Quistclose Trust Definition:
A trust which arises to the benefit of the donor when property is advanced for a specific purpose and that purpose fails.
Named after the case in which it was created, Barclays Bank Ltd. v Quistclose Investments Ltd.:
"... when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose...."
The 1968 Quistclose case built on an 1819 case which had commented, based on a different set of facts:
"... the fair inference from the facts proved was that this money was advanced for a special purpose, and that being so closed with a specific trust, no property in it passed to the assignee of the bankrupt. Then the purpose having failed, there is an implied stipulation, that the money shall be repaid. That has been done in the present case ; and I am of opinion that that repayment was lawful...."
A quitclose trust fences-in and shields such property, usually money, having already been tendered, from creditors in the event that, for example the real estate deal it was to finance, collapses.
There are always moments between the extension of considerable monies to a borrower, and the moment when that money is applied in the purchase of real property. During that "no man's land" in time, albeit rarely, deals do collapse in which event, on the basis of fairness or equity, the borrower ought not to have its cash exposed or available to other persons or purposes. To protect the lenders in such situation, the Courts have created a new brand of trust for these instances alone, called quistclose trusts.
For some reason, jurists hesitate to call it a resulting trust although for all practical purposes, it is one. Instead, many pages of law books are written to distinguish quistclose trusts from resulting and constructive trusts such that it is taken as a unique member of the species of implied trusts.
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