Topic 3 - Resulting Trusts

Question 1

Constructive trusts

Answer 1

o Raised by operation of law rather than express declaration and treated as if trusts

o Examples
1. Breach of fiduciary duty and unauthorised gain or advantage taken
 FHR European Ventures v Cedar Capital Partners
o Trust obligations were to buy someone a hotel – bought a hotel for cheaper and put the rest into his own pocket
o Constructive trust was imposed contrary to his intentions

2. Strangers who intermeddle in a trust
    Dishonest assistance and knowing receipt
3. Preventing benefit from a homicide
    Re Crippen
   o Murdered his wife so he could benefit from her property – gained legal title to property but was held on constructive trust for whoever would have benefitted in his absence
   o Cannot benefit from your own crime
4. Specifically enforceable contract to sell property
    Lysaght v Edwards
   o Beneficial interest ahead of own contract
5. Mutual Wills
    Re Dale
   o 2 or more people agree not to change their wills – it is left to benefit each other
   o Constructive trust will be imposed to ensure they do not change the will
6. Acquisition of land expressly subject to the interests of a third party
    Binions v Evans
7. Common intention to share the ownership of land
    CICTs

o The Role of Intention
o Traditionally said that constructive trusts are imposed contrary to the intention
o Whereas resulting trusts imposed in accordance with intention

Question 2

Resulting trusts

Answer 2

o Resulting Trust – trustee holding property for beneficiary – the beneficiary is the settlor as the trust results back to who owned the property to begin with

o Dyer v Dyer
 Equitable ownership ‘results to the man who advances the purchase money’ – if provide the money, the law considers you a beneficiary

o Two types:
1. PRESUMED RESULTING TRUSTS
2. AUTOMATIC RESULTING TRUSTS

Question 3

Presumed resulting trusts - voluntary conveyances

Answer 3

o Where property is transferred for no consideration (i.e. it is a gift)
o Rebuttable presumption that the transferee holds the property on resulting trust for the transferor
o Transferee = trustee (legal title)
o Transferor = beneficiary (equitable title)

o Re Vinogradoff
 Joint tenancy so upon death of one of co-owners, legal ownership accrues to remaining co-owner.
 Mrs V transferred War Stock worth £800 to herself and her 4-yo granddaughter
 Granddaughter said it was a gift to her and since grandmother is dead, all ownership accrues to her. If it was a resulting trust it would be held on trust and would go to next of kin.
 Mrs V took all income of War Stock throughout her life, this would be consistent of it being a trust not a gift, if it was a gift the two of them would have shared it.
 Court decided Mrs V and granddaughter held the money on trust for Mrs V and so Mrs V had all beneficial interest

Question 4

Presumed resulting trusts - land

Answer 4

o Law of Property Act 1925, s60(3)
 In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantor
 Legislation purports to oust the presumption of resulting trust for land
o Courts have interpreted the legislation to NOT oust the presumption
 Hodgson v Marks

Question 5

Presumed resulting trusts - purchase money resulting trust

Answer 5

o Dyer v Dyer
 If property is purchased in the name of a third party, or multiple purchasers contribute, the equitable ownership is in the proportion of the purchase price paid

o Abrahams v Trustee in Bankruptcy of Abrahams
 Concerned informal national lottery syndicate.
 Basic rules that everyone paid in a pound and syndicate bought 15 tickets with the £15 they got. No express rules about how winnings were to be shared. Presumed that it would be shared equally between members of the syndicate. Record keeping was good as to who paid their money.
 Mr and Mrs A were 2 of 15 participants. Marriage not going too well and Mrs A had an affair. Mr A stopped going to the local pub and stopped provided his subscription money to syndicate. Mrs A started paying her husband’s subscriptions.
 Is this a gift to Mr A or a loan to Mr A? Is anything in Mr A’s name on resulting trust for Mrs A?
 Mrs Wells asked Mr A to pay a £10 debt for the 10 weeks that Mrs A had paid for him.
 Judge held that Mrs A was entitled to conclude she was never going to see the lottery money and she never asked him for lottery money again. Mrs A carried on paying £2 a week for both her and Mr A. There were no rules to prevent this. Syndicate won £3.6 million.
 Do Mr and Mrs A get money each or does Mr A get nothing and Mrs A gets his share as well? Court said any legal title in Mr A’s name from lottery win was held on resulting trust for whoever supplied the money (Mrs A). There was a presumed resulting trust and nothing to rebut it.

Question 6

Presumed resulting trusts - the presumption of advancement

Answer 6

o Has the opposite effect to presumption of resulting trust – a GIFT is presumed
 Tinsley v Milligan
* Gift presumed when it is between:
o Husband to wife
o Husband to children
o Husband to others whom he is loco parentis
 Bennet v Bennet
* Includes persons taking on the duty of being in loco parentis – mothers to children
o Can NEVER apply to
 Wife to husband, Wife to wife, Husband to husband, Cohabiting equivalents
o Equality Act 2010, s199 (1): Abolition
 Act abolishing the presumption of advancement still not in force yet
o Judicial Reform?
 Nelson v Nelson
* No basis for distinguishing between mother and father for gifts to children – law changed in Australia
 Bosanac v Commissioner of Taxation
* Australia High Court suggested this should extend to wife to husband as well
* Just obiter so has not altered the law
 Stack v Dowden; Pettitt v Pettitt
* Presumption weak nowadays as they derived from wealth and social norms of 19th Century and earlier

Question 7

Presumed resulting trusts - rebutting the presumption on facts

Answer 7

o Both presumption of resulting trust and presumption of advancement are rebuttable on the facts – if the transferor intended something inconsistent with the presumption raised, it will be rebutted

 Fowkes v Pascoe
* Sarah bought annuities with own money and put them in joint legal names of herself and Pascoe (daughter-in-law’s son).
* Does not raise presumption of advancement as no direct family link. Instead raise presumption of resulting trust.
* Pascoe holds it on trust for her and she gets 100% of the gift. Baker was a woman of considerable fortune. Pascoe was living in her house and she was providing for his support.
* Sarah had also bought a similar investment in joint names of her and a lady living with her as companion – had no familial connections.
* Why would she put these in her name if she had no intention to have ownership in equity? Was presumed to be a resulting trust

 Warren v Gurney
* Gurney was father and bought house with own money. Put it in the name of his daughter. This raises presumption of advancement.
* Father retained title deeds (unregistered land so this was used to prove title). Judge said if a gift were intended why did the father not hand over the title deeds?
* Father also made later declaration of wishes – wanted house to be divided amongst his 3 daughters. Later declarations of intention are treated with less weight. The evidence of the son was that his father was still making up his mind about destination of his wealth at time of purchase as there were clear intentions he wished to retain ownership of the house.
* The facts delivered an intention of the father to not make a gift – it rebutted the presumption of advancement which meant there was a resulting trust

 Westdeutsche Landesbank Girozentrale v Islington Borough Council
* Evidence of any intention inconsistent with a trust is enough to rebut
* Payment of loan from bank to local council was inconsistent with council holding it on resulting trust for them so was rebutted

 Shephard v Cartright
* The gift or trust takes place at time of the transfer – cannot change mind later (looking for donor’s intention at the time not later)

Question 8

Illegality and Resulting trusts

Answer 8

o OLD LAW
 If resulting trust arose because of an illegal purpose, one could not adduce evidence of their own illegal conduct to rebut the presumptions
 Tinsley v Milligan
* Couple both provided money to purchase family home but legal title placed only in one name so other could continue to claim benefits
* Couple split and person not on legal title wanted her share of money contributed – presumption of advancement does not apply as this was wife to wife
* Presumption of resulting trust does apply making Tinsley a trustee for them both – meaning Milligan would get her money back
* Can adduce this was not a gift – but due to illegal purpose cannot adduce intention
* Presumptions became very different as it was a homosexual couple – had they been heterosexual married couple and the legal title was in the man’s name, the outcome would have been different – this is sexist and arbitrary

o ATTEMPT OF AN EXCEPTION
 Tribe v Tribe
* Exception for where you can adduce evidence from illegal purpose
* Father planned to transfer shares to his son to hide them from creditors – illegal purpose
* Son refused to give them back.
* Court said since creditors were aware of the transfer, it was not illegal purpose and so was a resulting trust

o NEW LAW
 Patel v Mirza
* Tribe ‘reliance principle’ was rejected in favour of multifactorial approach
* Claim will not be accepted if would damage the integrity of the law considering:
o Underlying purpose of the prohibition
o Any other relevant public policies which may be regarded ineffective or less effective by denial of the claim
o The possibility of overkill unless the law is applied with a due sense of proportionality
* Made it very rare for claims to be barred for illegality

Question 9

What are automatic resulting trusts?

Answer 9

o What happens when the conditions for an express trust to be valid are not met

Question 10

Automatic resulting trusts - failure of certainty of intention

Answer 10

o If there is no certainty of intention to create a trust, there is no trust
o If a settlor fails to self-declare a trust, he remains the owner of the property
o If there had been a transfer of property to the would-be trustee, there is no trust but an absolute transfer (a gift)

Question 11

Automatic resulting trusts - failure of certainty of subject matter

Answer 11

o If the property cannot be ascertained, there is no trust and ownership remains with the settlor
o If the beneficiaries’ individual shares cannot be identified, the transferred property is held on resulting trust for the settlor (or deceased testator’s estate)

Question 12

Automatic resulting trusts - failure of certainty of objects

Answer 12

o If a fixed or discretionary trust fails as there is no certainty of object, the transferred property is held on resulting trust
o If a fiduciary power fails for certainty of objects, the transferred is held for the recipient of the gift over absolutely

Question 13

Automatic resulting trusts - other logic

Answer 13

o The trustee cannot keep the property if a trust is intended, because a trustee must not benefit from the trust
 Keech v Sandford
o A beneficiary cannot benefit from the trust since the trust has failed
 Vandervell v IRC
o Failed trusts (where there is still certainty of intention to create a trust) result back to the settlor for an inter vivos trust or the residuary beneficiary for a testamentary trust

Question 14

Automatic resulting trusts - examples of initial failure of express trust

Answer 14

o Re Ames’ Settlement
 Marriage invalid so marriage settlement trust invalid – no certainty of object
o Air Jamaica v Charlton
 Pension trust infringed perpetuity rule – exceeded period = invalid express trust
 Cannot give to beneficiaries as trust is not valid – goes back on resulting trust to settlor

Question 15

Automatic resulting trust - subsequent failure of express trust

Answer 15

o A trust may be valid, but later becomes impossible to perform
o Re Gillingham Bus Disaster Fund
 Memorial fund created for victims of bus crash
 Trustees spent some of it but left with surplus – applied to court for directions of what to do with money
1. Could go to resulting trust to donors
2. Could go to Crown
 CofA said presumption of resulting trust means that if money has nowhere to go it goes back to the settlor (donors) not the Crown
o Re Osoba
 Settlor created a will trust for daughter – appointed widow as trustee of will providing sum of money for maintenance of daughter up to university. Widow then died
 Daughter finished university – left surplus in fund
 If trust failed, money would have gone back to the settlor (because he is dead it would be his estate and then would be distributed according to will)
 However maintenance of daughter read as more of a motive – infers intention of the settlor that all money be spent on the beneficiary (daughter keeps money)

Question 16

Trusts and insolvency

Answer 16

o Since trust property is NOT, in equity, owned by the trustee, if the trustee is insolvent, then the trustee’s creditors cannot access the trust property in the insolvency process
* Makes trusts highly desirable
o Re Kayford
* Training company took customers payments and put them on trust. Only when dispatched the goods did they transfer the money into account. Went insolvent.
* Although money in general account could be used to pay off debts, the customers money on trust account was held on benefit for all the customers so that they got their money back – insolvency of trustee does not affect ownership of trust property

Question 17

The equitable proprietary claim and the bona fide purchase defence

Answer 17

o If the trust property is wrongly retained by the trustee, the beneficiary can claim against any third party the trust is passed to
o The exception is where the recipient has a defence – if the recipient is a bona fide purchaser of the legal estate for value without notice of trust interest, then the claim is barred
o All elements must be made out:
* Recipient must but the legal title
* Must act in good faith
* Must have given value in return(consideration i.e. money)
* Must not know, or not to be taken to have known, about the trust interest (breach of trust or fiduciary duty)
o Bona fide = genuine

Question 18

Presumption of trust or presumption of non-beneficial transfer?

Answer 18

o What is a presumption?
* Fact is proved by presumption – the burden lies on the other party to adduce evidence to rebut the presumption
o Money paid under a void contract
* Westdeutsche Landesbank Girozentrale v Islington London Borough Council
o Islington took a loan. This was beyond powers of the council. Local councils are not allowed to invest in investment banks. This made the contract void and the contract had to be rescinded – council had to pay back bank with interest. Bank wanted compound interest as this would reflect their actual loss. Argued that money was held on resulting trust for the bank so should get money back with compound interest
o Money paid by mistake
* Chase Manhattan Bank NA v Israel-British Bank
o Owed bank money. Paid them back and then paid them back again. This was an error. Can claim back but this is a personal claim not a property claim. Bank went insolvent. Chase Manhattan only got back a small fraction of mistake payment. When made mistake, there was a presumption of resulting trust meaning they could claim money back as property given to others who were owned money
o William Swadling
* The presumption that a trust is intended is unlikely to be the true intention of most settlors
* It was proposed that a more realistic intention to be presumed was one merely not to benefit the recipient – the presumption should be of non-beneficial transfer (Birks)
o Meant anything inconsistent with a presumption will rebut it
o Conventional presumption of RT – anything other than trust (so gift, loan etc) rebuts RT
o Birks’ presumption – Only beneficial transfer (gift) would rebut RT
o Made it harder to rebut presumption of RT
o Also money paid under a mistake or pursuant to a void contract would be subject to a proprietary claim, thus taking priority in the insolvency of the recipient and attracting compound interest
* House of Lords rejected this proposal (Westdeutsche Landesbank Girozentrale v Islington London Borough Council)
o Equity’s reliance on unconscionability means that trysts arise when the conscience of the person is affected (they have at least notice of the trust)
o However the recipients did not know if these issues
o Took conventional RT approach – no resulting trust