Re Kayford Ltd [1975] 1 WLR 279

Key point

An express trust for advance payments for goods can be created by actions of the creditor

Customers of a company paid for goods advance of delivery
The company had had problems meeting orders and was advised by accountants to set up a special bank account to hold customers’ payment to allow for repayment to customers in the event the company went into liquidation
The company went into liquidation and the liquidators sought summons to determine whether money was held on trust for customers

The advance payments were held on express trust declared by the company for the customers

No doubt the general rule is that if you send money to a company for goods which are not delivered, you are merely a creditor of the company unless a trust has been created
The lender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money
Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust

No Quistclose trust as there is no specified purpose when the customers pay over their money
The case shows that lenders can create an express trust for money advanced rather than relying on the uncertain doctrine of Quistclose trust