Warehouse Receipts: Title Document, Negotiability and Security Interests in Warehouse Receipts

1. Introduction

Warehouse receipts serve as vital documents of title in commercial transactions, bridging the gap between goods and finance.

These receipts, issued by warehouses to acknowledge possession of stored goods, play a dual role: they represent ownership of the goods and can be traded or pledged as collateral.

Warehouse receipt financing has deep roots: early 20th-century laws like the Uniform Warehouse Receipts Act (1906) established the negotiability and basic rights in these documents, and the Uniform Commercial Code built on that foundation. ¹

Today, warehouse receipts are indispensable in industries ranging from agriculture (grain and cotton storage) to commodities trading (metals stored in licensed warehouses).

Billions of dollars in goods are pledged via warehouse receipts, making clarity in the law critically important. In the United States, the legal framework governing warehouse receipts and their use in secured lending is principally found in the Uniform Commercial Code (UCC) Article 7.

Article 7 of the UCC sets out the rules for documents of title—including warehouse receipts—while Article 9 governs security interests in personal property.

This article provides an analytical overview of the current U.S. legal framework on warehouse receipt law, focusing on how security interests in warehouse receipts are created, perfected, and prioritized.

We examine the relevant provisions of UCC Article 7 and Article 9, highlight practical issues and legal uncertainties, and discuss interpretive questions that courts and practitioners face in this area.

While our focus is exclusively on U.S. law (notably the UCC), the principles discussed reflect a mature system that continues to develop globally in response to modern commercial needs.

2. Warehouse Receipts Under UCC Article 7

2.1 Definition and Negotiability

A warehouse receipt is a type of document of title regulated by UCC Article 7. It is issued by a party engaged in the business of storing goods for hire (a “warehouse”) to acknowledge the deposit of goods in storage.

By its nature, a warehouse receipt serves as a receipt for the goods, a contract for storage, and a representation of rights to the goods.²

This ability to treat the document as a proxy for the goods enables commerce to flow efficiently: rather than moving or re-delivering bulky goods for each sale or loan, parties can simply transfer the piece of paper (or its electronic equivalent) to confer rights in the goods.

Notably, a warehouse receipt can be either negotiable or non-negotiable. Under UCC 7-104, a document of title is negotiable if it explicitly states that the goods are to be delivered “to bearer” or “to the order” of a named person.

This language allows the document (and the goods it represents) to be transferred by endorsement or delivery. A receipt lacking such language, or bearing a conspicuous legend that it is non-negotiable, is deemed non-negotiable.

A negotiable warehouse receipt can be duly negotiated to a purchaser, conferring upon that party significant rights.

The UCC provides that a holder to whom a negotiable document has been duly negotiated acquires thereby title to the document and title to the goods, along with the direct obligation of the warehouse to hold or deliver the goods according to the document’s terms, free of any defence or claim by the issuer except those stated in the document or arising under UCC Article 7.

In other words, a good-faith purchaser of a negotiable warehouse receipt takes it free of adverse claims in most cases.

Warehouse Receipt Negotiability Transferrability

These rights are robust: even if the negotiation of the receipt constituted a breach of trust or the receipt was obtained through fraud or theft, the purchaser’s rights in the goods are not impaired, (subject only to limited exceptions, such as certain claims of a true owner under UCC 7-205 or persons who didn’t consent as addressed in UCC 7-503).

By contrast, a transferee of a non-negotiable receipt typically acquires no better rights than the transferor and takes the document subject to existing claims or defences.

Thus, negotiability is a key feature that enhances the warehouse receipt’s function as a commercial financing tool.

2.2 Rights and Obligations under Article 7

Article 7 outlines the obligations of the warehouse and the rights of receipt holders. The holder of a warehouse receipt (whether the original depositor or a subsequent transferee) is entitled to claim the stored goods from the warehouse by surrendering the receipt and satisfying any applicable charges or conditions.

If the receipt is negotiable, the warehouse must deliver the goods to the holder (or a valid indorsee) of the receipt, and delivery can be refused only under limited circumstances (such as if the warehouse has a lawful lien or if the receipt has been altered or is fraudulent).

Warehouses, for their part, must exercise due care with respect to the stored goods (UCC 7-204) and honor the terms of the receipt. They also benefit from a statutory warehouse lien to secure payment of storage charges and related expenses (discussed further below).

Article 7 permits contractual limitation of the warehouse’s liability (within certain bounds) and provides rules for issues like lost or destroyed receipts and mistaken or unauthorized deliveries.

While these provisions are important, the focus of our analysis is on how the receipt itself becomes a mechanism for secured financing.

3. Security Interests in Warehouse Receipts (UCC Article 9)

3.1 Warehouse Receipts as Collateral

Under UCC Article 9, a warehouse receipt is treated as a form of personal property that can serve as collateral for a loan. A warehouse receipt qualifies as a “document” (specifically, a document of title) that evidences ownership of goods.

By taking a security interest in the warehouse receipt, a secured party effectively obtains an interest in the goods themselves, since possession of the negotiable document confers the right to claim the goods.

This mechanism is commonly used in inventory and commodity financing: a debtor pledges warehouse receipts to a lender to secure credit, allowing the lender to look to the stored goods for satisfaction of the debt.

3.2 Attachment and Creation of the Security Interests in Warehouse Receipts

To create a security interest in a warehouse receipt, the debtor must have rights in the receipt (usually by being the lawful holder or owner of the document), and a security agreement must describe the collateral (e.g., “warehouse receipts” or specifically identified receipt numbers).

Once value is given and the debtor authenticates the agreement, the security interest attaches, making it enforceable against the debtor. Notably, the security interest may be taken in the document itself or directly in the goods covered by the document.

Often, however, a lender will treat the negotiable receipt as a proxy for the goods: rather than attempting to perfect a lien on the goods by filing while they are in a bailee’s possession, the lender takes possession of the document of title. This approach leverages Article 7’s principle that the document embodies the rights to the goods.

3.3 Perfection of the Security Interests in Warehouse Receipts

After attachment, the secured party must perfect the security interest to have priority over third parties. Article 9 provides multiple methods of perfection for interests in documents (including warehouse receipts):

3.3.1 Filing

The secured party may file a UCC-1 financing statement describing the collateral (e.g., the document or the underlying goods). Filing is a permissible method of perfection for both negotiable and non-negotiable warehouse receipt documents.

However, as discussed below, perfection by filing alone may be vulnerable to certain competing claimants.

3.3.2 Possession

For a tangible negotiable warehouse receipt, taking possession is a highly effective perfection method. UCC Article 9-313(a) provides that a security interest in negotiable documents can be perfected by the secured party taking possession of the document.

By holding the original paper receipt, the secured creditor not only perfects its interest but also gains control of the goods – preventing the debtor from further negotiating the document.

If physical transfer of possession is impracticable, the secured party can achieve equivalent perfection by having an agent or third party hold the document on its behalf, so long as the debtor does not retain control, thereby avoiding any “secret lien” problem.

In the case of a non-negotiable receipt, possession by itself does not confer the same advantage, because the document alone does not allow transfer of goods without the warehouse’s consent.

For non-negotiable documents, Article 9 specifies that perfection by possession requires the bailee’s acknowledgment of the secured party’s interest (or issuance of the document in the secured party’s name).

Absent that, the secured party should perfect by filing. If no document were issued at all, a similar requirement applies: the secured party must either file or get the warehouse’s authenticated acknowledgment that it holds the goods for the secured party’s benefit to perfect a security interest in goods in bailment.

3.3.3 Control (Electronic Documents)

Modern commerce has seen increasing use of electronic warehouse receipts. UCC Article 7 (as revised) recognizes electronic documents of title, and Article 9 provides that a security interest in an electronic document may be perfected by control.

Control in this context means using a reliable system to evidence the transfer of the document such that one person is established as the exclusive controller of the electronic record.

For example, if a warehouse uses an electronic registry for grain storage receipts, a lender can perfect its interest by becoming the controller of the electronic receipt under the rules of that system.

Perfection by control is the functional equivalent of possession for intangibles: it puts the world on notice that the secured party has exclusive rights to the document.

If control is not obtained, an electronic document could also be perfected by filing, but that carries the same priority disadvantages noted above if others acquire control or possession.

It is worth noting that the UCC permits a warehouseman (the issuer of the receipt) to itself claim a security interest in the stored goods for certain charges or advances beyond the scope of the statutory lien. UCC 7-209(b) allows a warehouse to “reserve a security interest” under Article 9 against the bailor (owner of the goods) for charges other than those covered by the lien, such as loans or advances made to the bailor.

In such cases, the warehouse’s security interest is governed by Article 9 and would typically be perfected by possession or control (since the warehouse already holds the goods and can issue the receipt to itself or its lender accordingly) or by filing a financing statement.

This scenario blurs the line between lien and security interest, and as we will see, it raises interesting priority questions vis-à-vis other secured creditors.

4. Priority and the Interplay of Article 7 and Article 9 for Warehouse Receipts

When security interests in warehouse receipts (or the goods they represent) collide with other interests, the outcome is determined by a blend of Article 9’s priority rules and the special protections afforded to document holders under Article 7.

Several distinct priority scenarios can arise, highlighting the careful balance the UCC strikes between negotiability and notice-based priority.

Key priority rules and examples include:

4.1 Secured Party vs. Secured Party (Document vs. Goods)

Suppose a debtor pledges a negotiable warehouse receipt to Lender A, who perfects by taking possession of the document. Later, Debtor also grants a security interest in the same goods (or in all its inventory, including those goods) to Lender B, who perfects by filing a financing statement.

Under UCC 9-312(c), if Lender B’s interest was perfected after the goods were placed in the warehouse and covered by the negotiable receipt, then Lender A (who holds the document) has priority over Lender B.

The negotiable document in effect becomes a proxy for the goods, and the secured party who holds that document gains a priority edge, trumping the usual first-to-file rule.

However, if Lender B had already perfected a security interest in the goods before they were delivered to the warehouse, the special rule in UCC 9-312(c) would not apply, and priority would revert to the standard first-to-file-or-perfect approach (i.e. the earlier security interest would generally have priority).

4.2 Effect of Due Negotiation

The UCC also protects certain purchasers of documents of title in a manner that can override security interests. Under UCC 9-331(a), a holder to whom a negotiable warehouse receipt has been duly negotiated takes priority over an earlier security interest in the goods, even if that security interest was already perfected.

This means that a secured lender who merely files on the goods (or on the receipt) could find its interest cut off if the debtor later transfers a negotiable receipt to a good-faith purchaser.

In practice, to avoid this outcome, secured parties will insist on taking possession or control of negotiable documents; by doing so, they prevent the debtor from making any further due negotiation.

Even a secured party holding a purchase-money security interest (which ordinarily enjoys super-priority under Article 9) would be subordinate to a duly negotiated warehouse receipt, since UCC 9-331 dictates that Article 7’s protected purchasers trump earlier security interests notwithstanding their PMSI status.

The rule reflects Article 7’s policy favoring the free transferability of negotiable documents to encourage trade, while expecting secured creditors to protect themselves by appropriate perfection methods.

4.3 Warehouse Lien vs. Security Interest

A warehouse’s statutory lien for storage charges and expenses (UCC 7-209(a)) is generally given priority over other claims in the goods, consistent with the principle that a bailee who preserves goods should be paid first.

Article 9 affirms this by providing that possessory liens arising by operation of law have priority over a perfected security interest unless the statute creating the lien expressly provides otherwise.

UCC 7-209 does “provide otherwise” in certain respects, creating a nuanced rule. In particular, UCC 7-209(c) (together with UCC 7-503) limits the effectiveness of a warehouse lien against persons who held a prior interest in the goods and did not authorize or acquiesce in the bailment.

Stated simply, if a third party (e.g. a secured lender) had a perfected interest in the goods before the warehouse receipt was issued and that party did not deliver, entrust, or consent to the goods being placed with the warehouse, then the warehouse’s lien will not take priority over that party’s interest.

This scenario was illustrated in K Furniture Co. v. Sanders Transfer & Storage Co. 532 S.W.2d 910 (1975), a Tennessee case, where a buyer’s household furniture was put in storage and the seller (holding a purchase-money security interest) had not authorized that storage. The court held that the seller’s prior security interest prevailed over the warehouse’s lien for unpaid storage fees.

On the other hand, if the secured creditor had entrusted the goods to the debtor with the authority (express or implied) to store or sell them, then the warehouse’s lien will be effective even against that secured creditor.

Courts will look at the facts: a lender that allows the debtor to hold inventory for sale or storage generally is deemed to have given the debtor apparent authority to store those goods (hence entrusting the debtor with that power), whereas a lender that imposes strict conditions or never envisioned third-party storage might avoid being bound.

In credit finance, lenders often do allow debtors to deal with inventory freely; such acquiescence can be deemed consent to storage, in which case a subsequent warehouse lien will prime the lender’s claim so long as the lien is for charges within the scope of what is stated on the warehouse receipt.

It should be noted that against a holder of a negotiable warehouse receipt who took it in good faith, the warehouse’s lien is confined to charges specified on the receipt (or, if no charges are specified, to a reasonable charge for storage of the goods after the date of the receipt).

Thus, a warehouse cannot secretly extend its lien beyond what the receipt indicates without losing priority as to a good-faith document holder.

4.4 Special Case – Household Goods

The UCC carves out a protective rule for consumers who store household goods. If an individual stores their personal belongings or furniture, the warehouse’s lien for charges and expenses is made effective against all persons, even those with a prior security interest, provided the depositor was the legal possessor of the goods at the time of deposit.

This ensures that warehouses are willing to provide storage to consumers (for example during a move or emergency) without fear that a financier’s claim will undermine their lien.

In essence, the law prioritizes the warehouse’s claim for payment in that narrow context, recognizing the practical need to secure storage fees for household goods.

These priority rules demonstrate the interplay between Article 7 and Article 9. A secured party dealing with goods that may be covered by warehouse receipts must be mindful of the unique protections given to holders of negotiable documents and to warehouses.

From the lender’s perspective, taking control of the warehouse receipt (if it is negotiable) is often essential to maintain priority. From the warehouse’s perspective, clarity in the receipt (stating applicable charges or any special lien claimed) is critical, as is understanding whether any party holds a prior claim to the goods.³

The UCC framework attempts to allocate risks: those who extend credit on goods out of their possession are expected to either monitor for the issuance of documents or protect themselves by filing and contractual covenants, while those who buy or finance via documents are given confidence that the documents truly embody the value of the goods free of hidden claims.

5. Challenges With Warehouse Receipts and Legal Uncertainties

5.1 Field Warehousing and Self-Issued Receipts

One practical issue in warehouse receipt financing is the so-called field warehouse arrangement or cases where a warehouse receipt is issued on goods by a party closely related to the owner of the goods.

Since UCC 7-201 allows “any person engaged in the business of storing goods for hire” to issue a warehouse receipt, it is legally possible for a company to create a separate warehousing arrangement for its own inventory.

In such arrangements, a nominally independent warehouse operator (sometimes a subsidiary or third-party logistics firm) takes possession of the goods and issues warehouse receipts, which the owning company can then pledge to lenders.

The law recognizes these receipts as valid documents of title so long as the issuer truly qualifies as a warehouse engaged in storing goods for hire. The law upholds pledges of warehouse receipts by owners of goods who set up proper field warehousing, treating the transfer of the receipt as sufficient delivery of the goods to effect a pledge.

However, this area is not without uncertainty. If the field warehousing arrangement is a sham – for example, if the goods never truly pass into the control of an independent bailee – then a court might refuse to treat the receipt as a legitimate document of title.

Historically, some courts were skeptical of self-issued receipts on one’s own goods, viewing them as concealed security interests rather than true bailments. The UCC’s broad definitions have largely overcome those objections by sanctioning warehouse receipts issued by any bona fide warehouseman, but the factual question of control remains key.

Thus, in practice, lenders and borrowers must ensure that field warehousing arrangements are carefully structured: the warehousing entity should have independent control of the goods (often through separate personnel and locks), and the issuance of receipts must comply with Article 7’s formalities. This mitigates the risk that the receipts could be challenged in insolvency as invalid, which would leave the lender unperfected.

5.2 Fraudulent or Duplicate Warehouse Receipts

Another risk is the issuance of fraudulent receipts or duplicate originals for the same goods.

The UCC makes it unlawful for a warehouse to issue a second negotiable receipt for goods without clearly marking it as a duplicate, precisely to prevent two parties from holding negotiable documents on the same goods.⁴

If a warehouse were to fraudulently issue duplicates, or if an employee falsified warehouse receipts, it could lead to multiple innocent parties believing they each have good title to the goods.

In such cases, the honest holder of a negotiable receipt who took it in good faith would still have strong rights under the due negotiation rules – their rights to the goods would not be defeated even if the receipt was acquired through fraud or theft.

However, the practical problem remains that there may be insufficient goods to satisfy all claimants. The UCC provides that the party who wrongfully issues a duplicate or a receipt with false information is liable for damages to anyone injured by the fraud, and warehouses typically must be licensed or bonded (under state law or the federal United States Warehouse Act for certain commodities) to provide a measure of protection in such events.

Despite these safeguards, incidents of warehouse receipt fraud (which have occurred in commodity markets) highlight the importance of diligence: secured parties should verify the authenticity of receipts (for example, by independently confirming key details with the warehouse) and monitor for any red flags, since legal rights on paper are only as good as the existence of actual goods to back them.

5.3 Electronic Warehouse Receipts

The transition from paper to electronic documents presents both opportunities and uncertainties.

Electronic warehouse receipt systems, endorsed by revised Article 7, allow faster transfers and can reduce forgery risk (because each electronic document can be uniquely identified and tracked in a registry).⁵

Nevertheless, questions can arise about the technical sufficiency of “control.” The UCC’s criteria for control of an electronic document – such as having a single authoritative copy that is unique and unalterable, and the ability to identify the current controller – must be met by the electronic platform used.

In practice, industries have developed electronic registries (for example, for warehouse-stored agricultural commodities or metals) that satisfy these requirements through unique document identifiers and secure digital keys.

Secured creditors obtaining an interest in electronic receipts must ensure they become the controller of the receipt within the system; this often involves coordination with the registry operator or warehouse issuer to reflect the secured party’s control.

While the legal framework for electronic documents is in place, interpretive questions remain (e.g., how to handle system outages or errors that might temporarily allow two parties to claim “control”).

These issues have not yet been extensively tested in courts. As electronic documents become more prevalent, further case law – and possibly technological standards or legislative refinements – may develop, but for now the UCC’s provisions provide the road map for handling electronic warehouse receipts.

5.4 Managing Releases and Turnover of Goods

In practical financing arrangements, debtors often need to retrieve or sell the goods in storage (for example, selling inventory to customers or moving goods between facilities). This creates a tension: the secured party holding the warehouse receipt must surrender it (or issue a delivery order) to allow the goods to be delivered, yet doing so could threaten the perfection of its security interest.

Article 9 addresses this with a temporary perfection rule: if a secured party delivers a negotiable document to the debtor for the purpose of ultimate sale or exchange of the goods (or for loading, processing, etc.), the security interest remains perfected for a short period (typically 20 days) without further action.

This grace period is intended to allow routine transactions to proceed without undue burden.

Additionally, if a negotiable warehouse receipt is lost or destroyed, the claimant (such as a secured party) typically must obtain a court order or post a bond to compel the warehouse to deliver the goods or issue a replacement receipt.

This requirement (found in UCC Article 7) protects the warehouse from double liability but also means secured parties must safeguard the physical document diligently.

In practice, lenders often carefully control the release of documents – for example, requiring immediate payment or a trust receipt (an acknowledgment of the buyer’s or borrower’s obligation to turn over sale proceeds) in exchange for any temporary release of the warehouse receipt – to ensure that either the collateral or the cash proceeds remain available.

Failure to manage this process can result in gaps in perfection or even loss of the security interest. Thus, the logistics of releasing and reacquiring warehouse receipts is a practical challenge that secured parties must handle with clear protocols.

5.5 Interpreting Ambiguous Receipts or Conflicting Claims

Other uncertainties can arise from ambiguous terms in warehouse receipts or from conflicts between competing claimants. For instance, if a warehouse receipt does not clearly state whether it is negotiable, or fails to mention certain charges or liens, courts may have to interpret the receipt in light of UCC default rules.

Article 7 requires certain basic terms for negotiable warehouse receipts (UCC 7-202) and provides default rules (for example, if no storage rate is indicated, a reasonable charge may be implied), but ambiguities can lead to litigation over the extent of rights and obligations.

Likewise, when a warehouse claims a contractual security interest (under UCC 7-209(b)) in addition to its statutory lien, questions may arise as to whether the warehouse properly perfected that interest under Article 9, and how that contractual interest interacts with the statutory lien and rights of third parties.

Generally, courts strive to uphold the expectations of parties who rely on warehouse receipts – giving effect to negotiability, enforcing clear language, and applying the UCC’s priority rules – but the occasional hard case tests the boundaries of these rules.⁶

5.6 Practical Mitigations

Given the complexities that we discussed above, prudent secured parties and warehouses often take extra-contractual measures to avoid legal uncertainties.

For example, a lender might require that any warehouse receipt covering its collateral be issued in non-negotiable form and name the lender (or its agent) as the party to whom delivery must be made. This eliminates the risk of an unknown third party acquiring a negotiable document and ensures the lender’s interest is noted on the face of the receipt.

Similarly, lenders frequently use bailee letters or tri-party agreements with warehouses, whereby the warehouse acknowledges the lender’s security interest and agrees not to release the goods to anyone except on the lender’s instruction.

Such agreements effectively give the secured party the functional equivalent of possession or control over the goods, reinforcing their Article 9 protections.

While not explicitly required by the UCC, these practical steps can prevent many conflicts before they arise, complementing the legal framework with commercial prudence.