Enforcing Warehouse Possessory Liens against Floating Charges
Possessory warehouse liens defeat crystallized floating charges when continuous physical custody predates formal default notice under valid trade association terms.
Bailee Custody
Meaning
Legal responsibility and physical control exercised by a third party over goods belonging to another under a contract of bailment. This bailee custody arises in scenarios such as warehousing or transport where the owner lacks direct oversight. It requires the holder to exercise a defined level of care to protect the assets from loss or damage.
Risk Assumption
Liability for the condition of the materials rests with the party holding the items once they pass the delivery threshold. Maintaining bailee custody involves tracking items through internal systems and segregating them from general stock. The holder must account for every unit under its roof.
Insurance Requirement
Coverage for fire or theft remains a contractual obligation for the warehouse operator. Proof of bailee custody often acts as the trigger for insurance claims when inventory vanishes or degrades. Lenders verify these policies to ensure that physical loss does not destroy the value of the collateral.
The policy limits must match the peak value of the goods.
Operational Handoff
Transfer of possession occurs through a formal sign off at the loading dock or receiving bay. Entering into bailee custody begins the moment the transporter releases the bill of lading and the receiver accepts the load. This transition marks the point where the borrower loses the ability to move the product without the custodian help.
Documentation confirms that the receiver has inspected the exterior packaging for signs of tampering or moisture ingress.