Equity and trust, Case Study. Case-Barclays Bank v Quistclose (1970) Essay

Equity and trust, Case Study. Case-Barclays Bank v Quistclose (1970) AC 567 - Essay Example 2. Facts of the case. Quistclose lent money to a company Rolls Razor Ltd for a specific purpose of payment of dividends to its shareholders at a time when the company was having overdrawn facilities from Barclays Bank. Eventually, Quistclose went into liquidation when Quistclose sought to recover the money it lent lying in a separate account meant for that purpose, with the dividends remaining unpaid. Barclays Bank, which held that money of the customer Rolls Razor in a separate account. The bank contended that the funds lying in that account should be set off against the company’s overdraft account since the funds belonged beneficially to the borrower company.3 The events prior to the insolvency of Rolls Razor Ltd need to be examined. The company had earned a considerable profit for the year 1963 as per the audited statement and an interim dividend of 80 % that had already been paid. On 14th May 1964, the company decided to pay the final dividend of 120 % that worked out to ? 209,719 8 s 6d net of tax deduction. As it had no liquid resources and its overdraft with Barclays Bank had reached a level of ? 485,000 against the limit of ? 250,000, the bank informed the company its inability to meet its requirement of funds for the payment of final dividend. In the AGM of the company held on 2nd July 1964, payment of final dividend of 120 % was approved. The company managed to obtain a loan of ? 209,719, 8 s and 6 d from Quistclose Investments Ltd to meet its commitment of dividend payment on condition that the payment would only be used for the payment of the said dividend amount. Since the cheque was drawn on Barclays Bank, where the lender was having its overdraft account, it opened an Ordinary Divided No 4 account and credited the proceeds of the cheque received from Quistclose Investments Ltd on 17th July 1964. The company could not raise further resources, and it decided to put the company into voluntary liquidation on the same day with due notice to the bank, which then amalgamated all the accounts of the borrower company except the dividend No 4 account. On 5th August 1964, Quistclose demanded repayment from the borrower without any notice to the bank. When the resolution for liquidation was made on 27th August 1964, bank set off the balance in dividend account No 4 against the money owed by Rolls Razors Ltd in part. This led to the Quistclose’s demanding the bank for repayment of the money appropriated by it.4 3. The issue. Quistclose needed to demonstrate that it had proprietary right over the money as otherwise it was liable to be used to discharge borrower’s overdraft with the bank. In other words, the borrower had held the money as a resulting trust for Quistclose, the lender5. The House of Lords raised two issues: whether there was understanding between the respondents that the amount of ? 209,719, 8 s and 6 d should be held in trust in favour of Quistclose in the event of non-payment of dividend and whether t he bank had notice of such a trust or the bank knew of circumstances that would make the trust binding upon them too. 6 4. The reason for the decision. The House of Lords decided in favour of the lender Quistclose for the reason that such