A trust receipt is a method of financing the purchase of goods, as well as a security instrument over goods (generally inventory). Typically, a buyer requires financing from a bank in order to purchase goods pursuant to a letter of credit from an overseas seller; the bank promises to pay the seller upon the occurrence of some event, usually the shipment of the goods to the buyer. This promise to pay is generally in the form of a letter of credit, once shipment occurs, the seller delivers shipment and customs clearance documents to the bank. Shortly thereafter, the buyer issues a trust receipt to the bank in exchange for the shipment and customs clearance documents. The shipper and Customs House will release the goods to the buyer only upon receiving the shipment and customs clearance documents.
A trust receipt is typically in the form of a contract that acknowledges (a) that the bank, not the buyer, owns the goods, and (b) buyer's receipt of the bank's goods. The buyer further agrees in the contract that such goods shall be kept for the benefit of the bank. The goods are normally insured, and the bank named as the beneficiary. In short, the bank remains the title owner of the goods until the buyer can pay off what is effectively a loan. The buyer, however, maintains physical possession of the goods. The buyer must administer, and may dispose of the goods for the bank's benefit, and on the bank's behalf – much like the trustee of an estate. When the goods are sold, the money received must be delivered to the bank until the loan is paid-off.
Thailand currently does not have any law that deals directly with trust receipts. Under the ruling of the Thai Supreme Court, Decision 6/2517, a trust receipt is a reciprocal contract outside of the Thai Civil and Commercial Code ("CCC"), despite CCC Section 1686, which states that trusts are invalid. The Court held that trust receipts are nonetheless enforceable under Thai law. It creates real rights for the bank. (The Editor of the Court Journal, himself a Appellate Court judge, noted that in this case, the bank had actual ownership of the inventory, and thus a discussion of "real rights" was not necessary). These real rights take precedence over the rights of other creditors of the buyer, with regard to the goods.