Trust Receipt

A trust receipt is a document wherein a borrower acknowledges the receipt of goods from a lender and agrees to hold those goods in trust for the lender's benefit until repayment is made. It typically facilitates financing transactions by allowing the borrower to take possession of the collateral while preserving the lender's rights over it.

The trust receipt concept developed in commercial practice, evolving particularly in the context of financing arrangements where goods are used as collateral. It became significant around the 20th century as international trade expanded and required more flexible financing methods.

In modern law, trust receipts are commonly used in trade financing and secured transactions, where they help businesses acquire stock without losing control of the goods. They create a relationship that protects the lender's interests while allowing the borrower to utilize the assets until the debt is settled.

• A retailer obtains a shipment of textiles financed by a bank through a trust receipt, allowing the retailer to sell the textiles while the bank retains a superior claim to the goods.
• A car dealer receives vehicles under a trust receipt arrangement, enabling the dealer to sell the vehicles while ensuring the financing institution has a legal claim to the unsold inventory.

• Hoffman v. City of New York, 199 F.2d 784 (2d Cir. 1952)