Trust Receipt

1. Written agreement used extensively in letter of credit financing, often extended to a buyer or other importer of goods. The buyer promises to hold the property received in the name of the bank arranging the financing, although the bank retains title to the goods. Trust receipts allow an importer to take possession of the goods for resale before paying the issuing bank.

2. Type of Security Agreement now part of Article 9 of the Uniform Commercial Code that controls credit extensions to sellers of durable goods. The seller, say an automobile dealer, has possession of the cars in the dealer's showroom and pays the lender from a trust account as the cars are sold. The lender may also take a Financing Statement from the dealer before making the loan. See also Floor Planning; Indirect Loan.

A document by which one individual lends money to purchase something and the borrower promises to hold the item for the benefit of the lender until such time as the debt is paid.

A trust receipt was a device used before the adoption of the Uniform Commercial Code (UCC); it is now governed by Article 9 of the UCC, which concerns secured transactions. A trust receipt stated that the buyer had possession of the goods for the benefit of the financier. Currently there ordinarily must be a security agreement, together with the filing of a financing statement, to protect a lender's interest in goods purchased on credit by a buyer.