Constructive Trust Flashcards
What is constructive trust?
Trust imposed by the court on the grounds of conscience without reference to the implied or presumed intention of any person
There are the five instances where constructive trust can be construed ?
What is the first instance?
- Where a stranger to the trust meddles with the trust property
What does equity regard a stranger that meddles with trust property as?
A trustee de son tort
What is the second instance where constructive trust can be construed?
A recipient of trust property from an express trustee
A recipient of a trust property from an express trustee wouldn’t hold the property as a constructive trust where?
If he proves he was a bonafide purchaser for value without notice of the trust
Third instances constructive trust can be construed
Any profit made by a trustee or other fiduciary in the execution of his duties
As regards the third instances who does he hold this constructive trust for ?
Beneficiary or other persons entitled
The 4th instance where constructive trust can be construed?
A mortgagee who is in the exercise of his power of sale sold the mortgaged property holds the property as a constructive trustee of any proceeds of dale left after paying to himself the amount of the loan plus interest and the costs of sale
The fifth instance?
A vendor of land hold the land in constructive trust for the purchaser between the signing of the contract of sale and the actual conveyance.
Constructive trust
Imposed by the court on what grounds?
On grounds of conscience without reference to the implied or presumed intention of any person
Instances where constructive trust can be construed?
Unauthorized profits by trustees and other fiduciaries
2.
Strangers receiving or meddling with trust property
3
Vendors of land after signing the contract of sale
4
Mortgages and mortgagors in certain situations
5
Acquisition of property by fraud
PROFITS MADE BY A TRUSTEE OF OTHER FIDUCIARY
When will a person in a fiduciary position be a constructive trust?
When he makes profits from the property entrusted to his care for the benefit of the person’s entitled to the property
Does this rule apply to trustees only?
No
Applies to fiduciaries
Fiduciaries like agent
Case?
De Bussche v Alt
Partners
Case?
Featherstanhough v Fenwick
Company directors
Case?
Selangor United Rivber Estates Ltd v Craddock
This principle is expressed in what case?
Bray v Ford
Dictum of LORD HERSCHELL
It is an inflexible rule of a court of equity that a person in a fiduciary position is not, unless otherwise expressly provided, entitled to make a profit, he is not allowed to put himself in a position where his interest and duty conflict
This type of constructive trustmay be considered under?
Renewal of lease
Incidental profits
RENEWAL OF LEASE
What is the leading case?
Keech v Sandford
Facts of the case?
Here the defendant was express trustee of the lease of a market for an infant. On the expiration of the lease, the defendant asked the lessor for a renewal on behalf of the infant. This the lessor refused to do, since the infant, because of his contractual incapacity, could not enter into the usual covenants. The lessor however had no objection to a renewal in Favour of the defendant personally; whereupon the latter took a renewal on his own benefit
What did the court hold?
Held that the defendant was a constructive trustee of the new lease for the infant
This rule in Keech v Sandford has been expressly applied in two Nigeria case namely?
Marques v Edematie
Ukatta v Emembo
Facts of Marques Edematie
Here the plaintiff father X, had been lessee of a plot of crown land at Warri. When X fixed in 1913 the plaintiff was an infant . After the death of X , the Commissioner of land , continued to accept rent from the plaintiff uncle Y and in 1944 granted a new lease to Y.
What was held
Held that after the death of C, Y became trustee of the property for the plaintiff and therefore Y was a constructive trustee of the new lease for the benefit of the plaintiff . He was accordingly ordered to assign the lease to the plaintiff and to account for all the profits
What was Ademola J in the case?
The present case is on all fours with Keech v Sandford … a trustee or executor or other person standing in a fiduciary position is not allowed to make a profit by the trust, either directly or indirectly. He is not allowed to put himself in a position where his duty and his interest conflict
Ukatta v Emembo
Here the defendant held a lease on a resulting trust in Favour of the plaintiff, and when the term expired he obtained a renewal in his own name
What was held
IDIGBE J held that the defendant was a constructive trustee of the new lease for the plaintiff, and he was ordered to assign it to him
What does the rule in Keech v Sandford
Trustees and other fiduciaries
It has been extended to?
Persons in non-fiduciary positions
The court will apply the rule to a non fiduciary person if
1?
He holds a special position in relation to the old lease
2.
He has abused that position
Case?
Re Biss
Facts ?
A shopkeeper who was holding under a yearly tenancy died intestate, leaving a widow and three children . His widow was appointed administratrix of his estate, and she carried on the business with the help of one of the sons. Her application to the lessor for a renewal of the lease was refused, whereupon the son applied and was granted it
What was held?
Held that he could keep the lease for his own benefit. He didn’t stand in a fiduciary position to the other persons entitled on intestacy, not had he abused his special position in the business
INCIDENT PROFITS
A person in a fiduciary position who acquires incident profits in carrying out of his duties?
Is a constructive trustees of those profits for the person or body towards whom he stands in the fiduciary position
What happens where a trustee use his trust shareholding to obtain a directorship?
A constructive trustee for the beneficiaries of the director’ fees he acquires
Cases?
Re Macadam
When can a promoter of a company be a constructive trustee?
Any secret commission given to him by a person selling property to the company which is being formed
Case?
Cluckstein v Barnes
A solicitor to a trust?
Accountable for any profits made by him through making use of exclusive knowledge gained by him in the course of employment
Case?
Boardman v Phipps
- STRANGERS RECEIVING OR INTERMEDDLING WITH TRUST PROPERTY
A stranger will be a be held to be a constructive trustee of a trust property where
1?
He received the property with actual or constructive notice that it is trust property and that the transfer to him is in breach of trust
2.
He received the property innocently but after subsequently acquiring notice that it is trust property he deals with it in a manner inconsistent with the trust
3
He doesn’t receive the property (a fortiori but knowingly assists the trustee in dealing fraudulently with it
Exceptions
1?
If the stranger is a bona fide purchaser for value of the trust property without notice of the trust
2.
If though not a purchaser for value , the stranger has no notice of the trust, he will be an ‘innocent volunteer’ and although he will be liable to restore the property if it is still in his possession , he will not be under any personal liability if he has parted with it
What happens if the property is money?
If the innocent volunteer has mixed it with his own money in his bank account , he has an equal claim with the beneficiaries
Case?
Re Diplock
For a stranger to be liable as a constructive trustee what must be proved?
Prove that he had actual or constructive notice that the property he received was trust property
- VENDOR OF LAND AS A CONSTRUCTIVE TRUSTEE
WHEN DOES A vendor become a constructive trustee of the land for the purchaser?
As soon as a binding specifically enforceable contract for the sale of land has been entered into
Case?
Lysaght v Edwards
What is the basis of this trusteeship?
The purchaser acquires an equitable interest in the land from the date of the contract, the legal estate remaining in the vendor until completion of conveyance
What duty does the vendor have
A trustee duty to take care of the property and he can also keep for his own benefit all rents and profits acquiring before the completion date
Until the purchase price has been paid what does the vendor do?
Retain possession against the purchaser as he has an equitable lien on the property for that amount
Case?
Ayorinde v Scott
What did LORD GREENE call the vendor?
A quasi trustee
Case?
Cumberland Consolidated Holdings Ltd v Ireland
Cotton Lj called him?
A trustee only in a qualified sense
Cases
Rayner v Preston
- Mortgagee and Mortgagors as constructive trustees
A constructive trust may arise from their relationship in
1?
A mortgagee who has exercised his power of sake is a constructive trustee for the mortgagor of any surplus which remains after the principal, interest and costs due to the mortgagee has been deducted
Statutes and sections?
S.21(3) Conveyancing Act 1881
S.127 P.C.L
Will a mortgagee be a constructive trustee if he sells at a lower price than he might have got?
he is not in the absence of fraud accountable to the mortgagor for the loss
Case?
Sabbach V Bank of West Africa
2.
A mortgagor who enters into possession of the land is a constructive trustee for the mortgagor of all rents and profits accruing from the property
Does he still remain a trustee even if he abandons possession??
Yes
Case?
Re Prytherch
3.
Where an equitable mortgage is created by deposit of title deeds , the mortgagor is a constructive trustee of the legal estate for the mortgagee, since the deposit of the deeds is evidence of an agreement to create a legal mortgage of which equity will grant specific performance
Case?
Russel v Russel
- Acquisition of property by fr fraud
What happens where a person has acquired property in consequence of his fraud in another?
He might be compelled to hold it as a constructive trust
