A Study On The Legal System Of Trust Receipt

The trust receipt is generally adopted and made use of by the English and American banks as a method for business financing. Generally speaking, a trust receipt is a contract of trust between a bank and an importer or purchaser based on a pledge created on the documents of title to the goods imported or purchased, the main content of which being about dealing with the pledged goods, reciting that the importer or purchaser disposes the pledged goods on trust for the bank, and that the proceeds thereof shall be paid preferentially to the bank. When the importer or purchaser falls into bankruptcy, the bank holding the trust receipt has a priority to the pledged goods and proceeds thereof against the creditors of the importer or purchaser. According to the judgments and statutory stipulations of the common law countries, the pledgee' s security interests are not undermined or affected when the bank as a pledgee releases under a trust receipt the documents of title under a documentary credit to its customer. The system of trust receipt has the functions of ensuring the safety of the financing credit owned by the entruster as well as realizing the purpose of possessing and disposing of the goods by the trustee. Therefore, it was absorbed and adopted by the banks in Mainland China as a 'practice in the same trade'. However, as there has been not much understanding on the internal mechanism of the trust receipt system, and the Trust Law of P.R.C. was adopted only recently in 2001, many problems arose in the course of putting it into operation in the importing trade financing. In order to protect their interests, some banks stopped the practice, some others have been procuring for new designs of the system, such as a trust receiptestablished on the premise of the transfer of property's ownership. But the problems remain unsettled. In consideration of the scarceness of the books or essays on the study of the trust receipt in our country, and seeing that the banks are keen to have some explicit guidelines, the study on the legal system of trust receipt has not only theoretical value but also important practical significance.This essay consists of three parts. The first part mainly discusses the concept, characteristics and functions of the trust receipt. By the comparison of the trust receipt with some other legal systems such as the letter of hypothecation, the trust of movable equipments and the transfer of property's ownership for guarantee etc., the part explains the value of the trust receipt in the market economy. The second part focuses on the history and the modern development of the trust receipt system with the method of case analysis, through which it clarifies the problems arising in the course of putting the trust receipt into use in our importing business financing and points out the reasons why the system cannot develop well. The third part of the essay analyzes the theoretic and realistic foundations of the trust receipt system for its practice in Mainland China. Finally, it puts forward some concrete and explicit proposals for the legislation of the trust receipt system and shows the direction to the banks involved in the trust receipt transaction.