TRUST RECEIPT. When an advance is made against bills of lading, some banks, in certain cases, permit the customer to have possession of the bills on his signing a trust receipt, in which he acknowledges to have received the bills of lading and agrees to hold the goods as the bank's property, to keep them warehoused in the name of the bank, and, when the goods are sold, to pay the proceeds to the bank. The effect of the document is to make the customer, so far as the goods represented by the bills of lading are concerned, the trustee for the bank.
In such cases, a bank has to rely to a great extent upon the honour of his cus tomer. If it should happen that there should be a contra account due from the customer to the purchaser of his goods, the purchaser would be entitled (not having any notice of the hypothecation to the bank) to deduct the contra account from the purchase price.
A separate account is usually opened for each operation.
In some cases the document takes the following form :—" \\'e acknowledge receipt of the advance made by you to us (upon the security and conditions hereinafter stated) ,1 the sum of 1 value against by your paying to he above amount against documents for ,aid goods ; and we have to request you to ass said amount with I commission O to our debit. . . . These goods, Jesides being subject to your usual bankers' ien, are, in consideration of the said advance, iereby specially hypothecated to you, and specific lien is hereby given to you thereon and on the proceeds thereof (the same being from this date out of our order and disposi tion) till the amount which you have paid as an advance to us against and upon security of same, with all interest, commis sion and charges, be paid or discharged, we hereby admitting that such advance is made on security of the hypothecation charge and lien which we hereby create on the said goods in your favour and on the express condition that all rights. property and in
terest to and in the said goods or proceeds are vested in you as beneficial owners. We further request you to send the bill of lading in trust to upon conditions that buyers are to make payment direct to you, and, in the event of payment being received by us instead of you, we engage to hold same as trustees for you and to pay over same to you or your order as and when and so soon as received by us, and should payment not be forthcoming from buyers before , we hereby engage to hand you cheque for full amount without notice from you." The stamp duty is sixpence.
In Reg. v. Tozonshend (1884, 15 Cox, 466), where a letter of hypothecation of goods was given by a fruit broker to his bankers, in which he undertook to hold the goods in trust for the hankers and to pay over to them the proceeds as and when received, it was held that the letter was a bill of sale, being a declaration of trust without transfer. (See BILL OF SALE.) In In re Hamilton, Young & Co. (1905, 2 K.B. 772), where a letter of lien, accom panied by bleachers' receipts for certain goods, was given as security, it was held that the letter was a document used in the ordinary course of business as proof of the control of goods, and therefore not a bill of sale. (See DOCUMENTARY BILL.)