Borrower receiving money as trustee for lender
A bank grants an unsecured loan to Charlie on the strict understanding that the funds will be used for modernising his factory and for no other purpose. Charlie spends all the money on buying shares in David’s casino business. The bank can, needless to say, demand the immediate return of the money, and, as between itself and Charlie, it hardly matters whether it talks of a breach of condition or a beach of trust.
However, the soundness of the latter allegation would be critical in the event of Charlie’s insolvency. On establishing a trust, the bank could claim to be the beneficial owner of the casino shares. It might also, depending upon circumstances considered in
On facts not too far removed from the story told so far, a trust was held to have arisen in the celebrated House of Lords case of Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. What was not clear was the precise nature of the trust and whether it was somehow in suspense until the loan agreement was breached. The House of Lords has now ruled, in Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 38 EG 204 (CS), that the money is held on resulting trust for the lender from the very moment that the loan is made. The suspense theory is dead.
The practical point is that no examiner in the law of trusts will be able to ignore Twinsectra for the foreseeable future.
Borrower receiving money as trustee for lender
A bank grants an unsecured loan to Charlie on the strict understanding that the funds will be used for modernising his factory and for no other purpose. Charlie spends all the money on buying shares in David’s casino business. The bank can, needless to say, demand the immediate return of the money, and, as between itself and Charlie, it hardly matters whether it talks of a breach of condition or a beach of trust.
However, the soundness of the latter allegation would be critical in the event of Charlie’s insolvency. On establishing a trust, the bank could claim to be the beneficial owner of the casino shares. It might also, depending upon circumstances considered in PP 2002/192, have a personal claim against David for “knowing assistance” in the breach of trust or “knowing receipt” of trust property.
On facts not too far removed from the story told so far, a trust was held to have arisen in the celebrated House of Lords case of Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. What was not clear was the precise nature of the trust and whether it was somehow in suspense until the loan agreement was breached. The House of Lords has now ruled, in Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 38 EG 204 (CS), that the money is held on resulting trust for the lender from the very moment that the loan is made. The suspense theory is dead.
The practical point is that no examiner in the law of trusts will be able to ignore Twinsectra for the foreseeable future.
