CONSTRUCTIVE TRUSTS Flashcards
What are constructive trusts?
- Express trusts are made by the settlor themselves when they effectively exercise their power of ownership to create a trust
- They are justified in that they respect the autonomy of settlors by recognising their intention to create a property right that is different from the limited set of property rights found in the LPA
- Trusts operated by law – the law itself creates the equitable title
- Constructive trusts are a kind of TOBL
- Beyond this, very little binds the categories of CT
Categories of constructive trusts
Anticipatory
Recipients of trust property transferred in breach of trust
Common intention
Residual category
Anticipatory constructive trust
- Re Rose: once a legal owner has done everything she is required to do to transfer the property, she holds it on trust for the transferee
- Application of the maxim equity looks upon that as done which ought to be done to contracts for sale; specific performance
- Applies to contracts that the parties on a path of transfer of property rights, but they will do so in two stages
i. Binding contract – exchange contracts
ii. Execution of documents that transfer the title – completion of the transferring of the title
- Applies to contracts that the parties on a path of transfer of property rights, but they will do so in two stages
Recipients of trust property transferred in breach of trust
- Dealing with recipients who are not bona fide purchasers (because they knew or should have known about the trust or because they got the trust property free). Equity pursues this kind of recipient, and there are proprietary and personal remedies against them
- Constructive trust is the name of the proprietary remedies that the beneficiary has against the recipient of trust property in breach of trust
- Not referring to a bona fide purchaser for value, who will get good title to the property (as they came with clean hands). When a trust is being breached so that the trustee transfers trust property into the hands of a third party against the terms of the trust, we have a recipient of trust property. The beneficiary can only try to get compensation or the payment from the trustee. The recipient is not going to be subject to any action in equity
Common intention
- Mainly family homes
- A response by equity to a common intention that a certain property will belong to both of them
- A better vehicle for achieving justice between cohabitants when the registration does not reflect the contribution made when building the home
Nature of the constructive trust
- It is not true that whenever there is a constructive trust the owner of the legal title will be the constructive trustee
- With every type of constructive trust, the duties of the owner of the legal title are going to be different, and the case law says different things
- Statutes have a lot to say about where the beneficial interest is and what the owner of the legal title has
- Sometimes, the CT is so empty that you cannot say that there is one
- If the beneficiary manages to show that there should be a constructive trust, they will be able to enjoy a set of remedies that are available only in equity (mostly tracing)
Is it true that whenever there is a constructive trust the owner of the legal title will be the constructive trustee?
NO
- Trustee – a trustee comes under fiduciary duties of the beneficiary; a fiduciary is not allowed to take care of their own interests
- The active duties of trustees do not come with constructive trusts
- Whoever owns the legal interest is not a trustee in the sense of an express trustee because they are not under any positive duty to take care of the property. They do not even have a fiduciary duty to only take decisions about the property in light of the interests of the beneficiary. They can promote their own interests when they make decisions
- The owner of the legal title is not the constructive trustee
Trusteeship and empty constructive trusts
Sometimes, the CT is so empty that you cannot say that there is one
Recipients of trust property à there is a parallel category of third parties who intervene in the trust (assistant to a breach of trust, with whom equity will pursue if they knew or ought to have known about the trust)
What happens if the beneficiary manages to show that there should be a constructive trust?
If the beneficiary manages to show that there should be a constructive trust, they will be able to enjoy a set of remedies that are available only in equity (mostly tracing)
- Will be crucial in insolvency situations
- The remedies equity is giving the beneficiary exceed the remedies that the common law would give someone in a parallel situation
- The law is less generous to victims of theft than to beneficiaries who have had their trust property taken away from them – generosity of equity makes the finding of a constructive trust desirable
Anticipatory constructive trust
What happens between signing and completion?
- It is not the case that the vendor holds the property on trust for the buyer – they can protect their own interests, possess and keep rents and profit
- Location of the equitable interest
- Lord Walker in Jerome v Kelly: “neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer … the seller is entitled to enjoyment of the land or its rental income” – the interest is split between the seller and the buyer for all kinds of purposes
- Kern Corp (Australian High Court): the vendor himself maintains a continuing beneficial interest in the land and is hence entitled to possession and use
- But there are all kinds of rights and drawbacks to being the buyer – there is only the property right that the title will be transferred to you on completion (even if the seller goes bankrupt)
- Beneficial interest should be with one person, although it could be conceptualised as split for the purpose of tax
is there an anticipatory constructive trust at all?
- Many think the answer is no (Swadling, Penner)
- The contract is binding in insolvency because it is specifically enforceable and not because there is a trust
- There is no fiduciary relationship because the seller is still benefiting from the property
- The sub purchaser can only sue the purchaser to force him to use
- Others (Peter Turner, Chambers) think that a trust which comprises of several equities responds to the plurality of events that may take place during the transitory stage
- The trust is describing a process – a series of equitable rights starting from contract and going down the path to completion where equity is ensuring that the buyer will hold the beneficiary and legal title
Pallant v Morgan Equity
FACTS
two neighbouring landowners orally agreed in the auction room that the plaintiff’s agent would refrain from bidding at auction and that the defendant, if his agent’s bid was successful, would divide the land according to an agreed formula. After acquiring the property, he refused to transfer the title
Pallant v Morgan
HELD
The agreement was incomplete in its detail and too uncertain to be specifically enforceable. But the plaintiff holds the property for both of them as a constructive trustee
Equity intervened because if two people have a common intention to a property and one party relied on the understanding of the common intention to their detriment, equity will assist them
Even though the agreement cannot be enforced, the disruption will not be seen as serious enough to get the parties off the path
The legal owner of the land holds the land on trust for the other party because they relief to their detriment
Pallant v Morgan
Possible justification
The plaintiff relied to his detriment on the defendant’s word – common intention
The joint venture agreement created fiduciary relationship
Common intention + joint ventures
The interpretation of the intervention of equity is much different