A buyer in ordinary course of business of fungible goods sold and delivered by a warehouse that is also in the business of buying and selling such goods takes the goods free of any claim under a warehouse receipt even if the receipt is negotiable and has been duly negotiated.

(Dec. 30, 1963, 77 Stat. 721, Pub. L. 88-243, § 1; Apr. 27, 2013, D.C. Law 19-299, § 9, 60 DCR 2634.)

1981 Ed., § 28:7-205.

1973 Ed., § 28:7-205.

This section is referenced in § 28:7-502.

Prior Uniform Statutory Provision: None.

Purposes: The typical case covered by this section is that of the warehouseman-dealer in grain, and the substantive question at issue is whether in case the warehouseman becomes insolvent the receipt holders shall be able to trace and recover grain shipped to farmers and other purchasers from the elevator. This was possible under the old acts, although courts were eager to find estoppels to prevent it. The practical difficulty of tracing fungible grain means that the preservation of this theoretical right adds little to the commercial acceptability of negotiable grain receipts, which really circulate on the credit of the warehouseman. Moreover, on default of the warehouseman, the receipt holders at least share in what grain remains, whereas retaking the grain from a good faith cash purchaser reduces him completely to the status of general creditor in a situation where there was very little he could do to guard against the loss. Compare 15 U.S.C. Section 714p, enacted in 1955.

Cross References:Sections 2-403 and 9-307.

Definitional Cross References: “Buyer in ordinary course of business”. Section 1-201.

“Delivery”. Section 1-201.

“Duly negotiate”. Section 7-501.

“Fungible” goods. Section 1-201.

“Goods”. Section 7-102.

“Value”. Section 1-201.

“Warehouse receipt”. Section 1-201.

“Warehouseman”. Section 7-102.

Prior Uniform Statutory Provision: Former Section 7-205.

Changes: Changes for style only.

Purposes: 1. The typical case covered by this section is that of the warehouse-dealer in grain, and the substantive question at issue is whether in case the warehouse becomes insolvent the receipt holders shall be able to trace and recover grain shipped to farmers and other purchasers from the elevator. This was possible under the old acts, although courts were eager to find estoppels to prevent it. The practical difficulty of tracing fungible grain means that the preservation of this theoretical right adds little to the commercial acceptability of negotiable grain receipts, which really circulate on the credit of the warehouse. Moreover, on default of the warehouse, the receipt holders at least share in what grain remains, whereas retaking the grain from a good faith cash purchaser reduces the purchaser completely to the status of general creditor in a situation where there was very little the purchaser could do to guard against the loss. Compare 15 U.S.C. Section 714p enacted in 1955.

2. This provision applies to both negotiable and nonnegotiable warehouse receipts. The concept of due negotiation is provided for in 7-501. The definition of “buyer in ordinary course” is in Article 1 and provides, among other things, that a buyer must either have possession or a right to obtain the goods under Article 2 in order to be a buyer in ordinary course. This section requires actual delivery of the fungible goods to the buyer in ordinary course. Delivery requires voluntary transfer of possession of the fungible goods to the buyer. See amended Section 2-103. This section is not satisfied by the delivery of the document of title to the buyer in ordinary course.

Cross References:Sections 2-403 and 9-320.

Definitional Cross References: “Buyer in ordinary course of business”. Section 1-201.

“Delivery”. Section 1-201.

“Duly negotiate”. Section 7-501.

“Fungible” goods. Section 1-201.

“Goods”. Section 7-102.

“Value”. Section 1-204.

“Warehouse receipt”. Section 1-201.

“Warehouse”. Section 7-102.