In this installment of PARCEL Counsel, we will take a look at the laws relating to warehouses and warehousing — a topic not previously addressed in this column. But with the rise of e-commerce, the number of parcel shipments originating at or destined for a warehouse is rapidly rising.
First Point: Warehouses are governed by state law. While carriers are governed by US federal law and international treaties, warehouses and their operations are governed by state law. Fortunately, most states have adopted a version of Article 7 of the Uniform Commercial Code governing warehouses and warehouse receipts so there is some degree of uniformity across the United States.
Second Point: Liability standard of a warehouse. The liability of a warehouse with respect to goods in its possession is not the same as that of a carrier. A carrier’s liability is based upon the concept of a contractual breach. The carrier contracts to take an item from point A to point B and when it does not arrive at point B, or arrives damaged, the carrier is liable for a breach of the contract of carriage. There are certain things that a shipper has to prove to recover its claim, but the one thing that it does not have to prove, with a few limited exceptions, is that the carrier was negligent.
However, the standard of liability for a warehouse is that of what is known as a bailee — a person holding property belonging to another. A warehouse is required both to (1) exercise reasonable care so as to prevent loss of or damage to the property and (2) to refrain from converting materials left in its care to its own use .
Accordingly, if property is lost or damaged as the result of negligence on the part of the warehouse, it will be found liable. If the warehouse is not negligent, then it will not be found liable for the lost or damaged goods. For example, if a warehouse caught on fire, the warehouse can defend the claim by showing that it had a state-of-the-art sprinkler system, fire alarms, well trained security personnel and so forth, and thus would not be liable.
Third Point: Warehouse receipts are the “contract for storage.” Generally speaking, a warehouse issues receipts at the time that the goods are delivered to the warehouse. These receipts will usually include business terms and conditions relating to the storage of the goods either contained on the receipt… or incorporated by reference to the warehouse’s standard terms and conditions found elsewhere, e.g., on its website. By tendering goods to the warehouse and accepting the receipt, the customer is deemed to have agreed to the terms and conditions of the warehouse receipt. It should be noted that high volume customers can often negotiate individual contracts which, when properly drafted, will supercede the warehouse’s standard business terms.
Fourth Point: Warehouses establish limits of liability. Warehouses almost always establish a limit of liability for damage to the goods in their possession. Typically these limits are very low, e.g., $1.00 per pound or even $0.50 per pound. The limits of liability are either stated directly or incorporated by reference in the warehouse receipt. This means that a parcel shipper should attempt to negotiate higher limits of liability and also obtain its own property insurance to minimize the effect of a limit of liability or of the warehouse not being liable at all.
Fifth Point: A carrier’s facility can be a “warehouse.” While typically someone would know when a warehouse is involved, a parcel shipper may have goods placed in a “warehouse” without having any intent to do so… or there even being an actual warehouse. This situation arises, for example, when a delivery is refused by the consignee and the carrier returns the shipment to its own terminal. At that point in time the goods are no longer considered to be “in transit.” Virtually every carrier who maintains a tariff includes a provision stating that in such event the liability of the carrier will revert to that of a warehouseman (the “Second Point” above), not that of a carrier. In addition to reverting to the warehouse standard of liability, there will often be a lower limit of liability than the one in effect while the goods are in transit.
All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.parcelindustry.com). Your questions are welcome at firstname.lastname@example.org.