Tracing and other equitable remedies MCQs Flashcards
In breach of trust, a trustee misappropriates £10,000 of the trust fund. They use £5,000 of the money to pay off the mortgage debt they incurred when they purchased their house. They use the other £5,000 to pay a debt they incurred when they purchased their car. They purchased the house and the car five years before their appointment as a trustee.
Which statement best describes the beneficiary’s rights?
The beneficiary can trace into the car.
The beneficiary can be subrogated to the rights of the mortgagee.
The beneficiary can trace into the house and the car.
The beneficiary only has a personal claim against the trustee.
The beneficiary can trace into the house.
The beneficiary can be subrogated to the rights of the mortgagee.
The beneficiary can assume (by subrogation) the rights of the mortgagee immediately before the receipt of the £5,000. Thus, the beneficiary can recover £5,000 from the trustee and, if the trustee is unable to pay, can enforce the mortgage.
A person is the trustee of two trusts, Trust A and Trust B. In breach of trust they misappropriate £5,000 from each trust. They use the £10,000 to purchase a painting. The seller of the painting does not know that the buyer is a trustee or that they have misapplied trust funds. The painting is currently worth £8,000. The seller still has the £10,000 they were paid for the painting.
Which statement best describes the beneficiaries’ rights?
The beneficiaries of Trust A and Trust B can claim a proportionate share of the painting.
The beneficiary of Trust B can assert a lien over the painting to secure payment of £5,000.
The beneficiaries of Trust A and Trust B can only make personal claims against the trustee.
The beneficiaries of Trust A and Trust B can claim the £10,000 from the seller of the painting.
The beneficiary of Trust A can assert a lien over the painting to secure payment of £5,000.
The beneficiaries of Trust A and Trust B can claim a proportionate share of the painting.
Where an asset is purchased with money misapplied from two or more trusts, the beneficiaries of the respective trusts can claim a proportionate share of the asset.
In breach of trust, a trustee misappropriates £5,000 of the trust fund. The trustee uses the trust money and £5,000 of their own money to purchase a painting for £10,000. The seller of the painting does not know that the buyer is a trustee or that they have misapplied the trust fund. The seller still has the £10,000 they were paid for the painting.
Which statement best describes the beneficiary’s rights?
The beneficiary can only make a personal claim against the trustee.
The beneficiary can claim the misapplied trust money from the seller of the painting.
The beneficiary can assert a lien over the painting.
The beneficiary can claim a proportionate share of the painting.
The beneficiary can claim a proportionate share of the painting or assert a lien over it.
The beneficiary can claim a proportionate share of the painting or assert a lien over it.
Where a trustee uses misapplied trust money and their own money to purchase an asset, the beneficiary can elect between a proportionate ownership claim or a security claim.
In breach of trust, a trustee misappropriates £5,000 of the trust fund. The trustee pays the money into their personal current account (‘the Account’) which already contains £10,000 of the trustee’s own money. The trustee withdraws £5,000 from the Account and dissipates it. The trustee then withdraws £5,000 from the Account and uses it to purchase shares. Finally, they withdraw £5,000 from the Account and use it to purchase a painting.
The shares are currently worth £15,000 and the painting is currently worth £20,000. The trustee is bankrupt.
Which statement best describes the beneficiary’s position?
The beneficiary cannot trace into any asset.
The beneficiary can trace into the shares and the painting.
The beneficiary can trace into the shares.
The beneficiary can only make a personal claim against the trustee.
The beneficiary can trace into the painting.
The beneficiary can trace into the shares.
The trustee mixed misapplied trust money with their own money. The trustee is bankrupt and, as a result, the beneficiary is competing with the trustee’s unsecured creditors. In these circumstances the beneficiary can attribute any part of the mixed fund which was dissipated to the trustee. But the beneficiary cannot attribute the misapplied trust money to the most profitable applications of the mixed fund.
