Warehouse receipt (Bank Act security)

A warehouse receipt is a document given for stored goods. Section 425(1) of the Bank Act says that, for sections 426 to 436, the term includes, among the receipts it lists, a receipt given by a person for goods in that person’s actual, visible and continued possession as bailee in good faith and not as owner, and a receipt given by the owner or keeper of a warehouse or other place for storage, for goods delivered to that person as bailee and actually in that place. Section 435(1) says a bank may acquire and hold one as security for a debt incurred in its favour or a liability it incurs for any person, in the course of its banking business. Section 429(1) says a bank shall not acquire or hold one to secure a debt, liability, loan or advance unless it is contracted or made at the time of acquisition, or on a written promise or agreement that the receipt would be given.

Priority and its exceptions

Section 428(1) gives the rights and powers of a bank in property covered by a receipt it holds priority over rights acquired later in that property, and over the claim of an unpaid vendor or of a person whose security interest was unperfected when the bank acquired its security, subject to s. 427(4) and ss. 428(3) to (6). Section 428(2) says the priority in subsection (1) does not extend over the claim of an unpaid vendor who had a lien, or of a person whose security interest was unperfected when the bank acquired its receipt or security, if the bank acquired it with knowledge of that lien or interest. Section 428(1) also covers security given under s. 427, explained under Bank Act security.

Provincial law

Ontario’s Warehouse Receipts Act defines the term as an acknowledgment in writing by a storer of the receipt for storage of another’s goods. That is Ontario’s definition; check the rules where you are.

What to check or ask

• Whether any of the inventory is stored with a third party that has issued receipts
• Which bank, if any, holds those receipts, and what it will release at closing
• How the sale of stored goods fits with a bank’s security over business assets