Catungal, Rhea Liza M.

BSA-5B

1. What is trust receipt?

A document by which one individual lends money to purchase somethi
ng and the borrower promises to hold the item for thebenefit of the lender
until such time as the debt is paid.
A trust receipt was a device used before the adoption of the Uniform
CommercialCode (UCC); it is now governed by Article9 of the UCC, whic
h concerns Secured Transactions.
A trust receipt stated that the buyer had possession of the goods forthe b
enefit of the financier. Currently there ordinarily must be a security agreem
ent, together with the filing of a financingstatement, to protect a lender's inte
rest in goods purchased on credit by a buyer.
A trust receipt is a notice of the release of merchandise to a buyer from
a bank, with the bank retaining the ownership title of the released assets. In
an arrangement involving a trust receipt, the bank remains the owner of the
merchandise, but the buyer is allowed to hold the merchandise in trust for
the bank, for manufacturing or sales purposes.

2. What is the purpose of a trust receipt?

The trust receipt serves as a promissory note to the bank that the
loan amount will be repaid upon sale of the goods. The bank pays the
exporter on its end or issues the seller (or seller’s bank) a letter of
credit guaranteeing payment for the merchandise. The lender, however,
retains the title to the merchandise as security. The customer or
borrower is required to keep the goods separate from its other inventory
and, in effect, holds and sells the goods as a trustee for the bank.

Although the bank has a security interest in the goods under the
standard terms of a trust receipt, the customer takes possession of the
goods and may do what he wants with them as long as he does not
violate the terms of his contract with the bank. If he decides to terminate
the bank’s security interest and tie to the inventory, he may tender the
amount advanced on the goods, giving him total ownership of the goods.

Extending short-term financing through a trust receipt requires the

customer or borrower to be in good standing with the bank. The bank
and the customer also have to agree to the terms of the trust receipt,
including such conditions as the maturity date, interest charge, and
financing amount. Maturity dates under trust receipts are short-term and
range from 30 to 180 days. At the time of maturity, the customer must
repay the loan to the lender with interest stipulated under the terms of
the trust receipt. The bank must be repaid at the time of maturity or
after the sale of the goods, whichever comes earlier. If after the maturity
date, no payment has been received by the bank or the business defaults
in paying its advances, the bank could repossess and dispose of the
merchandise.
 3. Give an example of a formal transaction of a trust receipt in an
exporter and importer bank
Exporter
 Quatations- An offer to sell goods and should state clearly the price,
details of quality, quantity, trade terms, delivery terms and payment
terms.
 Pro Forma Invoice- An invoice provided by a supplier prior to the
shipment of merchandise, informing the buyer of the kinds and
quantities of goods to be sent, their value, and importation
specifications (weight, size and similar characteristics). This is not
issued for demanding payment but may be used when applying for
an import licence / permit or arranging foreign currency or other
funding purposes.
 Commercial Invoice- A formal demand note for payment issued by
the exporter to the importer for goods sold under a sales contract. It
should give details of the goods sold, payment terms and trade terms.
It is also used for the customs clearance of goods and sometimes for
foreign exchange purpose by the importer
 Packing List- A list with detailed packing information of the goods
shipped.
 Sales Contract- An agreement between the buyer and the seller
stipulating every detail of the transaction. Since this is a legally
binding document, it is therefore advisable to seek legal advice
before signing the contract. (Exporter & Importer)
 Health Certificate- Document issued by the competent country when
agricultural or food products are being exported, to certify that they
comply with the relevant legislation in the exporter's country and
were in good condition at time of inspection, prior to shipment and
fit for human consumption.
 ATA Carnet- An international customs document used to obtain a
duty-free temporary admission for goods such as exhibits for
international trade fairs, samples and professional equipment, into
the countries that are signatories to the ATA Convention.
 Consular Invoice- A document required by some foreign countries,
showing shipment information such as consignor, consignee, and
value description, etc. Certified by a consular official of the importing
country stationed in the foreign country, it is used by the country's
customs officials to verify the value, quantity and nature of the
shipment.

Importer
 Shipping Guarantee- Usually a pre-printed form provided by a
shipping company or the bank, given by an importer's bank to the
 shipping company to replace the original transport document.
The consignee may then in advance take delivery of goods against
a shipping guarantee without producing the original bill of lading.
The consignee and the importer bank will be responsible for any
loss or charges occurred to the shipping company if fault is found
in the collection. It is usually used with full margin or trust receipt
to protect the bank's control to the goods.
 Trust Receipt (T/R)- A document to release a merchandise by a
bank to a buyer (the bank still retains title to the merchandise),
the buyer, who obtains the goods for processing is obligated to
maintain the goods distinct from the remainder of his / her assets
and to hold them ready for repossession by the bank.
 Promissory Note- A financial instrument that is negotiable
evidencing the obligations of the foreign buyer to pay to the
bearer.
 Import / Export Declaration - A statement made to the Director
of Customs at port of entry / exit, declaring full particulars of the
shipment, example the nature and the destination / exporting
country of the ship's cargo. Its primary use is for compiling trade
statistics.

4. Draft a contract of a trust receipt (@bank)