Constructive Trusts + Secret Trusts Flashcards
What is a CT?
Express trusts are where a settlor expresses power to declare over their property, resulting trusts govern what happens if that fails or it is not made clear how property should be held.
CT is everything else.
Anticipatory CT
- 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
- Vendor-purchaser CT – application of the maxim ‘Equity looks upon that as done which ought to be done’ – to contracts for sale; aka specific performance
Why do we have the VPCT
Protects both parties in contracts for sale.
Based on the idea that there’s a gap between agreement to transfer assets, and the actual transfer.
Seller holds legal title but buyer gets equitable title.
Frenkel v LA Micro Group
Beneficiary disposed of its entire beneficial interest orally, one party argued that this was not in signed writing.
Held: When the parties entered into an oral agreement, they believed this was enough, and the act that it was not in writing or signed did not prevent it from taking effect as a VPCT arised - since equity would have granted specific performance. Because it is a CT, s53(2) operates.
A constructive trust can exist even as a momentary VCPT, and can bestow more than just ‘buyer’s protection’ on the parties.
The fact that the VCPT had added benefit was no reason to deny the availability of the VCPT.
Pallant v Morgan
Two landowners orally agreed that P’s agent would not bid at auction, and that D, if his agent was successful, would divide their land.
Held: Agreement was incomplete in detail and too uncertain to be specifically enforceable, but the plaintiff holds it on CT.
Generator - application of Pallant
Property developer argued it had a Pallant v Morgan equity, as had been negotiating joint venture with a company, who then went ahead and bought without them.
Held: Pallant principles apply in same way as proprietary estoppel - assurance, reliance, detriment. In Cobbe, no prop estoppel where parties know they aren’t legally bound and are working at arms-length in commercial contracts.
It was also subject to contract, and there was no assurance or expectation that Generator would acquire an interest, nor was there reliance.
CTs as a result of fraud
Defrauded party has right to rescind, fraudster only holds property on CT once rescission happens.
Equity upgrades remedy to a proprietary one, giving C advantage in insolvency + ability to trace.
Angove
Facts: Agency relationship where D&D bought wines and sold them on Angove’s behalf in the UK. Agency terminated, but D&D argued they could still collect on outstanding invoices. Angove argued that they revoked D&D’s authority, and the moneys held by D&D (collected before revoking) were on CT for them.
Held: D&D’s agency was revoked, but money not held on CT.
In an agency relationship, CT only arises where there is fraud or the payer’s intention is vitiated in another way eg breach of duty.
Without these, no CT even if agent knows at the time they are insolvent.
Remedial CT
Type of CT in which courts give discretionary remedy for breaches of obligations or to acknowledge rights.
Comes into existence when court declares it but has effect retroactively.
FHR v Cedar: RCT is not part of the law of the UK.
Webb Article
- Courts have exercised discretion in many other constructive trust cases, eg FHR v Cedar, Pennington v Waine
- Whenever a court makes a CT law, its decision involves an exercise of discretion
Thus, for RCTs to do something new, they would need to be a rejection of rules-based decision-making, which would result in zero precedent which is bad as we should treat like cases in a like manner. - So there appears to be a consensus in favour of institutional (traditional) constructive trusts, whilst RCTs seem to favour more loosely-framed, open rules.
Wills Act
S1 - Definitions
S7 - Only for over 18s
S9 - Strict requirements for valid will
S11 - Exceptions for soldiers or seamen
S20 - No will to be revoked except by another will or codicil, or by destruction
S21 - No alteration of will unless executed in form of a will
Secret Trusts
A is testator, and C promises to A that he will hold the property on trust for B.
C acts as trustee for B.
Needs intention of A, communication of that intention to C, and acceptance by C
Fully secret trusts
Property given in will to C absolutely, without mention of any trust, but during the testator’s lifetime, the agreement is made.
Identity of beneficiaries and existence of trust are kept secret. This exists to protect secret families and illegitimate children.
Half ST: Blackwell v Blackwell
Will gave 12k to 5 people to invest and apply for purposes indicated by me to them.
Deceased gave detailed oral instructions to C, one of the five, and all 5 knew and accepted his intentions before the will.
On same day will signed, C signs memorandum specifying identity of the beneficiaries, B1 and B2.
Held: C holds on trust for intended beneficiaries.
Why not RT to A’s estate? Held: C cannot defraud beneficiaries for whom he has consented to act by keeping the money for himself.
HST are inter vivos but don’t take effect until death, hence outside the wills act.
Re Snowden
Standard of proof to establish a secret trust is the same as standard of proof for a conventional trust - no special will formalities.
Why? They operate outside the will, changing nothing within it, and allow it to operate with true meaning.
What issue can we have with this? Any informal testamentary disposition is outside the will, but there is a reason we don’t effect these. ST are testamentary dispositions, which s9 of the Wills Act should apply to.
Pragmatic reason for enforcing HSTs
Blackwell: In both FST and HST, the testator’s wishes are incompletely expressed in his will. Why should equity, over a mere matter of words, give effect to them in some cases and frustrate them in the other.
Key difference in timing: HSTs vs FSTs
FST: Communication of existence and terms of trust must be before the settlor’s death.
HST: Details of trust must be communicated to trustee and accepted by him/her, before or at the same time as execution of the will. It may be enough if C has exclusive access to the info before will is made, eg a sealed envelope which they must not open until testator’s death.
Explaining the time difference in HSTs: incorporation by reference
Where a will refers to a document existing when the will is executed, that document becomes part of the will, but needs to be in existence before or at the time of the will.
Matthews - The rule in half-secret trusts regarding time of expression or communication of the trusts is an extension of the rule.
Re Freud
Fully secret trust found, since the gift was not said to be a ‘beneficial’ gift, and was made to them by name alone, without any reference to the fact that they were a solicitor.
No mention of trust, and discerning his intention it appeared clear he intended them to take personally rather than as trustees, so there was no trust on the face of the will and it was in truth, a fully secret trust.
Banner v Luff
Pallant v Morgan equity found.
Informal agreement that neither party would bid on a plot of land.
D did so, P argued he held it on trust for both of them.
Held: Situations where Pallant equity will be found:
- An arrangement in which one party may acquire an interest which will be shared.
- Failure to warn non-acquiring party that the acquiring party no longer intended to honour arrangement
- In reliance on the arrangement, non-acquiring party does something that advantages the acquiring party or detriments non-acquiring party’s ability to buy the property.
Re Polly Peck
No remedial constructive trust in the insolvency context
Hussey v Palmer
Common Intention CT:
Mother paid for extension in daughter’s house while living there.
She moves out, claims property right.
Held: It was not a gift, it would be unconscientious for daughter to keep the money without a property right arising.
Why not RT? Lord Denning said this is a matter of name and they operate similarly, but Purchase Money RTs can sometimes be unconscionable, as it divvies up financial contributions so a man may get most or all of the property sometimes.
