute, but at a minimum, it can be confusing and require additional effort to explain to adverse attorneys or judges new to the concept. Moreover, provisions required in bills of lading, and terms and conditions included in them per industry practice, aren’t identical to, and can be at odds with, those for warehouse receipts. Descriptions of cargo, as well as its packaging and inventory designations, often change between storage and transportation; storage charges usually aren’t stated in a bill of lading (although most state statutes require written documentation of them); and bills of lading may omit any reference to warehousing law. It might be a business convenience to service providers to use a single form and, with proper attention, a single form might adequately document both shipper/carrier and bailor/bailee storage relationships. However, the notion that a bill of lading “is good enough” generally should be discouraged.

Foreclosure on a warehouseman’s lien, followed by sale of property at auction, is the subject of UCC-7-210. States impose various obligations on warehousemen regarding advertising and notice of sales they intend to undertake. In any event, all parties claiming an interest in the property must be notified, and given time to pay the warehouseman’s properly claimed charges to satisfy the lien. This provision allows a warehouseman to sell only an amount of seized property adequate to obtain funds sufficient to pay its owner’s debt, and the sale must be undertaken in a “commercially reasonable” fashion. Any balance between the net sales price and sums due to the warehouseman must be refunded to the property’s owner. A purchaser at such a warehouseman’s foreclosure sale takes title to the property free and clear of third-party claims.

The second UCC-7 provision aimed at qualified protection of warehousemen’s commercial interests, UCC-7-206, provides a right to terminate a storage at the warehouseman’s option. If a warehouseman reasonably believes stored goods in its possession may have been abandoned, or are subject to deterioration or harmful effects to the facility or other stored property, it may justifiably wish to end the storage as soon as commercially feasible. UCC-7-206 empowers a warehouseman in such circumstances to demand that its customer remove the stored property after payment of all outstanding charges subject to most terms and conditions applicable to the warehouseman’s lien rights. If the warehouseman didn’t have notice of “a quality or condition of the goods” at the time of deposit which render them “a hazard to other property, the warehouse facilities, or other persons,” the warehouseman can actually sell such goods without notice.

Other Points

Certain UCC-7 provisions extend to rights of purchasers for value of warehouse receipts as against warehousemen and other claimants. For example, UCC-7-203, entitled “Liability for Nonreceipt of Misdescription,” goes a step farther than federal statutes pertinent to transportation by relieving warehousemen from liability for losses if they specifically disavow knowledge of whether goods documented by a warehouse receipt conform to the property description, or if the holder of a warehouse receipt after purchasing it has notice of the misdescription. Under UCC-7-205, buyers in due course of stored goods take them free and clear from warehousemen who themselves deal in the same commodity without regard to the latter’s rights under a warehouse receipt.

Per UCC-7-601, a warehouseman is liable to a property owner if it delivers freight to a person who doesn’t have a document of title (i.e., a warehouse receipt) and doesn’t have rights to the property, and for conversion if it does so in bad faith. To guard against a finding of bad faith, a warehouseman must obtain security from the undocumented property claimant for twice the property’s value, and hold it for one year. UCC-7- 603 contemplates an interpleader proceeding if two or more persons claim title to property.12