The Legality of Trust Receipts in Nigeria

Abstract

The use of trust receipts largely derives from the concept of trust and trust itself has been interpreted as a concept that may mean different things in different contexts. The concept of trust receipt operates as a variation of the principle of trust. A trust receipt is a written legal document between two entities; the first who borrows money to finance some business venture ('the entrustee') and the other who advances the money needed ('the entrustor') and holds legal interest in the asset(s) acquired until such a time as when the debt is paid. The entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. The paper examines the rights and obligations arising out of the use of trust receipts in Nigeria.