Constructive Trusts

Constructive Trusts:Trusts which arise through the operation of law (TABOLs). There are imposed by the law, creating an equitable title for the beneficiaries in the property.The settlor’s interests are often irrelevant in the creation of a TABOL, the law considers them to be implied as opposed to express (or declared). Westdeutsche Landesbank v Islington: trusts imposed by law by reason of the trustee's unconscionable conduct. Paragon Finance: arises where it would be unconscionable for the owner of the property to assert his own beneficial interest and deny the interest of another. Dubai Aluminium: equity gives relief in fraud by making an implicated person sufficiently accountable through imposing a constructive trust even if he is not at trustee at all, he is accountable as if he were. Rochefoucauld v Boustead: Dutchess had an estate which was in financial difficulty. Her manager offered to buy the land and hold it on trust for her. He later claimed there was no formal or written proof of the trust. Held, it would be unconscionable for the courts to allow him to deny her interest and so a constructive trust was found. S53(2) LPA 1925: This section does not affect the creation or operation of resulting, implied or constructive trusts.

Anticipatory Constructive Trusts/ Specifically Enforceable Contracts:“equity looks upon that as done which ought to be done”: equity will treat the vendor as having transferred the title to land to the buyer the moment the time for completion under the contract arrives (as long as the purchaser is able to pay). The vendor therefore holds the land on constructive trust for the buyer until legal title is transferred.  Lysaght v Edwards: Contract for the sale of land; seller died before the full sale and the property passed to another through the will. Held, if there is a valid contract for sale, the vendor becomes trustee for the puchaser and the beneficial ownership passes through to the purchaser. Oughtred v IRC: Mother had life interest in shares which passed to son after she died. She wanted complete interest and so exchanged her son's interest with some other shares. S53 requires the dispostion of a trust to be made in writing. Although full legal title can only be transferred via instrument, the son’s equitable interest must have passed under the transfer of the legal estate by the trustees.Neville v Wilson: family company in which all shares were held on trusts. Another company was purchased and these shares were also held on trust. The family's company was later dissolved and the interest in the shares was given up, but, formality rules were not complied to. Held, the oral agreement created a constructive trust therefore the formality rules need not apply. 

Third Party Interests:  If trustee transfers legal title to property in breach of trust to a third-party recipient who is not a bona fide purchaser, the equitable title will remain the beneficiary’s. The third party never intended to hold the property, thus he cannot be an express trustee. He is therefore a constructive trustee.Binions v Evans: Widow was assured by old husband's company that she could remain in their cottage. The property was sold upon knowledge of her occupancy but the purchasers attempted to remove her. Held, a third-party constructive trust was imposed upon upon the plaintiff as it would be unequitable to deny the widow's interest. Lyus: Lyus agreed to buy a plot on a housing estate that was being developed provided that the plot would be transferred to the purchasers when the developer had completed the building of a house on the plot. The developer sold the housing estate (including the plot) to Prowsa Developments. Held, the plot was held on constructive trust for Lyus; the mutual intention underlying the clause was to create something like an express declaration of trust.Chaudhary: Chaudhary paid for a metal structure giving access to the first floor of his and his neighbour's properties. Nothing was in writing, however.  He attempted to get his neighbour to sign a formal document was to no avail and the owner sold the property to Mr Yavuz. Because Chaudhary did not enter the notice on the register Yavuz refused to allow him access to the metal staircase. The court found that whilst there may be exceptional situations where it might be unconscionable for a purchaser not to be bound by 3rd party rights, this was not one of them.

Crime Prevention: Re Crippen (Deceased): Crippen was a doctor whom had murdered his wife and was consequently hung. His estate which had been inherited from his wife, went to his mistress. Held, criminals could not benefit from their crime, although the mistress was a third party, she could not benefit from the estate. Dunbar v Plant: woman was accused of stealing from her employer and attempted to commit suicide, her fiancée had made a suicide pact with her and consequently died. She inherited his estate under his will as a third party she sould be a  constructive trustee. Held, under the Forfeiture Act 1982, she could still inherit as the crime had not been for gain (she could not benefit from his life insurance). 

Institutional and Remedial Constructive Trusts:English Law only has Institutional constructive trusts, although Lord Denning claimed that there was a "new model" which could be applied as a remedy. Harley v Palmer: woman sold house, daughter and husband agreed to allow her to stay if she paid for extension for her to live in. Denning claimed there was a "new model" of constructive trust which is imposed whenever justice and good conscience require it. Eves v Eves: woman and man bought house under man's name. When she later took his name for her own Denning decided that it would be unconscionable to deny her interest, thus a constructive trust was found. "Equity is not past the age of childbearing"Re Polly Peck (2): Claimants alleged that their land had been taken from them. However, you cannot grant a proprietary right to A who had no right beforehand without taking a right from B. No English court can do this, therefore constructive trusts are not entirely discretionary.Springette v Defoe: Court does not have discretion as a man on the street would do, therefore constructive trusts cannot be remedial in English law (although it would be helpful). Palm tree justice/ discretionary justice cannot exist.  Westdeutsche Landesbank v Islington: Remedial constructive trusts would provide a satisfactory road forward, innocent third parties would not be prejudiced and the remedy can be tailored to the circumstances. Thorner v Major: Although uncle did not expressly state that his nephew could inherit his farm, Lord Scott claimed that the dealings could establish some level of unconscionability which should potentially give rise to a remedial constructive trust (which are distinct from proprietary estoppal).  Sinclair Investments: Whether a proprietary interest exists or not is a matter of law and should not be discretionary nor remedial. 

Cohabitation and Common Intention Constructive Trusts: Married couples can only end marriage by death or divorce, the court has discretion over deciding who gets what (White v White: the courts aim for the "yardstick of equality"). If one is married but cohabiting, they do not gain the same legal rights as married couples. Parties must have a common interest in order for the courts to establish beneficial ownership i.e. there must be a common intention to share ownership of the property, thus creating a constructive trust.  Pettitt v Pettitt: Former husband claimed to have a share in the family home based upon improvement she had made upon the home. The presumption of advancement between husband and wife had reduced in significance, although as he had contributed to the purchase price he had a small beneficial interest. Gissing v Gissing: common intention and detrimental reliance is required for a constructive trust. Lloyd's Bank v Rosset: House was bought in husband's name, in the absence of express and implied evidence, direct contributions to the purchase price will justify a constructive trust due to common intention to share the property beneficially. IOxley v Hiscock: Each is entitled to a share which the court considers to be fair in regard to the whole course of the dealings (including factors other than financial contributions). Stack v Dowden: Stack and Dowden were unmarried and bought a new house in which Dowden paid more of the purchase price and mortgage- their finances were separate throughout. There is a presumption of equality on beneficial ownership. Equity follows the law ∴ sole legal ownership = sole beneficial ownership. Intention can be actual, inferred or imputed.  The onus of proof is upon the person seeking to show the beneficial ownership is different from the legal ownership.A holistic approach is taken in determining this onus, but unlike Oxley, only relevant conduct is considered e.g. discussions during the transfer, reasons why the home is in the name it is, the nature of their relationship, how finance and expenses were arranged and mortgage. Here, Dowden had a larger beneficial interest. In Stack v Dowden the quantification of each's interest was the issue, however, in cases where there is joint legal and beneficial ownership, the question is what was the parties intention as opposed to what was the extent of their beneficial interest.Abbott v Abbott:  Married couple bought a plot of land in husband's sole name and he accidentally accepted her beneficial interest which means there is an imputed common intention to share ownership.  Was it intended that the parties should share beneficial interest? If it was intended, in what proportions was it intended?  James v Thomas: James lived in a cottage Thomas owned and to which he provided general expenses. As there was no express agreement, James had no intention from her and Thomas' the conduct alone.Fowler v Barron: Barron paid for the mortgage and house and Fowler provided for the children. Barron claimed he intended to keep the house for himself, joint ownership was only an insurance upon his death. Held, a secret intention did not affect a common intention to share and so the presumption of equity at Law could not be rebutted. Jones v Kernott: K and J cohabited and had two children together, K  later abandoned J whom met all mortgage and other payments. Jones sought a declaration that she was the sole beneficial owner of the family home although she had earlier accepted that K was entitled to a one half beneficial interest in the property. Held, there was evidence of an actual change in the parties’ intentions; when a co-habiting couple buy a family home in joint names but do not declare the nature of the co-ownership there is a presumption of a beneficial joint tenancy, this can be rebutted if there is evidence to show either that they had a different common intention at the time of acquisition or that they subsequently reached a different common intention. The common intention is to be deduced objectively from the parties’ conduct (‘the whole course of dealing’). If: (a) it is clear that the parties formed a different common intention either at the time of acquisition or subsequently(b) it is not possible to find an express or inferred agreement (common intention) then the parties are entitled to the ‘share which the court [honestly] considers just having regard to the whole course of dealing between them in relation to the property.’Aspden v Elvy: Aspden purchased a Farm as sole proprietor after which he and Elvy began cohabitating. After they broke up, Aspden transferred the Barn to Elvy. The barn was converted and both sides had a financial and work input. Aspden claimed to have paid the majority of the sum. It was held the Barn was held by Elvy on shares of 75% to her and 25% to the claimant, there had not been express discussions about the Aspden acquiring an interest in the property and that the common intention of the parties (objectively ascertained) during their whole course of dealing was that Aspden should only acquire a small interest. 

Business Context:Laskar v Laskar: mother wanted to buy the property of which she was the tenant and one of her daughters agreed to provide part of the price. The property was held by them as joint tenants at law- there were no discussions as to beneficial ownership and the parties accepted joint responsibility under the mortgage. The Court of Appeal (Neuberger LJ) held that the parties were equitable tenants in common. The property had been bought as an investment even though the parties were mother and daughter. Where the co-owned land has been acquired as an investment (even by parties who are family members) either the Stack presumption does not apply or it can be readily departed from.Geary v Rankine: Rankine purchased a guesthouse without mortgage, entirely with his own funds. It was managed by Rankine and later Geary also became involved. The parties separated and Geary claimed beneficial interest in the buisness. The business accounts were drawn on the basis that Rankine was a sole trader, they showed no evidence of sharing of profits, no joint bank account and the business had carried on for a period of many months when the parties had separated,Geary was not a partner. In an extreme case conduct could override express intention, but he did not find the conduct in this case to override the parties' express intention. The burden fell upon Geary to establish a "common intention constructive trust".  Two exceptions exist:  where there is a presumption of resulting trust, which may arise where the partners are business partners as well as domestic partners where it is clear that the beneficial interests are to be shared but it is impossible to divide the proportions. In this case, as the property was registered in Rankine's : firstly the claimant has to demonstrate that she should have any interest in the property at all and the level of that interest then fell to be determined. 

Agreements and Declaration of Trust:Gallarotti v Sebastoanelli: The parties purchased a flat with the aid of a mortgage and a cash contribution from each of them. Sebastianelli paid more and the property was transferred into his sole name. The parties had expressly agreed that they would each have a 50% interest in the flat, notwithstanding their unequal contributions and that Gallarotti would pay a larger proportion of the mortgage. Held, the parties could not possibly have intended that the agreement as to equal shares should apply in circumstances where Gallarotti had not made the promised contributions towards the mortgage, it was unlikely that Sebastianelli mean to make a substantial gift.Pankhanua: The claimant and defendant were nephew and aunt, they co-owned a property which had  been under an express declaration of trust that the parties held the property as tenants in common in equal shares. The question was whether a contrary intention to joint beneficial ownership could be inferred. He held that the claimant had never acquired a beneficial interest in the property based on a number of findings as to the parties' intentions. Because there was an express declaration, there was no need for the imposition of a constructive or common intention trust.

Reform:Law Commisison, Cohabitation, 2007: Cohabitants should not have the same rights as married couples or civil partners as there are varying degrees of commitment and interdependence. 

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