TRUST RECEIPTS IN OTHER COUNTRIES

The trust receipt finds little employment in other countries. Japanese banks release goods on trust receipts only to firms of the highest credit standing, and then only for storage, not for selling or for manufacturing. Its use is restricted on the Continent where it is not generally recognized in law, and so it is inadvisable for American exporters to release goods to foreign importers on trust receipts. While the American exporter would be able to recover his goods from the importer if he became insolvent, they could not be reclaimed from third parties who in good faith had purchased them.

THE WARRANT

In place of a trust receipt, these countries make use of an instrument known as the "warrant." A form as used in Holland translated reads as illustrated on page 286.

This is really a duplicate warehouse receipt, or rather a combined warehouse and trust receipt. The warehouse receipt, as a single certificate evidencing title to goods in storage, is used in the United States and in Germany. Most of the continental countries employ duplicate documents, one known as a "cédule" or a "récipisse" (receipt) and the other as a warrant or "bulletin." The former serves to transfer property rights in case of a sale, and the latter is used as the basis for a loan.

for

THE HOLDER IS ENTITLED TO RECEIVE

weighing gross...

Insured against risks of fire, at the market-value of the day, under the conditions filed on the ............ day of......... 192.... at the Court of this City, under right of alteration, provided it does not take effect earlier than after notice in two Amsterdam newspapers.

Marks etc.

Amsterdam,

.192

Kg. Storage,

Storage ......cents per month per
charges and policy-stamp duties to be paid when
taking delivery of the goods, for within a year after
to-day, in default of payment the company will be
entitled, after having put two unanswered summons in
one of the newspapers issued in Amsterdam, to sell the
goods in order to obtain cover for storage and charges.

The storage company does not assume any re-
sponsibility for fire, except the lien of the holder of the
warrant on the indemnity, received by the company
from underwriters, less three and a half per cent for
its trouble, charges and commission.

ILLUSTRATION 13

Warrant

The use of the combined cédule and warrant enables a continental merchant to store his goods, and on this collateral at the same time to obtain a loan. The warehouseman gives the merchant the combined cédule and warrant describing the quantity and the quality of the goods. Both instruments being filled out to order are freely negotiable, and so, when the merchant seeks a loan, he merely detaches the warrant and gives it to his banker.

All the facts concerning the loan are recorded on the cédule, which is retained by the merchant. He can show this certificate when offering the goods to prospective buyers, but he is no longer able to withdraw the goods from the warehouse without first getting back the warrant from the lending bank. It is thus evident that while the cédule gives the merchant possession of the goods, the banker retains full ownership so long as he holds the warrant.

The use of the warrant has certain advantages both to the merchant and to the banker. The former is able to show his customer a certificate evidencing the storage of certain goods which he can sell more readily than is the case when the warehouse receipt is retained by the bank. The warrant is also helpful to the banker, for through it he practically retains all the rights conferred upon him by the terms of a trust receipt. Under either instrument he is to be empowered to sell the goods in the event that the borrower fails to meet his obligations. In addition, the warrant recognizes the banker as unqualified owner, and so unquestionably as a privileged creditor. In most European countries a warrant partakes of the nature of commercial paper and may be rediscounted with the central bank.

The rights of third parties are also protected by the warrant. As mentioned above, the instrument contains a statement of the banker's loan, and hence serves general notice to all persons of the

existence of a prior lien upon the warehouse goods. Thus the warrant overcomes the main defect of the trust receipt system, which fails to inform innocent third parties who purchase the merchandise in good faith that it has already been subject to the prior claim of a lending bank.

CHAPTER XI

TRADE FINANCING BY THE EXPORTER

At this point, it may be well to stop for a moment and review the general treatment of the subjects under consideration. Part II of the book presents an analysis of the principles of commercial financing or the extension of short-time credit to facilitate the movement of goods in international trade. In Chapter VII attention was directed to the credit relation between buyer and seller and the formulation of an intelligent commercial credit policy; in Chapter VIII to the sources of credit information as a basis of extending unsecured credit; in Chapter IX to credit insurance as a protection against credit losses, and in Chapter X to documents of collateral as security for advances in international trade. These subjects were considered largely from the viewpoint of the exporter and importer and little or no attention has so far been paid to the banker. His function in foreign trade will form the subject of analysis in the remaining chapters of Part II.

METHODS OF TRADE FINANCING

Chapter VII discussed the various forms of sales terms, namely, cash payment, open account, and draft settlement, and showed the conditions whereby