Important Limitations Clauses In Your Warehousing Agreements

At some point, you’re likely going to need to store your products at a third-party warehouse.  Whether it’s actual alcohol or something along the line of promotional materials or surplus supplies, hops, grains, or other materials storing with a third-party can save you money on the costs of having to build or own your own warehouses.  In addition to ensuring your warehouseman has a valid license and the proper permits, a vital part of this arrangement is the warehouse agreement.  Making sure this agreement can’t be altered by receipts or unilateral statements from the warehouseman is important.  (Think the coat check trying to disclaim liability on the back of a ticket after you’ve given them your coat; or a parking garage trying to do the same with a ticket they give you after you enter.)

In a recent case from the Northern District of Iowa, Hormel Foods took on its warehouseman, Crystal Distribution Services, on this very issue and won.

The warehouse agreement between the two parties dated back to 1990.  You can see a copy of it here, attached to the complaint.  Throughout their dealings, Crystal repeatedly issued warehouseman’s receipts (all warehouseman issue receipts) to Hormel that had terms on the back attempting to limit the liability Crystal could incur for any loss of Hormel’s products to 50 cents a pound.  Lucky for Hormel that they had the foresight to include two express provision in their warehouse agreement that stated Crystal couldn’t alter the agreement through unilateral terms on the back of their warehouse receipts.  These two terms were:

To the extent any terms of this Agreement Conflict with any language contained on [Crystal’s] warehouse receipts or other documents, the terms and conditions of this Agreement shall control.

And;

To the extent that any discrepancy between the terms and conditions contained in this Agreement and those contained in any Agreement provided by the warehouse are in conflict, the terms and conditions contained and embodied in this Agreement shall control.

The terms that Crystal looked to in its warehouse receipt were from section 9(d) of the receipt which read:

The Court held that the receipt’s attempt to limit the liability contravened the warehouse agreements express terms prohibiting this type of unilateral alteration and found for Hormel:

Crystal’s efforts to limit its liability by language found in its warehouse receipts is expressly prohibited by the Warehouse Agreement, which unequivocally states the terms of the Agreement control any conflict between the two documents. I remain convinced that the Warehouse Agreement precludes Crystal from arguing its liability is limited by language found in section 9(d) of the warehouse receipts.

This is an important lesson when choosing where to store supplies or product and in drafting your warehouse agreements.