BILL NUMBER:S2044

TITLE OF BILL:
An act
to amend the uniform commercial code, in relation to the lien of a
warehouseman

PURPOSE:
Clarification of the law covering the priority of
warehouseman's liens Over prior perfected security interests.

SUMMARY OF PROVISIONS:
Amends subsection (3) and adds a new subsection (5) to §7-209
of the Uniform Commercial Code to provide that a warehouseman's
lien is prior in interest to other perfected security interests.

JUSTIFICATION:
At the present time, there is a substantial
amount of legal activity involving claims by holders of security
interest in bailed personal property (e.g., banks, finance companies,
etc.) against household goods warehousemen. These other lienholders
assert that their claims are prior in right to lien of warehouseman
initiating the warehouseman's lien sale procedure.

There are several ways to describe the dispute that commonly arises
under current law. The basic facts usually involve a storage
              

depositor who has filed for protection under the federal bankruptcy
laws or defaulted in the payment of a loan to a lender while that
storage depositor is delinquent in the payment of his storage charges
(and related charges) to the warehouseman. When the situation arises,
a bankruptcy trustee or institutional lender will frequently demand
delivery of personal property held in storage by the warehouseman,
without providing for payment of storage and related expenses.

Currently, there is legal authority to support both the position that
lenders and bankruptcy trustees with prior perfected security
interests have priority over the warehouseman's lien, and the
position that the lien of a warehouseman is prior in interest to the
lien of the holder of the security interests or the bankruptcy
trustee. Most of the disputes between the warehousemen and the holder
of the security interest or bankruptcy trustee are resolved by a
settlement which frequently involves the release of the personal
property by the warehouseman, with the warehouseman's lien still
attaching to the property, and a further agreement that the
warehouseman's storage and related charges will be paid out of the
proceeds of an auction of the property to be conducted by the
bankruptcy trustee or lender. Clarification of the law in this area
would alleviate the problem of seeking a dispute resolution procedure
every time a storage depositor files for bankruptcy protection or
defaults on a loan. Section 182 of the Lien Law currently provides
that a self-service storage owner's license lien, by specific
provision in the statute, has priority over any other liens or
security interests.
Giving a warehouseman's lien priority over all other security
interests or liens by express provision of the UCC would be


consistent with these
provisions of the Lien Law.

FISCAL IMPACT:
None to state or local governments.

EFFECTIVE DATE:
On the first of September next succeeding the date on which it shall
have become a law.