Many of us accumulate things; more than most of us city dwellers can store in our New York City apartments, and so, we store them in storage facilities around town. Storage is a big business, especially in New York. Whether you have goods in storage or work in the storage business, you should know what a Warehouseman’s lien is and how it may affect you and your stored items.
The terms of your storage agreement, provide for access, termination, and more. But what happens if the customer fails to pay the monthly storage fee, thereby breaching the agreement?
If you don’t pay the storage fees, a warehouse operator can assert a warehouseman’s lien over goods stored by the customer. Failure to pay for services as agreed may allow the lien holder to keep possession of the property involved. A warehouseman’s lien prevents the customer from possessing, selling, or otherwise using the goods in question, while also giving the warehouseman’s the right to sell the goods if not paid.
There are two types of liens:
- General warehouseman’s lien
- Specific warehouseman’s lien
A general warehouseman’s lien applies if the contract specifically states that a lien is claimed for charges and expenses on all of the customer’s goods in the warehouse owner’s possession, regardless of the amount due to the warehouseman.
A specific lien, however, is limited to the goods in the warehouseman’s possession equal to the amount owed. A specific lien is created, even without contractual language, so long as the customer receives a receipt on the day they tender the goods to the warehouseman. The agreement or receipt must indicate the location of the warehouse storing the goods, the date of the agreement, a description of the goods, the storage rate, and the signature of the warehouseman.
Enforcing a Warehouseman’s Lien
According to the New York Uniform Commercial Code, the lien may be enforced by public or private sale of the goods at any time or place and on “commercially reasonable” terms after notifying all persons/entities with an interest in the goods. “Commercially reasonable” means the goods were sold in a recognized market, at the price current in such market at the time of his sale, or sold in conformity with commercially reasonable practices among dealers. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. Unless related to perishable goods, any person claiming an interest in the goods may bring a proceeding to determine the validity of the lien within ten days of service of the notice if disputing the validity of the lien or the amount claimed.
Depending on the volume of goods stored and the amount owed, a warehouseman may or may not choose to proceed with a sale. Alternatively, they may choose to proceed with a debt collection action, which, in some cases, may be more cost-effective. As with any situation, the warehouseman must make a business decision.
Before the sale, anyone claiming a right to the goods can pay the amount necessary to satisfy the lien and any reasonable expenses incurred. In that event, the goods cannot be sold and must be held by the warehouseman subject to the terms of the receipt.
The buyer becomes the new owner of the property once the goods are sold. The person(s) against whom the lien was valid no longer has any stake in them. The warehouseman may satisfy their lien from the proceeds of any sale but must hold the balance, if any, for delivery to the owner of the goods.
Finally, the warehouseman may be liable for damages caused by failure to properly comply with the requirements for sale under the uniform commercial code. If the court finds the warehouseman willfully violated the section of the UCC governing enforcement of the lien, the warehouseman risks being found civilly liable for conversion and for the damages caused by such actions. A warehouseman’s lien is an advantageous way to collect payment from a non-paying customer, so long as you comply with the rules governing a warehouseman’s fee.
If you need assistance with a debt collection matter, contact Frank, Frank, Goldstein & Nager for a consultation.
