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Where old-established connections exist, many exporters make a practice of shipping on open account-that is, the shipment is made without any instrument of payment, and the buyer remits periodically as agreed. It is hardly necessary to point out the risk of making such shipments to foreign firms whose credit rating is not of the highest from the standpoint of ability and willingness to carry out their obligations. Even

where old-established connections warrant the sale of goods on open account, it is desirable to keep in mind changing credit conditions in foreign markets, exchange restrictions, clearing agreements, import quotas, and other developments falling in the category of "force majeure.


Shipment on consignment to a foreign country-where goods are shipped subject to sale on prices and terms to be agreed upon-has frequently proved successful during a period of export prosperity such as that which ended in 1929. But the unsettled condition of world trade and the barriers and controls instituted in most countries since the depression make consignment shipments generally inadvisable. Only where the goods concerned are in particular demand in a foreign country and where exchange or other restrictions do not apply to the particular commodity or to the exporter's country, can such a shipment be safely made. Even in such cases, the credit standing of the importing firm should be rigidly scrutinized.

Branch-office shipments on a consignment basis do not involve the credit risk, but the general considerations just mentioned apply with equal force. It may be assumed that firms having branch offices abroad are adequately informed of all the risks here referred to.


A trust receipt is an undertaking by a buyer, against which a bank releases merchandise to him, as trustee, for the purpose of manufacture or sale. If the release is authorized by the exporter, the risk is his. But if made by the bank without the exporter's authorization, it is at the bank's risk. In either case, the buyer does not obtain title to the goods until paid for; in the meantime he obligates himself to segregate the goods or the proceeds thereof and to hold them subject to repossession by the bank. (See figs. 13 and 14.)

While the trust receipt is employed in the Philippines and other countries, it "finds little employment outside the United States

Its use is restricted on the Continent (Europe), where it is not generally recognized in law, and so it is inadvisable for American


exporters to release goods to foreign importers on the basis of the trust receipt.” (See fig. 15.)


The "warrant” is a duplicate warehouse receipt, or rather a combined warehouse and trust receipt. In the United States and Germany the warehouse receipt is not issued in duplicate. But in most

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European countries it is so issued, one copy being the “receipt” (or "cedule") and the other being the “warrant” (or "bulletin”). The one may be used in transferring property rights, the other in security for a loan.7

• Financing Agricultural Exports from the United States, by George W. Edwards ; Trade Information Bulletin No. 241, p. 23.

7 Idem.


The advantages of the "warrant” have been stated as follows:

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 un


Received from

BANK AND TRUST COMPANY. hereinaftcr called the Trust Company (or Entruster), the following goods, documents and instruments specified on the reverse side, and in consideration thereof I/we hereby agree to hold said goods, ducuments and instruments in trust for the Trust Company (or Entruster), and I/we also agree to keep said goods, documents and instruments and proceeds thereof, whether in the form of money or bills receivable separate and capable of identification, and to sell the same for account of the Trust Company (or Entruster), and in case of sale to hand the proceeds to the Trust Company (or Entruster) as and when received to apply specifically against the acceptances of the Trust Company (or Entruster) or its correspondents, on my/our account under the terms of letter of credit number mentioned on the reverse side issued for my/our account.

The Trust Company (or Entruster) or its agents, may at any time cancel this trust and take possession of the said property and/or of the proceeds of such of the same as may have then been sold, wherever the said goods or proceeds may then be found, and thereupon without further notice to or demand upon me/us, the undersigned hereby waiving any requirement of notice of such sale under the Uniform Trust Receipts Law, proceed to sell by public Auction or by Private Sale at their absolute discretion; and in the event of any suspension, or the institution of proceedings in bankruptcy or for the relief of debtors by or against me/us or failure or assignment for benefit of creditors on my/our part or of the non fulfillment of any obligation or of the non-payment at maturity of any accept ances, made by me/us under said letter of credit issued by the Trust Company (or Entruster) on my/our account, then all obligations, acceptances, indebtedness and liabilities whatsoever shall thereupon with or without notice, at the option of the Trust Company (or Entruster), mature and become payable. In the event of any suspension or the institution of proceedings in bankruptcy or for the relief of debtors by or against me/us or failure or assignment for the benefit of creditors on my/our part, the Trust Company (or Entruster) shall be entitled to a priority over all per sons in any proceeds or the value of any proceeds (whether identifiable or not) of the goods and merchandise if said proceeds were received by me/us within ten days prior to the happening of any of the events hereinabove in this sentence set forth or if demand is made by the Trust Company (or Entruster) for prompt account. In case the Trust Company (or Entruster) shall exercise its right of repossession or sale of said goods, or the proceeds thereof, or any portion thereof, it is agreed that 1/we shall notwithstanding continue to be liable to the Trust Company (or Entruster) upon any indebtedness due or to become due from me/us to the Trust Company (or Entruster) arising under the letter of credit above referred to, or any other obligation, after crediting upon the above described obliga. tion or obligations the net proceeds of such sale. The said goods while in my/our

hands shall be fully insured against loss by fire, and the insurance money received for any loss shall be subject to the trust herein contained, in the same manner as the goods themselves. If required by the Trust Company (or Entruster) such insurance shall be taken out in the name of

BANK AND Trust COMPANY, and the insurance policy or certificate shall be lodged with them.

Dated, New York,



Figure 14.-Trust receipt (reverse).

questionably 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 the interest contains a statement of the banker's loan, hence it 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.


The bank guaranty, while not a credit instrument, is similar to the letter of credit and the authority to purchase. It is a statement issued by the importer's bank guaranteeing the exporter payment of 7 Idem, p. 120.

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