After preliminary research on documents of title, security interests, warehouses and warehousemen, priorities, bankruptcy, administrative law and statutory construction, the lawyer must isolate the following questions to be answered before he can give the banker practical advice about handling the details of the proposed transaction:
(1) Can a warehouseman make a valid pledge of his own warehouse receipt for fungible goods contained in his warehouse?
(2) Does the Uniform Commercial Code wholly circumscribe the relations of the parties to the transaction or are there state and federal laws with substantive bearing?
(3) If there is a default in the loan and it results in insufficient goods in the warehouse to cover all receipts outstanding in the hands of depositors, holders and other lenders, who will share in remaining goods and in what proportion?
(4) Is it necessary to verify the authority of the agent or employee who signs the warehouse receipts which are to be pledged?
(5) How does the bank perfect its security interest in the receipts and goods?
(6) What can be done by the bank to insure its preferred position as a creditor in both the collateral when released to the warehouseman for sale or shipment and the proceeds from the sale of that collateral?
The first four questions, dealt with in Part I, involve close consideration of Article 7 of the Code and are ancillary to, but inseparable from, the last two questions. Those two questions involve the problem of maintaining and enforcing the bank’s security interest and will necessitate a shift in the frame of reference to Article 9 of the Code. Perfecting a security interest and establishing a system of control so that the banker is always assured of his position involve considerations not necessarily peculiar to warehouse receipts. Part II of this article consequently contains a discussion of secured transactions broader in scope than the pledge of specific documents.