Sinclair v Brougham
| Sinclair v Brougham | |
|---|---|
.svg) |
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| Court | House of Lords |
| Citation(s) | [1914] AC 398 |
| Court membership | |
| Judge(s) sitting |
Viscount Haldane LC Lord Dunedin Lord Atkinson Lord Parker Lord Sumner |
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Overruled by
|
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| Westdeutsche Landesbank Girozentrale v Islington LBC [1996] | |
| Keywords | |
| Ultra vires, money had and received | |
Sinclair v Brougham [1914] AC 398 is an English trusts law case, concerning the right of depositors to recover sums which were deposited (or loaned) to a building society under contracts of deposit which were beyond the powers of (ultra vires) the building society.
The Birkbeck Permanent Benefit Society was formed under the Building Societies Act 1836, but was never registered under the Building Societies Act 1874. Under rule 35 of the Society’s constitution it was allowed to borrow money. Rule 97 said that losses should be shared among the two classes of shareholders in different proportions. From the start it developed a banking business, the Birkbeck Bank, but this was wound up in 1911. The four groups of creditors were (1) A shareholders who would be repaid on maturity, (2) B shareholders who had permanent shares (3) trade creditors and (4) depositors. The trade creditors and the A shareholders had their claims settled by an agreement. The liquidator brought an action to determine the others' rights, given that technically, if the contracts for deposits were void, the depositors had no straight forward personal claim.
Neville J held that rule 35 was not a question of the Society's capacity, but it was a power and the power to borrow had to be for proper purposes. The whole banking business was ultra vires and so the bank's depositors could recover nothing. In the Court of Appeal, Lord Cozens-Hardy MR, Buckley LJ held the depositors would be paid last, after the shareholders. Fletcher Moulton LJ dissented.
The House of Lords held that the bank's actions had been ultra vires and void, and that there was no possibility for the depositors to recover under quasi-contract. An implied contract, as that was, would necessarily be void as well, and thus circumvent the point of saying that the deposit contracts were ultra vires and void in the first place. But instead, given that the depositors must plainly be paid back above the shareholders, an equity was created to give them a first claim. Lord Dunedin, "Is English equity to retire defeated from the task which other systems of equity have conquered? No."
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